Tucows Reports Continuing Strong Financial Results for Fourth Quarter of 2015
Record Fourth Quarter EPS of $0.29 Contributes to an 82% Increase in 2015 EPS to $1.04
February 09, 2016: 04:05 PM ET
TORONTO, Feb. 09, 2016 (GLOBE NEWSWIRE) -- Tucows Inc. (NASDAQ:TCX) (TSX:TC), a provider of network access, domain names and other Internet services, today reported its financial results for the fourth quarter ended December 31, 2015. All figures are in U.S. dollars.
Summary Financial Results (In Thousands of US Dollars, Except Per Share Data)
3 Months Ended December 31, 2015 (unaudited)
3 Months Ended December 31, 2014 (unaudited)
12 Months Ended December 31, 2015 (unaudited)
12 Months Ended December 31, 2014
Net revenue
45,031
38,803
172,939
147,667
Adjusted EBITDA1
6,313
3,531
25,595
15,040
Net income
3,095
1,859
11,374
6,374
Net earnings per common share
$
0.29
$
0.16
$
1.04
$
0.57
Net cash provided by operating activities
1,475
2,767
13,432
8,877
This Non-GAAP financial measure is described below and reconciled to GAAP net income in the accompanying table.
Summary of Revenues and Cost of Revenues (In Thousands of US Dollars)
Revenue
Cost of Revenue
3 Months Ended December 31, 2015 (unaudited)
3 Months Ended December 31, 2014 (unaudited)
3 Months Ended December 31, 2015 (unaudited)
3 Months Ended December 31, 2014 (unaudited)
Domain Services
Wholesale
OpenSRS Domain Service
21,383
21,609
17,860
18,079
Value-Added Services
2,296
2,305
498
531
Total Wholesale
23,679
23,914
18,358
18,610
Retail
3,302
2,806
1,503
1,216
Portfolio
757
917
189
241
Total Domain Services
27,738
27,637
20,050
20,067
Network Access Services
17,293
11,166
9,188
6,755
Network, other costs
-
-
1,326
1,127
Network, depreciation and amortization costs
-
-
353
171
Total revenue/cost of revenue
45,031
38,803
30,917
28,120
“The fourth quarter marked a strong finish to a year that saw record performance across all of our key financial metrics,” said Elliot Noss, President and Chief Executive Officer, Tucows Inc. “Fourth quarter revenue topped $45 million, bringing our total for the year to $173 million – up 17% from 2014. Our growing Network Access business contributed to 79% and 70% year-over-year Adjusted EBITDA growth for the quarter and the year, totalling $6.3 million and $25.6 million, respectively. Earnings per share for fourth quarter and the year grew 81% and 82%, respectively, from the prior year to $0.29 and $1.04.”
“Notably, for the first time, Network Access contributed more gross margin during the quarter than Domain Services, with Network Access gross margin for 2015 nearly doubling from the prior year as the number of Ting Mobile accounts and devices expanded by 36% and 37%, respectively, over the course of the year.”
“Our strong cash flows from operations, alongside the operating leverage in our business model, particularly with the success and growth in Ting Mobile over the past few years, are now enabling us to pursue our ambitions on Ting Internet, while still returning capital to shareholders. During 2015, we invested $23.6 million in the repurchase of 1.1 million of our shares through our Dutch tender and open market buyback program.”
Net revenue for the fourth quarter of 2015 increased 16% to $45.0 million from $38.8 million for the fourth quarter of 2014.
Adjusted EBITDA1 for the fourth quarter of 2015 increased 79% to $6.3 million from $3.5 million for the fourth quarter of 2014. Net income for the fourth quarter of 2015 increased to $3.1 million, or $0.29 per share, compared with $1.9 million, or $0.16 per share, for the fourth quarter of 2014.
Cash and cash equivalents at the end of the fourth quarter of 2015 were $7.7 million compared with $11.9 million at the end of the third quarter of 2015 and $8.3 million at the end of the fourth quarter of 2014. The decrease relative to the third quarter of 2015 is primarily the result of the Company’s use of $5.4 million during the fourth quarter of 2015 to repurchase 231,047 shares of its common stock under its ongoing share buyback program, the use of $1.3 million for withholding taxes paid on the net-exercise of stock options and the use of $0.9 million to acquire additional property and equipment, the majority of which was invested in expanding Ting Internet’s fiber footprint. These were partially offset by a $2 million excess tax benefit on share-based compensation expense and the generation of cash flow from operating activities during the quarter of $1.5 million.
NOTES:
1. Adjusted EBITDA
Tucows reports all financial information required in accordance with United States generally accepted accounting principles (GAAP). Along with this information, to assist financial statement users in an assessment of our historical performance and to project our future earnings and cash flows, we typically disclose and discuss a non-GAAP financial measure, Adjusted EBITDA, on investor conference calls and related events that exclude non-cash and other charges as we believe that the non-GAAP information enhances investors’ overall understanding of our financial performance and the comparability of our operating results from period to period.
