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Tucows Reports Continuing Strong Financial Results for the First Quarter of 2015

– Quarter Highlighted by Adjusted EBITDA of $6.9 Million and Net Earnings of $0.25 Per Share as Ting Mobile Increasingly Contributes to Financial Results –

TORONTO, May 7, 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 first quarter ended March 31, 2015. All figures are in U.S. dollars.

Summary Financial Results
(In Thousands of US Dollars, Except Per Share Data)
3 Months Ended
Mar. 31, 2015 (unaudited)
3 Months Ended
Mar. 31, 2014 (unaudited)
Net revenue 40,468 34,402
Adjusted EBITDA1 6,893 3,314
Net income 2,834 477
Net earnings per common share $0.25 $0.04
Net cash provided by (used in) operating activities 2,938 (39)
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)
Revenue Revenue Cost of Revenue Cost of Revenue

3 Months Ended
Mar. 31, 2015
(unaudited)
3 Months Ended
Mar. 31, 2014
(unaudited)
3 Months Ended
Mar. 31, 2015
(unaudited)
3 Months Ended
Mar. 31, 2014
(unaudited)
Domain Services
Wholesale
OpenSRS Domain Service 21,175 21,649 17,548 18,235
Value-Added Services 2,242 2,604 536 541
Total Wholesale 23,417 24,253 18,084 18,776
Retail 2,876 2,384 1,220 1,015
Portfolio 1,248 1,053 172 244
Total Domain Services 27,541 27,690 19,476 20,035
Network Access Services 12,927 6,712 7,345 4,281
Network, other costs -- -- 1,222 1,144
Network, depreciation and amortization costs -- -- 204 183
Total revenue/cost of revenue 40,468 34,402 28,247 25,643
Note: Portfolio revenue for Q1 2015 includes a gain we recognized on the sale of our minority interest in .store as a result of this contested domain being resolved through a confidential private auction in February 2015.

"Continuing our momentum of last year, the first quarter was an excellent start to 2015," said Elliot Noss, President and Chief Executive Officer, Tucows Inc. "With each quarter, the growth in Ting Mobile is having a greater impact on our financial results as we benefit from the operating leverage in our business. That impact is evident in the continued expansion of our gross margin percentage, which grew to 28%2 from 24%2 for the same quarter last year, while Adjusted EBITDA more than doubled to $6.9 million positioning us to come in comfortably above our previous guidance of $20 million for the full year. We look forward to continued growth in Ting Mobile alongside solid performance from our domains business as we ramp towards the launch of Ting Internet, our fiber-to-the-home initiative, later this year."

Net revenue for the first quarter of 2015 increased 18% to $40.5 million from $34.4 million for the first quarter of 2014.

Adjusted EBITDA for the first quarter of 2015 increased 108% to $6.9 million from $3.3 million for the first quarter of 2014. Net income for the first quarter of 2015 increased to $2.8 million, or $0.25 per share, compared with $0.5 million, or $0.04 per share, for the first quarter of 2014. Both adjusted EBITDA and net income for the first quarter of 2015 benefitted from the sale of our minority interest in .store.

Cash and cash equivalents at the end of the first quarter of 2015 were $13.7 million, up from $8.3 million at the end of the fourth quarter of 2014 and $13.5 million at the end of the first quarter of 2014. During the first quarter of 2015, Tucows generated cash flow from operating activities of $2.9 million. In addition, the Company generated $6.6 million from its previously announced agreement to amend its .online joint venture relationship to a marketing agreement and received $3.5 million under its Amended Credit Facility to fund the Company's previously announced acquisition of a controlling interest in Ting Virginia, LLC. The Company also used $7.7 million in cash to repurchase 408,000 shares of its common stock under its ongoing share buyback program and the modified "Dutch auction tender offer" that closed on January 7, 2015.

