TORONTO, May 09, 2017 (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 first quarter ended March 31, 2017. All figures are in U.S. dollars.

Summary Financial Results
(In Thousands of US Dollars, Except Per Share Data)
	3 Months Ended March 31
	2017(Unaudited)	2016(Unaudited)	% Change
Net revenue	69,568	44,746	55	%
Net income	2,446	4,438	-45	%
Basic Net earnings per common share	0.23	0.42	-45	%
Adjusted EBITDA1	6,196	7,318	-15	%
Net cash provided by operating activities	2,402	5,615	-57	%

1. This Non-GAAP financial measure is described below and reconciled to GAAP net income in the accompanying table. Tucows has revised its definition of Adjusted EBITDA as detailed in the description below and the table reconciling Adjusted EBITDA to GAAP net income.

Summary of Revenues and Gross Margin
(In Thousands of US Dollars)
	Revenue		Gross Margin
	3 Months endedMarch 31		3 Months endedMarch 31
	2017(Unaudited)	2016(Unaudited)	2017(Unaudited)		2016(Unaudited)
Network Access Services:
Mobile Services	17,963	16,107	8,396		7,549
Other Services	1,138	891	295		504
Total Network Access Services	19,101	16,998	8,691		8,053
Domain Services:
Wholesale
Domain Services	39,092	21,258	4,629		3,615
Value Added Services	4,057	2,299	3,499		1,820
Total Wholesale	43,149	23,557	8,128		5,435
Retail	6,402	3,451	2,784		1,872
Portfolio	916	740	655		580
Total Domain Services	50,467	27,748	11,567		7,887
Network Expenses:
Network, other costs	-	-	(2,343	)	(1,233	)
Network, depreciation and amortization costs	-	-	(971	)	(358	)
Total Network expenses	-	-	(3,314	)	(1,591	)
Total revenue/gross margin	69,568	44,746	16,944		14,349

“During the first quarter of 2017 we successfully began integrating Enom into our domain business and we successfully migrated over 20,000 mobile customers to Ting from RingPlus. We also continued to deploy significant resources to develop our Ting Internet operations and to invest in building out our Ting Fiber network. With a solid quarter behind us, I am pleased to report that we remain on track to meet our adjusted EBITDA goal of $50 million less $8 million of acquisition related non-cash impacts for fiscal 2017,”2 said Elliot Noss, President and Chief Executive Officer, Tucows Inc.

“Revenue for first quarter grew 55% year-over year to $69.6 million. Net deferred revenues increased in the first quarter of 2017 by $4.8 million primarily due to the Enom acquisition. Prior to the second quarter of 2016, this amount would have been included in our then adjusted EBITDA definition. Overall, we are delighted with how each of our businesses executed against core strategies. Domains took steps toward scale and efficiency, Ting Mobile grew and Ting Internet improved and invested in fiber network expansion, systems and people,” added Mr. Noss. “With our sound financial position and our significant cash flows, we remain well positioned for sustainable growth and continued investment in our strategic priority, building fiber.”

Financial Results Net revenue for the first quarter of 2017 increased 55% to $69.6 million from $44.7 million for the first quarter of 2016. The first quarter’s results only include the contribution from Enom’s operations since January 20, 2017, the date the acquisition was completed.

Net income for the first quarter of 2017 decreased to $2.4 million, or $0.23 per share, from $4.4 million, or $0.42 per share, for the first quarter of 2016. Adjusted EBITDA1 for the first quarter of 2017 decreased to $6.2 million from $7.3 million for the first quarter of 2016. The first quarter of 2017 was impacted by the effect of the purchase price accounting adjustment related to the fair value write down of deferred revenue from the Enom acquisition which lowered adjusted EBITDA by $1.4 million and is a portion of the $4.8 million net deferred revenue change noted above. The first quarter of 2016 benefited from $0.4 million reversal of an overachievement bonus accrual for 2015 that was no longer required and a foreign exchange gain of $0.4 million that was not repeated.

Cash and cash equivalents at the end of the first quarter of 2017 decreased slightly to $15.0 million compared with $15.1 million at the end of the fourth quarter of 2016 and $10.0 million at the end of the first quarter of 2016.