Adjusted EBITDA is one of the primary measures we use for planning and budgeting purposes, incentive compensation and to monitor and evaluate our financial and operating results. Since adjusted EBITDA is a non-GAAP financial performance measure, our calculation of adjusted EBITDA may be susceptible to varying calculations; may not be comparable to other similarly titled measures of other companies; and should not be considered in isolation, as a substitute for, or superior to measures of financial performance prepared in accordance with GAAP. Because Adjusted EBITDA is calculated before recurring cash charges, including interest expense and taxes, and is not adjusted for capital expenditures or other recurring cash requirements of the business, it should not be considered as a measure of discretionary cash available to invest in the growth of the business. See the Consolidated Statements of Cash Flows included in the attached financial statements. Non-GAAP financial measures do not reflect a comprehensive system of accounting, differ from GAAP measures with the same captions and may differ from non-GAAP financial measures with the same or similar captions that are used by other companies and/or analysts and may differ from period to period. However, the Company's management compensates for these limitations by providing the relevant disclosure of the items excluded in the calculation of adjusted EBITDA to net income based on U.S. GAAP, which should be considered when evaluating the Company's results. Tucows strongly encourages investors to review its financial information in its entirety and not to rely on a single financial measure.
Adjusted EBITDA excludes depreciation expense, amortization of intangibles, income tax provision, interest expense, interest income, stock-based compensation, asset impairment, net deferred revenue, which comprises the change in deferred revenue, net of prepaid domain name registry and other Internet services fees, to reflect the material amount of cash we collect and pay for domain registrations and other Internet services at the time of activation, unrealized foreign exchange gain/loss from the translation of monetary accounts denominated in non U.S. dollars to U.S. dollars as well as the revaluation of foreign exchange contracts and our foreign denominated assets and liabilities and infrequently occurring items listed in the itemized reconciliations between GAAP and non-GAAP financial measures included in this press release.
Conference Call Tucows management will host a conference call today, Tuesday, February 9, 2016 at 5:00 p.m. (ET) to discuss the Company’s fourth quarter 2015 results. Participants can access the conference call by dialing 1-888-231-8191 or 647-427-7450 or via the Internet at http://www.tucows.com/investors.
For those unable to participate in the conference call at the scheduled time, it will be archived for replay both by telephone and via the Internet beginning approximately one hour following completion of the call. To access the archived conference call by telephone, dial 416-849-0833 or 1-855-859-2056 and enter the passcode 26560817 followed by the pound key. The telephone replay will be available until Tuesday, February 16, 2016 at midnight. To access the archived conference call as an MP3 via the Internet, go to http://www.tucows.com/investors.
About Tucows Tucows is a provider of network access, domain names and other Internet services. Ting (https://ting.com) delivers mobile phone service and fixed Internet access with outstanding customer support. OpenSRS (http://opensrs.com) manages over thirteen million domain names and millions of value-added services through a global reseller network of over 13,000 web hosts and ISPs. Hover (http://hover.com) makes it easy for individuals and small businesses to manage their domain names and email addresses. More information can be found on Tucows’ corporate website (//tucows.com).
TucowsInc.
Consolidated Balance Sheets
(Dollar amounts in U.S. dollars)
December 31,
December 31,
2015
2014
(unaudited)
Assets
Current assets:
Cash and cash equivalents
$
7,723,253
$
8,271,377
Accounts receivable
7,171,388
6,789,685
Inventory
903,775
393,774
Prepaid expenses and deposits
5,067,790
3,697,292
Prepaid domain name registry and ancillary services fees, current portion
44,708,041
44,614,858
Other assets
-
8,199,000
Deferred tax asset, current portion
3,243,718
2,498,196
Income taxes recoverable
2,292,915
997
Total current assets
71,110,880
74,465,179
Prepaid domain name registry and ancillary services fees, long-term portion
Preferred stock - no par value, 1,250,000 shares authorized; none issued and outstanding
-
-
Common stock - no par value, 250,000,000 shares authorized;10,685,599 shares issued and outstanding as of December 31, 2015 and 11,329,732 shares issued and outstanding as of December 31, 2014
14,530,633
14,130,059
Additional paid-in capital
8,526,395
29,090,058
Deficit
4,381,849
(6,955,283
)
Accumulated other comprehensive income (loss)
(1,109,452
)
(622,441
)
Total stockholders' equity
26,329,425
35,642,393
Total liabilities and stockholders' equity
$
129,130,679
$
125,795,866
TucowsInc.
