TORONTO, Aug. 07, 2019 (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 second quarter ended June 30, 2019. All figures are in U.S. dollars.

Summary Financial Results
(In Thousands of US Dollars, Except Per Share Data)
	3 Months Ended June 30				6 Months Ended June 30
	2019(Unaudited)	2018(Unaudited)	% Change		2019(Unaudited)	2018(Unaudited)	% Change
Net revenue	84,117	81,087	4%		163,070	176,882	-8%
Net income	2,616	3,608	-28%		5,415	7,352	-26%
Basic Net earnings per common share	0.25	0.34	-26%		0.51	0.69	-26%
Adjusted EBITDA1,2	11,486	11,188	3%		20,917	21,567	-3%
Net cash provided by operating activities	6,979	5,754	21%		15,970	15,327	4%

1. This Non-GAAP financial measure is described below and reconciled to GAAP net income in the accompanying table.
2. Adjusted EBITDA for the second quarter and first six months of 2019 reflect the impact of the purchase price accounting adjustment related to the fair value write down of deferred revenue from the Ascio acquisition on March 18, 2019, which lowered Adjusted EBITDA by $0.7 million and $0.8 million, respectively.

Summary of Revenues and Gross profit
(In Thousands of US Dollars)
	Revenue		Gross Profit
	3 Months ended June 30		3 Months ended June 30
	2019(Unaudited)	2018(Unaudited)	2019(Unaudited)		2018(Unaudited)
Network Access Services:
Mobile Services	20,986	22,411	10,180		10,433
Other Services	2,644	1,895	1,688		605
Total Network Access Services	23,630	24,306	11,868		11,038
Domain Services:
Wholesale
Domain Services	46,485	42,540	8,668		6,696
Value Added Services	4,775	4,601	4,037		3,853
Total Wholesale	51,260	47,141	12,705		10,549
Retail	8,783	8,477	4,374		4,031
Portfolio	444	1,163	297		968
Total Domain Services	60,487	56,781	17,376		15,548
Network Expenses:
Network, other costs	-	-	(2,385	)	(2,701	)
Network, depreciation and amortization costs	-	-	(2,352	)	(1,727	)
Total Network expenses	-	-	(4,737	)	(4,428	)
Total	84,117	81,087	24,507		22,158

“The second quarter of 2019 was highlighted by year-over-year growth in revenue and gross margin as our domains and Ting Mobile businesses continued to generate strong cash flows to invest in our long-term Ting Internet growth opportunity,” said Elliot Noss, President and Chief Executive Officer, Tucows Inc. “The second quarter saw continued steady progress at Ting Internet, marked by our best quarter ever in terms of new subscribers, continued expansion in the number of serviceable addresses, and our highest ever level of capital expenditure as we continue to build out the network for the long-term growth of the business.”

Financial Results

Net revenue for the second quarter of 2019 increased 4% to $84.1 million from $81.1 million for the second quarter of 2018.

Net income for the second quarter of 2019 was $2.6 million, or $0.25 per share compared with $3.6 million, or $0.34 per share, for the second quarter of 2018.

Adjusted EBITDA1 for the second quarter of 2019 increased 3% to $11.5 million from $11.2 million for the second quarter of 2018. Adjusted EBITDA for the second quarter 2019 reflects the impact of the purchase price accounting adjustment related to the fair value write down of deferred revenue from the Ascio acquisition, which lowered Adjusted EBITDA by $0.7 million.

Cash and cash equivalents at the end of the second quarter of 2019 were $12.0 million compared with $11.0 million at the end of the first quarter of 2019 and $11.2 million at the end of the second quarter of 2018.

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 discloses and discusses a non-GAAP financial measure, adjusted EBITDA, in press releases and 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 transition 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.

