TORONTO, Nov. 5, 2015 (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 third quarter ended September 30, 2015. All figures are in U.S. dollars.
Summary Financial Results
(In Thousands of US Dollars, Except Per Share Data)
|
3 Months Ended September 30, 2015 (unaudited) |
3 Months Ended September 30, 2014 (unaudited) |
9 Months Ended September 30, 2015 (unaudited) |
9 Months Ended September 30, 2014 (unaudited) |
|
| Net revenue | 44,552 | 38,874 | 127,909 | 108,865 |
| Adjusted EBITDA1 | 7,030 | 4,920 | 19,280 | 11,509 |
| Net income2 | 3,159 | 2,691 | 8,278 | 4,515 |
| Net earnings per common share | $0.29 | $0.24 | $0.75 | $0.40 |
| Net cash provided by operating activities | 6,783 | 5,014 | 11,957 | 6,110 |
1. This Non-GAAP financial measure is described below and reconciled to GAAP net income in the accompanying table.
2. As the Company expects to exceed its adjusted EBITDA target set for Fiscal 2015 under its overachievement bonus program, net income for the three and nine months ended September 30, 2015 include a provision of $0.2 million and $1.1 million, respectively, to recognize this higher performance.
Summary of Revenues and Cost of Revenues
(In Thousands of US Dollars)
| Revenue | Cost of Revenue | |||
|
|
3 Months Ended September 30, 2015 (unaudited) |
3 Months Ended September 30, 2014 (unaudited) |
3 Months Ended September 30, 2015 (unaudited) |
3 Months Ended September 30, 2014 (unaudited) |
| Domain Services | ||||
| Wholesale | ||||
| OpenSRS Domain Service | 21,137 | 21,880 | 17,613 | 18,230 |
| Value-Added Services | 2,405 | 2,350 | 357 | 576 |
| Total Wholesale | 23,542 | 24,230 | 17,970 | 18,806 |
| Retail | 3,154 | 2,687 | 1,427 | 1,197 |
| Portfolio | 1,315 | 2,2083 | 172 | 189 |
| Total Domain Services | 28,011 | 29,125 | 19,569 | 20,192 |
| Network Access Services | 16,541 | 9,749 | 9,211 | 5,794 |
| Network, other costs | -- | -- | 1,421 | 1,139 |
| Network, depreciation and amortization costs | -- | -- | 336 | 172 |
| Total revenue/cost of revenue | 44,552 | 38,874 | 30,537 | 27,297 |
3. Portfolio revenue for Q3 2014 includes the net amounts received from the previously announced confidential arrangements related to the Company's withdrawal of its application under the ICANN New gTLD Program for .group.
"Continuing solid performance from our Domains business and increasing contribution from Ting Mobile resulted in a record quarter for both revenue and adjusted EBITDA1," said Elliot Noss, President and Chief Executive Officer, Tucows Inc. "The operating leverage in our business model contributed to 43% year-over-year growth in adjusted EBITDA for the quarter to a record $7.0 million, bringing our total for the first nine months of the year to $19.3 million, representing 68% growth from the same period last year and well above our total for all of 2014."
Mr. Noss added, "We remain committed to returning to capital to our shareholders as we pursue sustainable long-term growth and during the third quarter invested nearly $10.0 million in the repurchase of our shares through our buyback program."
Net revenue for the third quarter of 2015 increased 15% to $44.6 million from $38.9 million for the third quarter of 2014.
Adjusted EBITDA1 for the third quarter of 2015 increased 43% to $7.0 million from $4.9 million for the third quarter of 2014. Net income for the third quarter of 2015 increased to $3.2 million, or $0.29 per share, compared with $2.7 million, or $0.24 per share, for the third quarter of 2014.
Cash and cash equivalents at the end of the third quarter of 2015 were $11.9 million compared with $15.3 million at the end of the second quarter of 2015 and $13.6 million at the end of the third quarter of 2014. The decrease relative to the second quarter of 2015 is primarily the result of the Company's use of $10.0 million during the third quarter of this year to repurchase 398,000 shares of its common stock under its ongoing share buyback program, as well as $0.7 million to acquire additional property and equipment, the majority of which was investment in expanding Ting Internet's fiber footprint. These were partially offset by the generation of cash flow from operating activities during the quarter of $6.8 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, Thursday, November 5, 2015 at 5:00 p.m. (ET) to discuss the Company's third 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 61908554 followed by the pound key. The telephone replay will be available until Thursday, November 12, 2015 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).
