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Tucows Reports Continuing Strong Financial Results for Fourth Quarter of 2015
Globe Newswire
Record Fourth Quarter EPS of $0.29 Contributes to an 82% Increase in 2015 EPS to $1.04

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 
  1. 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)

 RevenueCost 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 Service21,38321,60917,86018,079
Value-Added Services2,296 2,305498531
Total Wholesale23,67923,91418,35818,610
Retail3,3022,8061,5031,216
Portfolio757917189241
Total Domain Services27,73827,63720,05020,067
Network Access Services 17,29311,1669,1886,755
Network, other costs--1,3261,127
Network, depreciation and amortization costs--353171
Total revenue/cost of revenue45,03138,80330,91728,120

“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 (http://tucows.com).

 Tucows  Inc.
 
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  11,040,929   11,764,765  
Property and equipment  7,126,676   1,609,787  
Deferred tax asset, long-term portion  4,377,374   4,880,423  
Intangible assets  14,469,677   14,202,585  
Goodwill  21,005,143   18,873,127  
Total assets $129,130,679  $ 125,795,866  
      
      
Liabilities and Stockholders' Equity     
      
Current liabilities:     
Accounts payable $  4,166,135  $  3,579,920  
Accrued liabilities  5,855,686   3,941,549  
Customer deposits  5,136,909   4,461,727  
Derivative instrument liability  2,027,086   1,115,805  
Deferred rent, current portion  19,463   -  
Loan payable, current portion  3,500,000   -  
Deferred revenue, current portion  56,646,390   55,495,566  
Accreditation fees payable, current portion  465,300   466,201  
Income taxes payable  444,053   473,480  
Total current liabilities  78,261,022   69,534,248  
      
Derivative instrument liability, long-term portion  -   -  
Deferred revenue, long-term portion  14,947,639   15,610,753  
Accreditation fees payable, long-term portion  118,480   128,243  
Deferred rent, long-term portion  100,864   92,878  
Other liabilities  1,459,960   -  
Deferred tax liability, long-term portion  4,876,691   4,787,351  
      
Redeemable non-controlling interest  3,036,598   -  
      
Stockholders' equity:     
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  

 

 Tucows  Inc.   
 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 

 

 Tucows  Inc.   
 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

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