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, the Company typically disclose and discuss a non-GAAP financial measure, adjusted EBITDA, on investor conference calls and related events that exclude certain non-cash and other charges as the Company believes that the non-GAAP information enhances investors' overall understanding of our financial performance.

The Company believes that the provision of this supplemental non-GAAP measure allows investors to evaluate the operational and financial performance of the Company’s core business using similar evaluation measures to those used by management. The Company uses adjusted EBITDA to measure its performance and prepare its budgets. Since adjusted EBITDA is a non-GAAP financial performance measure, the Company’s calculation of adjusted EBITDA 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 liquidity measure. Non-GAAP financial measures do not reflect a comprehensive system of accounting 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. The Company endeavors to compensate 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.

The Company’s adjusted EBITDA definition excludes depreciation, amortization of intangible assets, income tax provision, interest expense, interest income, stock-based compensation, asset impairment, gains and losses from unrealized foreign currency transactions and infrequently occurring items, including acquisition and transitions costs. Gains and losses from unrealized foreign currency transactions removes the unrealized effect of the change in the mark-to-market values on outstanding unhedged foreign currency contracts, as well as the unrealized effect from the translation of monetary accounts denominated in non-U.S. dollars to U.S. dollars.

Prior year Adjusted EBITDA amounts presented herein have been recast to reflect adjusted EBITDA definitional changes described in the Company’s Form 10-Q Quarterly Report for the three months ended September 30, 2016.

The following table reconciles net income to adjusted EBITDA (dollars in thousands):

	Three months ended March 31
	2017 (unaudited)		2016 (unaudited)
Net income for the period	2,446		4,438
Depreciation of property and equipment	757		420
Amortization of intangible assets	1,761		69
Impairment of intangible assets	-		21
Interest expense, net	868		46
Provision for income taxes	(125	)	1,906
Stock-based compensation	318		200
Unrealized loss (gain) on change in fair value of forward contracts	(18	)	(243	)
Unrealized loss (gain) on foreign exchange revaluation of foreign denominated monetary assets and liabilities	(193	)	461
Acquisition and transition costs1	382		-
Adjusted EBITDA	6,196		7,318
1 Acquisition and transition costs represent non-recurring costs incurred in connection with the acquisition of eNom, Incorporated in January 2017. These costs are primarily comprised of professional fees for legal, accounting and other services.

During 2016, the Company identified an immaterial error that affects the classification of certain marketing program costs. Prior to the third quarter of fiscal 2016, the Company recorded the cost for certain marketing credits as Sales and marketing expense which should have been recorded as a reduction in Net revenue. The discussion presented here correctly reflect these marketing credits as a reduction in Net Revenues for all current and comparative periods. This resulted in a decrease in Net Revenues, and a corresponding decrease in Sales and marketing expenses of $0.9 million for the three months ended March 31, 2016.

2. 2017 adjusted EBITDA goal

The adjusted EBITDA goal information discussed above is a non-GAAP financial measure. Because we are unable to predict certain potentially material items affecting net income on a GAAP basis at this time, principally the amount deferred revenue will be reduced by the impact of purchasing accounting on historical deferred revenue, we cannot reconcile the estimated adjusted EBITDA for future years, a non-GAAP measure, to net income, the most directly comparable GAAP measure, in reliance on the “unreasonable efforts” exception set forth in SEC rules.

Conference CallTucows management will host a conference call today, Tuesday, May 9, 2017 at 5:00 p.m. (ET) to discuss the Company’s first quarter 2017 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 16809774 followed by the pound key. The telephone replay will be available until Tuesday, May 16, 2017 at midnight. To access the archived conference call as an MP3 via the Internet, go to http://www.tucows.com/investors.