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. Adjusted EBITDA is not a measurement of financial performance under GAAP and should not be considered as an alternative to cash flow from operating activities or as a measure of liquidity or an alternative to net income as indicators of operating performance or any other measures of performance derived in accordance with generally accepted accounting principles. 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. The use of certain non-GAAP financial measures requires management to make estimates and assumptions regarding amounts of assets and liabilities and the amounts of revenue and expense during the reporting periods. We base our estimates on historical experience and assumptions that we believe are reasonable. Actual results could differ from these estimates.

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 other infrequently occurring items listed in the itemized reconciliations between GAAP and non-GAAP financial measures included in this press release.

2. Excludes contribution of the Portfolio group.

Conference Call

Tucows management will host a conference call today, Thursday, May 7, 2015 at 5:00 p.m. (ET) to discuss the Company's first 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 pass code 32328961 followed by the pound key. The telephone replay will be available until Thursday, May 14, 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 fourteen 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)
March 31, December 31,
2015 2014
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 13,678,191 $ 8,271,377
Accounts receivable 7,119,785 6,789,685
Inventory 574,119 393,774
Prepaid expenses and deposits 5,085,514 3,697,292
Prepaid domain name registry and ancillary services fees, current portion 46,107,333 44,614,858
Other Assets -- 8,199,000
Deferred tax asset, current portion 3,040,483 2,498,196
Income taxes recoverable 1,772 997
Total current assets 75,607,197 74,465,179
Prepaid domain name registry and ancillary services fees, long-term portion 11,735,134 11,764,765
Property and equipment 5,346,070 1,609,787
Deferred tax asset, long-term portion 5,067,090 4,880,423
Intangible assets 14,886,625 14,202,585
Goodwill 21,055,143 18,873,127
Total assets $ 133,697,259 $ 125,795,866
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 3,883,370 $ 3,579,920
Accrued liabilities 4,105,110 3,941,549
Customer deposits 4,325,284 4,461,727
Derivative instrument liability, current portion 2,139,268 1,115,805
Deferred rent, current portion 5,317 --
Loan payable, current portion 3,500,000 --
Deferred revenue, current portion 57,630,217 55,495,566
Accreditation fees payable, current portion 519,432 466,201
Income taxes payable 1,136,023 473,480
Total current liabilities 77,244,021 69,534,248
Deferred revenue, long-term portion 15,659,049 15,610,753
Accreditation fees payable, long-term portion 126,039 128,243
Deferred rent, long-term portion 85,069 92,878
Other liabilities 1,545,832
Deferred tax liability, long-term portion 5,032,177 4,787,351
Redeemable non-controlling interest 3,000,000 --
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; 10,996,733 shares issued and outstanding as of March 31, 2015 and 11,329,732 shares issued and outstanding as of December 31, 2014 13,975,005 14,130,059
Additional paid-in capital 22,318,640 29,090,058
Deficit (4,121,340) (6,955,283)
Accumulated other comprehensive income (loss) (1,167,233) (622,441)
Total stockholders' equity 31,005,072 35,642,393
Total liabilities and stockholders' equity $ 133,697,259 $ 125,795,866
Tucows Inc.
Consolidated Statements of Operations
(Dollar amounts in U.S. dollars)
Three months ended March 31,
2015 2014
(unaudited)
Net revenues $ 40,467,833 $ 34,402,394
Cost of revenues:
Cost of revenues 26,821,374 24,316,639
Network expenses 1,222,096 1,143,644
Depreciation of property and equipment 199,642 182,974
Amortization of intangible assets 3,924 --
Total cost of revenues 28,247,036 25,643,257
Gross profit 12,220,797 8,759,137
Expenses:
Sales and marketing 3,799,175 4,021,774
Technical operations and development 1,114,195 1,089,898
General and administrative 1,815,188 1,767,800
Depreciation of property and equipment 59,262 56,304