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

	3 months ended June 30			6 months ended June 30
	2019(unaudited)		2018(unaudited)	2019(unaudited)		2018(unaudited)
Net income for the period	2,616		3,608	5,415		7,352
Depreciation of property and equipment	2,172		1,330	4,097		2,562
Amortization of intangible assets	2,565		2,326	4,605		4,657
Interest expense, net	1,314		951	2,286		1,847
Provision for income taxes	1,819		1,228	3,076		2,411
Stock-based compensation	685		615	1,210		1,193
Unrealized loss (gain) on change in fair value of forward contracts	(70	)	46	(188	)	43
Unrealized loss (gain) on foreign exchange revaluation of foreign denominated monetary assets and liabilities	(162	)	282	(490	)	459
Acquisition and transition costs*	547		802	906		1,043
Adjusted EBITDA	11,486		11,188	20,917		21,567
*Acquisition and other costs represents transaction-related expenses, transitional expenses, such as duplicative post-acquisition expenses, primarily related to the Company’s acquisition of Enom in January 2017 and Ascio in March 2019. Expenses include severance or transitional costs associated with department, operational or overall company restructuring efforts, including geographic alignments.

Conference CallConcurrent with the dissemination of this news release, management’s pre-recorded commentary discussing the quarter and outlook for the Company have been posted to the Tucows web site at http://www.tucows.com/investors/financials. In lieu of a live question and answer period, for the next six days (until Tuesday, August 13), shareholders, analysts and prospective investors can submit questions to Tucows’ management at [email protected]. Management will post responses to questions of general interest to the Company’s web site at http://www.tucows.com/investors/financials/ on Tuesday, August 20 at approximately 4:00 p.m. ET. All questions will receive a response, however, questions of a more specific nature may be responded to directly.

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), Enom (http://www.enom.com) and Ascio (http://ascio.com) manage a combined 25 million domain names and millions of value-added services through a global reseller network of over 37,000 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 thousands of U.S. dollars)
	June 30,				December 31,
	2019				2018 *
	(unaudited)				(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	12,003			$	12,637
Accounts receivable		11,588				10,837
Inventory		3,259				3,775
Prepaid expenses and deposits		19,455				15,472
Derivative instrument asset, current portion		140				-
Prepaid domain name registry and ancillary services fees, current portion		97,788				87,782
Other assets		2,501				-
Income taxes recoverable		3,208				1,423
Total current assets		149,942				131,926
Prepaid domain name registry and ancillary services fees, long-term portion		18,060				18,745
Property and equipment		64,010				48,065
Right of use operating lease asset		11,395				-
Contract costs		1,337				1,390
Intangible assets		59,451				49,395
Goodwill		110,093				90,054
Total assets	$	414,288			$	339,575
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	7,590			$	8,445
Accrued liabilities		10,789				5,899
Customer deposits		13,526				11,919
Derivative instrument liability		-				1,276
Deferred rent, current portion		-				21
Operating lease liability, current portion		1,496				-
Loan payable, current portion		-				18,400
Deferred revenue, current portion		130,499				116,734
Accreditation fees payable, current portion		1,038				985
Income taxes payable		797				1,668
Total current liabilities		165,735				165,347
Deferred revenue, long-term portion		26,720				26,960
Accreditation fees payable, long-term portion		231				250
Deferred rent, long-term portion		-				116
Operating lease liability, long-term portion		9,482				-
Loan payable, long-term portion		99,901				46,201
Deferred Gain		-				-
Deferred tax liability		25,218				20,925
Redeemable non-controlling interest		-				-
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; 10,663,462 shares issued and outstanding as of June 30, 2019 and 10,627,988 shares issued and outstanding as of December 31, 2018		16,461				15,823
Additional paid-in capital		4,195				3,953
Retained earnings		66,225				60,810
Accumulated other comprehensive income (loss)		120				(810	)
Total stockholders' equity		87,001				79,776
Total liabilities and stockholders' equity	$	414,288			$	339,575
*The Company has initially applied ASC 2016-02 (Topic 842) using the modified retrospective method. Under this method, the comparative information is not restated.