About TucowsTucows 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) and Enom (http://www.enom.com) manage a combined 29 million domain names and millions of value-added services through a global reseller network of over 40,000 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)
		March 31,			December 31,
			2017			2016
		(unaudited)			(unaudited)
Assets
Current assets:
Cash and cash equivalents		$	15,032,821		$	15,105,075
Accounts receivable			13,354,774			10,925,622
Inventory			1,039,793			1,210,789
Prepaid expenses and deposits			16,101,078			6,250,555
Derivative instrument asset, current portion			356,525			172,888
Prepaid domain name registry and ancillary services fees, current portion			112,060,197			49,396,737
Income taxes recoverable			2,874,532			220,451
Total current assets			160,819,720			83,282,117
Prepaid domain name registry and ancillary services fees, long-term portion			24,463,113			10,993,156
Property and equipment			18,403,439			13,450,438
Deferred tax asset			-			5,708,725
Intangible assets			62,503,033			19,973,793
Goodwill			85,526,787			21,005,143
Total assets		$	351,716,092		$	154,413,372
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable		$	7,246,007		$	4,786,645
Accrued liabilities			9,518,273			7,098,905
Customer deposits			14,056,627			5,418,622
Deferred rent, current portion			20,854			20,854
Loan payable, current portion			18,289,853			2,233,110
Deferred revenue, current portion			134,459,471			62,795,079
Accreditation fees payable, current portion			1,293,276			528,027
Income taxes payable			777,971			1,548,121
Total current liabilities			185,662,332			84,429,363
Deferred revenue, long-term portion			31,429,228			15,053,977
Accreditation fees payable, long-term portion			258,560			115,084
Deferred rent, long-term portion			128,234			124,202
Loan payable, long-term portion			72,174,607			8,015,698
Other liabilities			815,860			944,680
Deferred tax liability			20,166,540			4,827,192
Redeemable non-controlling interest			1,098,589			3,086,090
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; 10,504,152 shares issued and outstanding as of March 31, 2017 and 10,461,574 shares issued and outstanding as of December 31, 2016			14,783,156			14,460,500
Additional paid-in capital			2,160,720			2,857,921
Retained earnings			22,833,503			20,399,511
Accumulated other comprehensive income (loss)			204,763			99,154
Total stockholders' equity			39,982,142			37,817,086
Total liabilities and stockholders' equity		$	351,716,092		$	154,413,372

		Tucows Inc.
		Consolidated Statements of Operations
		(Dollar amounts in U.S. dollars)
		Three months ended March 31,
		2017			2016
		(unaudited)
Net revenues	$	69,568,062		$	44,746,089
Cost of revenues:
Cost of revenues		49,310,712			28,806,717
Network expenses (*)		2,343,196			1,232,931
Depreciation of property and equipment		590,347			346,753
Amortization of intangible assets		380,162			11,532
Total cost of revenues		52,624,417			30,397,933
Gross profit		16,943,645			14,348,156
Expenses:
Sales and marketing (*)		7,219,322			4,465,056
Technical operations and development (*)		1,694,141			1,176,360
General and administrative (*)		3,457,343			2,404,927
Depreciation of property and equipment		166,317			73,268
Amortization of intangible assets		1,380,809			56,997
Impairment of indefinite life intangible assets		-			20,985
Loss (gain) on currency forward contracts		(34,425	)		(110,757	)
Total expenses		13,883,507			8,086,836
Income from operations		3,060,138			6,261,320
Other income (expenses):
Interest expense, net		(867,993	)		(46,172	)
Other income		128,897			128,820
Total other income (expenses)		(739,096	)		82,648
Income before provision for income taxes		2,321,042			6,343,968
Provision for income taxes		(125,449	)		1,905,730
Net income before redeemable non-controlling interest		2,446,491			4,438,238
Redeemable non-controlling interest		(125,764	)		(170,792	)
Net (earnings) loss attributable to redeemable non-controlling interest		125,764			170,792
Net income for the period		2,446,491			4,438,238
Other comprehensive income (loss), net of tax
Unrealized income (loss) on hedging activities		186,229			547,963
Net amount reclassified to earnings		(80,620	)		335,557
Other comprehensive income (loss) net of tax of 60,079 for the three months ended March 31, 2017 and $483,704 for the three months ended March 31, 2016		105,609			883,520
Comprehensive income, net of tax for the period	$	2,552,100		$	5,321,758
Basic earnings per common share	$	0.23		$	0.42
Shares used in computing basic earnings per common share		10,474,647			10,674,036
Diluted earnings per common share	$	0.23		$	0.41
Shares used in computing diluted earnings per common share		10,776,515			10,861,582
(*) Stock-based compensation has been included in expenses as follows:
Network expenses	$	4,383		$	6,795
Sales and marketing	$	59,001		$	54,878
Technical operations and development	$	61,410		$	26,398
General and administrative	$	193,026		$	112,157