Amortization of intangible assets 53,215 219,030
Impairment of indefinite life intangible assets 12,493 250,688
Loss on currency forward contracts 956,858 551,371
Total expenses 7,810,386 7,956,865
Income from operations 4,410,411 802,272
Other income (expenses):
Interest expense, net (24,775) (73,883)
Total other income (expenses) (24,775) (73,883)
Income before provision for income taxes 4,385,636 728,389
Provision for income taxes 1,551,693 251,600
Net income 2,833,943 476,789
Other comprehensive loss, net of tax
Gain (loss) on hedging activities (960,866) (442,978)
Net amount reclassified to earnings 416,074 227,511
Other comprehensive income (loss) net of tax of $319,878 and $112,240 for the three months ended March 31, 2015 and March 31, 2014 (544,792) (215,467)
Comprehensive income for the period $ 2,289,151 $ 261,322
Basic earnings per common share $ 0.25 $ 0.04
Shares used in computing basic earnings per common share 11,142,628 11,028,559
Diluted earnings per common share $ 0.24 $ 0.04
Shares used in computing diluted earnings per common share 11,580,047 11,639,617
Tucows Inc.
Consolidated Statements of Cash Flows
(Dollar amounts in U.S. dollars)
Three months ended March 31,
2015 2014
Cash provided by: (unaudited)
Operating activities:
Net income for the period $ 2,833,943 $ 476,839
Items not involving cash:
Depreciation of property and equipment 258,904 239,278
Amortization of intangible assets 57,139 219,030
Impairment of indefinite life intangible asset 12,493 250,688
Deferred income taxes recovery (164,250) (343,231)
Excess tax benefits from share-based compensation expense -- (1,013,800)
Amortization of deferred rent (2,492) 3,212
Disposal of domain names 6,328 1,622
Loss (gain) on change in the fair value of forward contracts 158,793 87,146
Stock-based compensation 125,048 100,977
Change in non-cash operating working capital:
Accounts receivable (168,585) (1,262,921)
Inventory (113,150) (199,747)
Prepaid expenses and deposits (1,299,778) (366,836)
Prepaid domain name registry and ancillary services fees (1,462,844) (1,815,683)
Income taxes recoverable 661,768 (433,301)
Accounts payable 117,566 1,670,415
Accrued liabilities (59,220) (422,398)
Customer deposits (136,443) (29,129)
Deferred revenue 2,061,510 2,748,933
Accreditation fees payable 51,027 50,087
Net cash (used in) / provided by operating activities 2,937,757 (38,819)
Financing activities:
Proceeds received on exercise of stock options 247,983 911,081
Excess tax benefits from share-based compensation expense 412,642 1,013,800
Repurchase of common stock (7,712,145) (82,286)
Proceeds received on loan payable 3,500,000 --
Repayment of loan payable -- (616,667)
Net cash provided by / (used in) financing activities (3,551,520) 1,225,928
Investing activities:
Additions to property and equipment (191,762) (68,745)
Gross proceeds on waiver of rights to .online registry 6,619,832 --
Additional cost of acquisition of Ting Virginia, LLC., net of cash of $21,423 (407,493) --
Net cash provided by (used in) investing activities 6,020,577 (68,745)
Increase in cash and cash equivalents 5,406,814 1,118,364
Cash and cash equivalents, beginning of period 8,271,377 12,418,888
Cash and cash equivalents, end of period $ 13,678,191 $ 13,537,252
Supplemental cash flow information:
Interest paid $ 38,893 $ 73,949
Income taxes paid, net $ 564,139 $ 669,624
Supplementary disclosure of non-cash investing and financing activities:
Property and equipment acquired during the period not yet paid for $ 66,798 $ 285,821
Tucows Inc.
Reconciliation of Net income to Adjusted EBITDA
(In Thousands of US Dollars)
(unaudited)
Three months ended March 31,
2015 2014
(unaudited)
Net income for the period $ 2,834 $ 477
Depreciation of property and equipment 259 239
Amortization of intangible assets 70 470
Interest expense, net 25 74
Provision for income taxes 1,552 252
Change in net deferred revenue 1 691 932
Stock-based compensation 125 101
Loss (gain) on currency forward contracts 1,337 769
Adjusted EBITDA $ 6,893 $ 3,314
(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 three months ended March 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 TMX Equicom (416) 815-0700 ext. 257 lchamberlain@tmxequicom.com

Source:Tucows