Tucows Inc.
Consolidated Statements of Operations and Comprehensive Income
(Dollar amounts in thousands of U.S. dollars)
	Three months ended June 30,								Six months ended June 30,
	2019				2018 *				2019				2018 *
	(unaudited)								(unaudited)
Net revenues	$	84,117			$	81,087			$	163,070			$	176,882
Cost of revenues:
Cost of revenues		54,873				54,501				106,805				123,473
Network expenses (*)		2,385				2,701				4,780				5,275
Depreciation of property and equipment		2,038				1,228				3,839				2,359
Amortization of intangible assets		314				499				488				998
Total cost of revenues		59,610				58,929				115,912				132,105
Gross profit		24,507				22,158				47,158				44,777
Expenses:
Sales and marketing (*)		8,856				7,852				17,597				16,217
Technical operations and development (*)		2,752				2,355				5,275				4,450
General and administrative (*)		4,796				4,256				9,244				8,786
Depreciation of property and equipment		134				102				258				203
Amortization of intangible assets		2,251				1,827				4,117				3,659
Loss (gain) on currency forward contracts		(31	)			52				(110	)			49
Total expenses		18,758				16,444				36,381				33,364
Income from operations		5,749				5,714				10,777				11,413
Other income (expenses):
Interest expense, net		(1,314	)			(951	)			(2,286	)			(1,847	)
Other income, net		-				73				-				197
Total other income (expenses)		(1,314	)			(878	)			(2,286	)			(1,650	)
Income before provision for income taxes		4,435				4,836				8,491				9,763
Provision for income taxes		1,819				1,228				3,076				2,411
Net income before redeemable non-controlling interest		2,616				3,608				5,415				7,352
Redeemable non-controlling interest		-				-				-				(26	)
Net income attributable to redeemable non-controlling interest		-				-				-				26
Net income for the period		2,616				3,608				5,415				7,352
Other comprehensive income, net of tax
Unrealized income (loss) on hedging activities		240				(273	)			789				(256	)
Net amount reclassified to earnings		80				13				141				13
Other comprehensive income (loss) net of tax (expense) recovery of ($103) and $84 for the three months ended June 30, 2019 and June 30, 2018, ($298) and $78 for the six months ended June 30, 2019 and June 30, 2018		320				(260	)			930				(243	)
Comprehensive income, net of tax for the period	$	2,936			$	3,348			$	6,345			$	7,109
Basic earnings per common share	$	0.25			$	0.34			$	0.51			$	0.69
Shares used in computing basic earnings per common share		10,657,124				10,597,228				10,646,045				10,592,994
Diluted earnings per common share	$	0.24			$	0.33			$	0.50			$	0.68
Shares used in computing diluted earnings per common share		10,840,005				10,803,007				10,837,456				10,797,017
(*) Stock-based compensation has been included in expenses as follows:
Network expenses	$	72			$	28			$	129			$	84
Sales and marketing	$	297			$	245			$	494			$	432
Technical operations and development	$	132			$	174			$	249			$	351
General and administrative	$	183			$	168			$	338			$	327
*The Company has initially applied ASC 2016-02 (Topic 842) using the modified retrospective method. Under this method, the comparative information is not restated.