		Tucows Inc.
		Consolidated Statements of Cash Flows
		(Dollar amounts in U.S. dollars)
		Three months ended March 31,
		2017			2016
Cash provided by:		(unaudited)
Operating activities:
Net income for the period	$	2,446,491		$	4,438,238
Items not involving cash:
Depreciation of property and equipment		756,664			420,021
Amortization of debt discount and issuance costs		67,105			-
Amortization of intangible assets		1,760,971			68,529
Impairment of indefinite life intangible asset		-			20,985
Deferred income taxes		1,319,819			273,159
Excess tax benefits on share-based compensation expense		(989,332	)		61,360
Amortization of deferred rent		4,032			11,915
Disposal of domain names		9,789			8,220
Other income		(128,820	)		(128,820	)
Loss (gain) on change in the fair value of forward contracts		(138,107	)		(243,042	)
Stock-based compensation		317,820			200,228
Change in non-cash operating working capital:
Accounts receivable		41,721			(890,510	)
Inventory		170,996			(239,087	)
Prepaid expenses and deposits		(3,557,508	)		(252,924	)
Prepaid domain name registry and ancillary services fees		(5,489,422	)		(797,920	)
Income taxes recoverable		(2,660,528	)		1,226,454
Accounts payable		(3,446,427	)		549,796
Accrued liabilities		1,830,922			(451,246	)
Customer deposits		(83,591	)		(179,923	)
Deferred revenue		10,240,649			1,508,582
Accreditation fees payable		(71,327	)		10,619
Net cash provided by operating activities		2,401,917			5,614,634
Financing activities:
Proceeds received on exercise of stock options		19,869			19,558
Payment of tax obligations resulting from net exercise of stock options		(712,234	)		(36,685	)
Repurchase of common stock		-			(2,180,279	)
Proceeds received on loan payable		86,998,000			6,000,000
Repayment of loan payable		(6,258,278	)		(218,750	)
Payment of loan payable costs		(591,175	)		-
Net cash used in financing activities		79,456,182			3,583,844
Investing activities:
Additions to property and equipment		(3,692,893	)		(856,336	)
Remaining payment for the acquisition of Ting Virginia, LLC., net of cash		(2,000,000	)		-
Acquisition of Enom Incorporated, net of cash		(76,237,460	)		-
Acquisition of intangible assets		-			(6,054,546	)
Net cash used in investing activities		(81,930,353	)		(6,910,882	)
Increase (decrease) in cash and cash equivalents		(72,254	)		2,287,596
Cash and cash equivalents, beginning of period		15,105,075			7,723,253
Cash and cash equivalents, end of period	$	15,032,821		$	10,010,849
Supplemental cash flow information:
Interest paid	$	872,645		$	46,381
Income taxes paid, net	$	2,342,916		$	329,169
Supplementary disclosure of non-cash investing and financing activities:
Property and equipment acquired during the period not yet paid for	$	250,847		$	11,338

		Tucows Inc.
		Reconciliation of Net income to Adjusted EBITDA
		(In Thousands of US Dollars)
		Three months ended March 31
		2017			2016
		(unaudited)
Net income for the period	$	2,446		$	4,438
Depreciation of property and equipment		757			420
Amortization of intangible assets		1,761			69
Impairment of intangible assets		-			21
Interest expense, net		868			46
Provision for income taxes		(125	)		1,906
Stock-based compensation		318			200
Unrealized loss (gain) on change in fair value of forward contracts		(18	)		(243	)
Unrealized loss (gain) on foreign exchange revaluation of foreign denominated monetary assets and liabilities		(193	)		461
Acquisition and transition costs1		382			-
Adjusted EBITDA	$	6,196		$	7,318
1Acquisition and transition costs represent non-recurring costs incurred in connection with the acquisition of eNom, Incorporated in January 2017. These costs are primarily comprised of professional fees for legal, accounting and other services.

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, including, without limitation, our expectation regarding our ability to manage realized gains/losses from foreign currency contracts. 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. 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:
Michael Goldstein
(416) 538-5451
[email protected]

Source: Tucows Inc

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