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.
| Tucows Inc. | ||
| Consolidated Balance Sheets | ||
| (Dollar amounts in U.S. dollars) | ||
| September 30, | December 31, | |
| 2015 | 2014 | |
| (unaudited) | ||
| Assets | ||
| Current assets: | ||
| Cash and cash equivalents | $ 11,898,360 | $ 8,271,377 |
| Accounts receivable | 7,946,089 | 6,789,685 |
| Inventory | 742,460 | 393,774 |
| Prepaid expenses and deposits | 4,677,841 | 3,697,292 |
| Prepaid domain name registry and ancillary services fees, current portion | 47,060,627 | 44,614,858 |
| Other assets | -- | 8,199,000 |
| Deferred tax asset, current portion | 3,767,702 | 2,498,196 |
| Income taxes recoverable | 15,611 | 997 |
| Total current assets | 76,108,690 | 74,465,179 |
| Prepaid domain name registry and ancillary services fees, long-term portion | 11,387,867 | 11,764,765 |
| Property and equipment | 6,472,226 | 1,609,787 |
| Deferred tax asset, long-term portion | 5,151,914 | 4,880,423 |
| Intangible assets | 14,678,989 | 14,202,585 |
| Goodwill | 21,005,143 | 18,873,127 |
| Total assets | $ 134,804,829 | $ 125,795,866 |
| Liabilities and Stockholders' Equity | ||
| Current liabilities: | ||
| Accounts payable | $ 3,965,083 | $ 3,579,920 |
| Accrued liabilities | 5,681,783 | 3,941,549 |
| Customer deposits | 4,714,950 | 4,461,727 |
| Derivative instrument liability | 2,005,634 | 1,115,805 |
| Deferred rent, current portion | 15,139 | -- |
| Loan payable, current portion | 3,500,000 | -- |
| Deferred revenue, current portion | 59,077,575 | 55,495,566 |
| Accreditation fees payable, current portion | 485,491 | 466,201 |
| Income taxes payable | 2,423,520 | 473,480 |
| Total current liabilities | 81,869,175 | 69,534,248 |
| Derivative instrument liability, long-term portion | 175,734 | -- |
| Deferred revenue, long-term portion | 15,336,127 | 15,610,753 |
| Accreditation fees payable, long-term portion | 120,378 | 128,243 |
| Deferred rent, long-term portion | 95,656 | 92,878 |
| Other liabilities | 1,545,832 | -- |
| Deferred tax liability, long-term portion | 4,974,814 | 4,787,351 |
| Redeemable non-controlling interest | 3,024,349 | -- |
| 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;10,727,380 shares issued and outstanding as of September 30, 2015 and 11,329,732 shares issued and outstanding as of December 31, 2014 | 14,160,189 | 14,130,059 |
| Additional paid-in capital | 13,397,142 | 29,090,058 |
| Deficit | 1,298,763 | (6,955,283) |
| Accumulated other comprehensive income (loss) | (1,193,330) | (622,441) |
| Total stockholders' equity | 27,662,764 | 35,642,393 |
| Total liabilities and stockholders' equity | $ 134,804,829 | $ 125,795,866 |
| Tucows Inc. | ||||
| Consolidated Statements of Operations | ||||
| (Dollar amounts in U.S. dollars) | ||||
| Three months ended September 30, | Nine months ended September 30, | |||
| 2015 | 2014 | 2015 | 2014 | |
| (unaudited) | (unaudited) | |||
| Net revenues | $ 44,551,909 | $ 38,874,183 | $ 127,908,962 | $ 108,864,578 |
| Cost of revenues: | ||||
| Cost of revenues | 28,779,882 | 25,985,875 | 83,851,928 | 75,038,518 |
| Network expenses (*) | 1,421,279 | 1,139,515 | 4,138,213 | 3,427,856 |
| Depreciation of property and equipment | 324,166 | 172,019 | 803,737 | 528,956 |
| Amortization of intangible assets | 11,532 | -- | 26,988 | -- |
| Total cost of revenues | 30,536,859 | 27,297,409 | 88,820,866 | 78,995,330 |
| Gross profit | 14,015,050 | 11,576,774 | 39,088,096 | 29,869,248 |
| Expenses: | ||||
| Sales and marketing (*) | 4,740,662 | 3,593,486 | 13,387,800 | 11,377,701 |
| Technical operations and development (*) | 1,101,581 | 1,041,136 | 3,405,052 | 3,238,566 |