Consolidated Statements of Operations
(Dollar amounts in U.S. dollars)
Three months ended December 31,
Year ended December 31,
2015
2014
2015
2014
(unaudited)
(unaudited)
Net revenues
$
45,030,537
$
38,802,529
$
172,939,499
$
147,667,107
Cost of revenues:
Cost of revenues
29,238,042
26,822,484
113,089,970
101,861,002
Network expenses (*)
1,326,564
1,126,779
5,464,777
4,554,635
Depreciation of property and equipment
341,252
170,714
1,144,989
699,670
Amortization of intangible assets
11,532
-
38,520
-
Total cost of revenues
30,917,390
28,119,977
119,738,256
107,115,307
Gross profit
14,113,147
10,682,552
53,201,243
40,551,800
Expenses:
Sales and marketing (*)
5,150,010
4,016,364
18,537,810
15,394,065
Technical operations and development (*)
1,097,793
1,067,149
4,502,845
4,305,715
General and administrative (*) (note 1)
2,835,544
2,499,025
10,661,949
9,459,008
Depreciation of property and equipment
74,233
58,905
259,307
226,432
Amortization of intangible assets
56,997
51,330
224,206
596,620
Impairment of indefinite life intangible assets
137,268
-
206,116
577,145
Loss on currency forward contracts
110,912
137,855
792,900
357,760
Total expenses
9,462,757
7,830,628
35,185,133
30,916,745
Income from operations
4,650,390
2,851,924
18,016,110
9,635,055
Other income (expenses):
Interest expense, net
87,983
(51
)
(73,153
)
(206,730
)
Total other income (expenses)
87,983
(51
)
(73,153
)
(206,730
)
Income before provision for income taxes
4,738,373
2,851,873
17,942,957
9,428,325
Provision for income taxes
1,643,038
992,703
6,569,227
3,054,229
Net income
3,095,335
1,859,170
11,373,730
6,374,096
Redeemable non-controlling interest
(121,759
)
-
(284,509
)
-
Net (earnings) loss attributable to redeemable non-controlling interest
121,759
-
284,509
-
Net income
3,095,335
1,859,170
11,373,730
6,374,096
Other comprehensive income (loss), net of tax
Unrealized loss on hedging activities
(308,217
)
(401,214
)
(2,031,465
)
(1,004,115
)
Net amount reclassified to earnings
392,095
188,762
1,544,454
626,655
Other comprehensive income (loss) net of tax of $46,286 and $110,668 for the three months ended December 31, 2015 and December 31, 2014 and $287,994 and $196,623 for the year ended December 31, 2015 and December 31, 2014
83,878
(212,452
)
(487,011
)
(377,460
)
Comprehensive income, net of tax for the period
$
3,179,213
$
1,646,718
$
10,886,719
$
5,996,636
Basic earnings per common share
$
0.29
$
0.16
$
1.04
$
0.57
Shares used in computing basic earnings per common share
10,704,251
11,310,469
10,968,500
11,220,874
Diluted earnings per common share
$
0.28
$
0.16
$
1.00
$
0.54
Shares used in computing diluted earnings per common share
11,034,147
11,763,744
11,360,084
11,730,398
(*) Stock-based compensation has been included in expenses as follows:
Network expenses
$
6,651
$
8,541
$
28,915
$
30,938
Sales and marketing
$
43,627
$
39,074
$
188,035
$
143,514
Technical operations and development
$
26,593
$
26,536
$
111,239
$
85,904
General and administrative
$
70,926
$
51,541
$
197,836
$
282,382
TucowsInc.