Tucows Inc.
Consolidated Statements of Cash Flows
(Dollar amounts in thousands of U.S. dollars)
	Three months ended June 30,								Six months ended June 30,
	2019				2018 *				2019				2018 *
Cash provided by:	(unaudited)								(unaudited)
Operating activities:
Net income for the period	$	2,616			$	3,608			$	5,415			$	7,352
Items not involving cash:
Depreciation of property and equipment		2,172				1,330				4,097				2,562
Loss on write off of property and equipment		-				-				22				-
Amortization of debt discount and issuance costs		90				69				168				139
Amortization of intangible assets		2,565				2,326				4,605				4,657
Net amortization contract costs		34				25				53				50
Deferred income taxes (recovery)		1,449				(445	)			1,911				(492	)
Excess tax benefits on share-based compensation expense		(381	)			(197	)			(737	)			(341	)
Amortization of deferred rent		-				(4	)			-				(4	)
Net Right of use operating assets/Operating lease liability		79				-				49				-
Loss on disposal of domain names		2				28				6				65
Other income		-				(42	)			-				(171	)
Loss (gain) on change in the fair value of forward contracts		(70	)			46				(188	)			43
Stock-based compensation		685				615				1,210				1,193
Change in non-cash operating working capital:
Accounts receivable		1,031				471				(157	)			162
Inventory		108				(350	)			516				(304	)
Prepaid expenses and deposits		(2,524	)			(717	)			(2,914	)			(1,242	)
Prepaid domain name registry and ancillary services fees		1,651				204				(65	)			11,548
Income taxes recoverable		(1,639	)			165				(2,875	)			430
Accounts payable		(1,170	)			(1,862	)			(384	)			270
Accrued liabilities		2,266				(401	)			3,587				358
Customer deposits		(808	)			(46	)			(521	)			(2,321	)
Deferred revenue		(1,131	)			1,067				2,138				(8,531	)
Accreditation fees payable		(46	)			(136	)			34				(96	)
Net cash provided by operating activities		6,979				5,754				15,970				15,327
Financing activities:
Proceeds received on exercise of stock options		122				32				194				39
Payment of tax obligations resulting from net exercise of stock options		(185	)			(141	)			(524	)			(288	)
Proceeds received on loan payable		7,431				2,500				40,371				2,500
Repayment of loan payable		(3	)			(6,253	)			(4,603	)			(10,825	)
Payment of loan payable costs		(434	)			-				(641	)			(4	)
Net cash (used in) provided by financing activities		6,931				(3,862	)			34,797				(8,578	)
Investing activities:
Additions to property and equipment		(10,414	)			(7,319	)			(20,849	)			(12,436	)
Acquisition of a portion of the minority interest in Ting Virginia, LLC		-				-				-				(1,200	)
Acquisition of other assets		(2,501	)			-				(2,501	)			-
Acquisition of Ascio Technologies Inc. (net of cash of $1,437)		-				-				(28,024	)			-
Acquisition of intangible assets		(27	)			-				(27	)			(1	)
Net cash used in investing activities		(12,942	)			(7,319	)			(51,401	)			(13,637	)
(Decrease) increase in cash and cash equivalents		968				(5,427	)			(634	)			(6,888	)
Cash and cash equivalents, beginning of period		11,035				16,588				12,637				18,049
Cash and cash equivalents, end of period	$	12,003			$	11,161			$	12,003			$	11,161
Supplemental cash flow information:
Interest paid	$	1,318			$	961			$	2,294			$	1,862
Income taxes paid, net	$	2,046			$	2,240			$	4,164			$	3,577
Supplementary disclosure of non-cash investing and financing activities:
Property and equipment acquired during the period not yet paid for	$	674			$	258			$	674			$	258
*The Company has initially applied ASC 2016-02 (Topic 842) using the modified retrospective method. Under this method, the comparative information is not restated.

Reconciliation of Net income to Adjusted EBITDA
(In Thousands of U.S. Dollars)
(unaudited)
	Three months ended June 30,							Six months ended June 30,
	2019(unaudited)				2018(unaudited)			2019(unaudited)				2018(unaudited)
Net income for the period	$	2,616			$	3,608		$	5,415			$	7,352
Depreciation of property and equipment		2,172				1,330			4,097				2,562
Amortization of intangible assets		2,565				2,326			4,605				4,657
Interest expense, net		1,314				951			2,286				1,847
Provision for income taxes		1,819				1,228			3,076				2,411
Stock-based compensation		685				615			1,210				1,193
Unrealized loss (gain) on change in fair value of forward contracts		(70	)			46			(188	)			43
Unrealized loss (gain) on foreign exchange revaluation of foreign denominated monetary assets and liabilities		(162	)			282			(490	)			459
Acquisition and other costs1		547				802			906				1,043
Adjusted EBITDA	$	11,486			$	11,188		$	20,917			$	21,567
1Acquisition and other costs represents transaction-related expenses, transitional expenses, such as duplicative post-acquisition expenses, primarily related to our acquisition of eNom in January 2017 and Ascio in March 2019. Expenses include severance or transitional costs associated with department, operational or overall company restructuring efforts, including geographic alignments.

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 expectations regarding our ability to realize synergies from the Enom acquisition and our expectation for growth of Ting Internet. 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, Ting, OpenSRS, Enom, Ascio and Hover are registered trademarks of Tucows Inc. or its subsidiaries.

Contact:Lawrence ChamberlainLoderock Advisors(416) 519-4196[email protected]

Source: Tucows Inc.

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Tucows (TCX) Misses Q2 EPS by 6c, Revenues BeatAugust 7, 2019 5:27 PM