| General and administrative (*) (note 1) | 2,607,916 | 2,727,626 | 7,826,405 | 6,959,984 |
| Depreciation of property and equipment | 63,790 | 58,685 | 185,074 | 167,527 |
| Amortization of intangible assets | 56,997 | 107,230 | 167,209 | 545,290 |
| Impairment of indefinite life intangible assets | 18,550 | -- | 68,848 | 577,145 |
| Loss on currency forward contracts | 352,738 | 150,227 | 681,988 | 219,904 |
| Total expenses | 8,942,234 | 7,678,390 | 25,722,376 | 23,086,117 |
| Income from operations | 5,072,816 | 3,898,384 | 13,365,720 | 6,783,131 |
| Other income (expenses): | ||||
| Interest expense, net | (78,959) | (63,498) | (161,136) | (206,679) |
| Total other income (expenses) | (78,959) | (63,498) | (161,136) | (206,679) |
| Income before provision for income taxes | 4,993,857 | 3,834,886 | 13,204,584 | 6,576,452 |
| Provision for income taxes | 1,834,400 | 1,143,981 | 4,926,189 | 2,061,526 |
| Net income | 3,159,457 | 2,690,905 | 8,278,395 | 4,514,926 |
| Redeemable non-controlling interest | (91,283) | -- | (162,750) | -- |
| Net (earnings) loss attributable to redeemable non-controlling interest | 91,283 | -- | 162,750 | -- |
| Net income | 3,159,457 | 2,690,905 | 8,278,395 | 4,514,926 |
| Other comprehensive income (loss), net of tax | ||||
| Unrealized loss on hedging activities | (724,336) | (437,519) | (1,723,248) | (602,901) |
| Net amount reclassified to earnings | 364,330 | 57,701 | 1,152,359 | 437,893 |
| Other comprehensive income (loss) net of tax of $198,664 and $197,852 for the three months ended September 30, 2015 and September 30, 2014 and $334,280 and $85,955 for the nine months ended September 30, 2015 and September 30, 2014 | (360,006) | (379,818) | (570,889) | (165,008) |
| Comprehensive income, net of tax for the period | $ 2,799,451 | $ 2,311,087 | $ 7,707,506 | $ 4,349,918 |
| Basic earnings per common share | $ 0.29 | $ 0.24 | $ 0.75 | $ 0.40 |
| Shares used in computing basic earnings per common share | 10,984,869 | 11,321,175 | 11,057,634 | 11,190,684 |
| Diluted earnings per common share | $ 0.28 | $ 0.23 | $ 0.72 | $ 0.39 |
| Shares used in computing diluted earnings per common share | 11,372,682 | 11,787,749 | 11,469,657 | 11,718,910 |
| (*) Stock-based compensation has been included in expenses as follows: | ||||
| Network expenses | $ 7,221 | $ 6,600 | $ 22,264 | $ 22,397 |
| Sales and marketing | $ 45,385 | $ 37,637 | $ 144,408 | $ 104,440 |
| Technical operations and development | $ 27,364 | $ 22,716 | $ 84,646 | $ 59,368 |
| General and administrative | $48,605 | $ 163,759 | $ 126,910 | $ 230,841 |
| Tucows Inc. | ||||
| Consolidated Statements of Cash Flows | ||||
| (Dollar amounts in U.S. dollars) | ||||
| Three months ended September 30, | Nine months ended September 30, | |||
| 2015 | 2014 | 2015 | 2014 | |
| Cash provided by: | (unaudited) | (unaudited) | ||
| Operating activities: | ||||
| Net income for the period | $ 3,159,457 | $ 2,690,905 | $ 8,278,395 | $ 4,514,926 |
| Items not involving cash: | ||||
| Depreciation of property and equipment | 387,956 | 230,704 | 988,811 | 696,483 |
| Amortization of intangible assets | 68,529 | 107,230 | 194,197 | 545,290 |
| Impairment of indefinite life intangible asset | 18,550 | -- | 68,848 | 577,145 |
| Deferred income taxes recovery | (53,085) | (49,214) | (1,019,254) | (807,691) |
| Excess tax benefits from share-based compensation expense | -- | 168,346 | -- | (250,555) |
| Amortization of deferred rent | 7,370 | 1,832 | 17,917 | 14,212 |
| Disposal of domain names | 2,866 | 10,708 | 20,551 | 19,577 |
| Loss on change in the fair value of forward contracts | 99,052 | 125,305 | 160,394 | 19,991 |