Consolidated Statements of Cash Flows
(Dollar amounts in U.S. dollars)
Three months ended December 31,
Year ended December 31,
2015
2014
2015
2014
Cash provided by:
(unaudited)
(unaudited)
Operating activities:
Net income for the period
$
3,095,335
$
1,859,170
$
11,373,730
$
6,374,096
Items not involving cash:
Depreciation of property and equipment
415,485
229,619
1,404,296
926,102
Amortization of intangible assets
68,529
51,330
262,726
596,620
Impairment of indefinite life intangible asset
137,268
-
206,116
577,145
Deferred income taxes recovery
1,154,115
(276,779
)
134,861
(1,084,470
)
Excess tax benefits from share-based compensation expense
-
250,555
-
-
Amortization of deferred rent
9,532
2,687
27,449
16,899
Disposal of domain names
3,515
7,301
24,066
26,878
Loss on change in the fair value of forward contracts
(24,118
)
30,633
136,276
50,624
Stock-based compensation
147,797
125,692
526,025
542,738
Change in non-cash operating working capital:
Accounts receivable
774,701
125,005
(220,188
)
(1,484,282
)
Inventory
(161,315
)
(2,748
)
(442,806
)
(84,088
)
Prepaid expenses and deposits
(389,949
)
624,939
(1,282,054
)
611,747
Prepaid domain name registry and ancillary services fees
2,699,524
1,516,718
630,653
(331,453
)
Income taxes recoverable
(4,256,771
)
718,357
(2,321,345
)
(75,744
)
Accounts payable
47,353
21,490
249,931
1,152,042
Accrued liabilities
173,903
(1,016,351
)
1,691,356
28,515
Customer deposits
421,959
392,395
675,182
(39,219
)
Deferred revenue
(2,819,673
)
(1,871,865
)
366,273
1,088,083
Accreditation fees payable
(22,089
)
(20,711
)
(10,664
)
(14,889
)
Net cash provided by operating activities
1,475,101
2,767,437
13,431,883
8,877,344
Financing activities:
Proceeds received on exercise of stock options
65,766
93,108
803,135
1,478,924
Payment of tax obligations resulting from net exercise of stock options
(1,306,981
)
-
(1,306,981
)
-
Excess tax benefits from share-based compensation expense
2,030,225
133,422
3,431,018
1,888,734
Repurchase of common stock
(5,437,110
)
-
(23,616,286
)
(1,181,857
)
Proceeds received on loan payable
-
-
3,500,000
-
Repayment of loan payable
-
-
-
(6,300,000
)
Net cash (used in) provided by financing activities
(4,648,100
)
226,530
(17,189,114
)
(4,114,199
)
Investing activities:
Additions to property and equipment
(916,236
)
(112,836
)
(2,967,360
)
(711,656
)
Acquisition of other assets
-
(8,199,000
)
-
(8,199,000
)
Gross proceeds from the waiver of rights to .online registry
(85,872
)
-
6,533,960
-
Additional cost of acquisition of Ting Virginia, LLC., net of cash of $21,423
-
-
(357,493
)
-
Net cash (used in) provided by investing activities
(1,002,108
)
(8,311,836
)
3,209,107
(8,910,656
)
Decrease in cash and cash equivalents
(4,175,107
)
(5,317,869
)
(548,124
)
(4,147,511
)
Cash and cash equivalents, beginning of period
11,898,360
13,589,246
8,271,377
12,418,888
Cash and cash equivalents, end of period
$
7,723,253
$
8,271,377
$
7,723,253
$
8,271,377
Supplemental cash flow information:
Interest paid
$
46,126
$
143
$
173,197
$
207,777
Income taxes paid, net
$
592,798
$
447,071
$
3,132,105
$
2,172,047
Supplementary disclosure of non-cash investing activity:
Property and equipment acquired during the period not yet paid for
$
63,499
$
66,397
$
63,499
$
66,397
Tucows Inc.
Reconciliation of Net income to Adjusted EBITDA
(In Thousands of US Dollars)
Three months ended December 31,
Year ended December 31,
2015
2014
2015
2014
(unaudited)
(unaudited)
Net income for the period
$
3,095
$
1,859
$
11,374
$
6,374
Depreciation of property and equipment
415
230
1,404
927
Amortization of intangible assets
69
51
263
596
Impairment of indefinite life intangible assets
137
-
206
577
Interest expense, net
(88
)
-
73
206
Provision for income taxes
1,643
993
6,570
3,055
Change in net deferred revenue 1
(97
)
(320
)
1,084
863
Stock-based compensation
148
126
526
543
Loss on currency forward contracts
991
592
4,095
1,899
Adjusted EBITDA
$
6,313
$
3,531
$
25,595
$
15,040
(1) Net deferred revenue comprises the change in deferred revenue, net of prepaid domain name registry and other Internet services fees, to reflect the material amount of cash we collect and pay for domain registrations and other Internet services at the time of activation. Net deferred revenue for the year ended December 31, 2015, includes a benefit of $0.1 million as a result of the translation of deferred revenue and prepaid domain name registry and other Internet services fees to our reporting currency of US dollars.
This release includes forward-looking statements as that term is defined in the U.S. Private Securities Litigation Reform Act of 1995 including statements regarding our expectations regarding our future financial results and, in particular, our expectations for Ting and its impact on our financial performance. These statements are based on management’s current expectations and are subject to a number of uncertainties and risks that could cause actual results to differ materially from those described in the forward-looking statements, including the acceptance of Ting in the market. Information about other potential factors that could affect Tucows’ business, results of operations and financial condition is included in the Risk Factors sections of Tucows’ filings with the Securities and Exchange Commission. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. All forward-looking statements are based on information available to Tucows as of the date they are made. Tucows assumes no obligation to update any forward-looking statements, except as may be required by law.
TUCOWS® is a registered trademark of Tucows Inc. or its subsidiaries. All other trademarks and service marks are the properties of their respective owners.
Contact:
Lawrence Chamberlain
NATIONAL Equicom
(416) 848-1457
lchamberlain@national.ca