| Stock-based compensation | 128,575 | 230,712 | 378,228 | 417,046 |
| Change in non-cash operating working capital: | ||||
| Accounts receivable | 262,149 | 4,440 | (994,889) | (1,609,287) |
| Inventory | (123,047) | 90,114 | (281,491) | (81,340) |
| Prepaid expenses and deposits | 1,000,287 | 613,342 | (892,105) | (13,192) |
| Prepaid domain name registry and ancillary services fees | 149,905 | 573,727 | (2,068,871) | (1,848,171) |
| Income taxes recoverable | 1,152,410 | (227,558) | 1,935,426 | (794,101) |
| Accounts payable | 195,002 | 326,610 | 202,578 | 1,130,552 |
| Accrued liabilities | 406,920 | 1,214,237 | 1,517,453 | 1,044,866 |
| Customer deposits | (199,695) | (418,539) | 253,223 | (431,614) |
| Deferred revenue | 140,850 | (656,430) | 3,185,946 | 2,959,948 |
| Accreditation fees payable | (20,621) | (22,510) | 11,425 | 5,822 |
| Net cash provided by operating activities | 6,783,430 | 5,013,961 | 11,956,782 | 6,109,907 |
| Financing activities: | ||||
| Proceeds received on exercise of stock options | 189,914 | 343,953 | 737,369 | 1,385,816 |
| Excess tax benefits from share-based compensation expense | 312,091 | 741,512 | 1,400,793 | 1,755,312 |
| Repurchase of common stock | (9,977,495) | (1,099,571) | (18,179,176) | (1,181,857) |
| Proceeds received on loan payable | -- | -- | 3,500,000 | -- |
| Repayment of loan payable | -- | (5,358,333) | -- | (6,300,000) |
| Net cash used in financing activities | (9,475,490) | (5,372,439) | (12,541,014) | (4,340,729) |
| Investing activities: | ||||
| Additions to property and equipment | (710,342) | (216,794) | (2,051,124) | (598,820) |
| Gross proceeds from the waiver of rights to .online registry | -- | -- | 6,619,832 | -- |
| Additional cost of acquisition of Ting Virginia, LLC., net of cash of $21,423 | -- | -- | (357,493) | -- |
| Net cash provided by (used in) investing activities | (710,342) | (216,794) | 4,211,215 | (598,820) |
| Increase (decrease) in cash and cash equivalents | (3,402,402) | (575,272) | 3,626,983 | 1,170,358 |
| Cash and cash equivalents, beginning of period | 15,300,762 | 14,164,518 | 8,271,377 | 12,418,888 |
| Cash and cash equivalents, end of period | $ 11,898,360 | $ 13,589,246 | $ 11,898,360 | $ 13,589,246 |
| Supplemental cash flow information: | ||||
| Interest paid | $ 78,988 | $ 64,248 | $ 175,290 | $ 207,634 |
| Income taxes paid, net | $ 512,954 | $ 469,248 | $ 2,457,225 | $ 1,724,976 |
| Supplementary disclosure of non-cash investing activity: | ||||
| Property and equipment acquired during the period not yet paid for | $ 63,499 | $ 82,132 | $ 63,499 | $ 82,132 |
| Tucows Inc. | ||||
| Reconciliation of Net income to Adjusted EBITDA | ||||
| (In Thousands of US Dollars) | ||||
| Three months ended September 30, | Nine months ended September 30, | |||
| 2015 | 2014 | 2015 | 2014 | |
| (unaudited) | (unaudited) | |||
| Net income for the period | $ 3,159 | $ 2,691 | $ 8,278 | $ 4,515 |
| Depreciation of property and equipment | 388 | 231 | 989 | 696 |
| Amortization of intangible assets | 69 | 107 | 194 | 545 |
| Impairment of indefinite life intangible assets | 19 | -- | 69 | 577 |
| Interest expense, net | 79 | 63 | 161 | 207 |
| Provision for income taxes | 1,834 | 1,144 | 4,926 | 2,062 |
| Change in net deferred revenue 1 | 289 | 15 | 1,181 | 1,183 |
| Stock-based compensation | 129 | 231 | 378 | 417 |
| Loss on currency forward contracts | 1,065 | 468 | 3,104 | 1,307 |
| Adjusted EBITDA | $ 7,031 | $ 4,920 | $ 19,280 | $ 11,509 |
| (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 nine months ended September 30, 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. | ||||