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

– Quarter Highlighted by Record Revenue of $42.9 Million, Adjusted EBITDA of $5.4 Million and Net Earnings of $0.21 Per Share as Contribution of Ting Mobile Continues to Grow –

TORONTO, Aug. 6, 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 second quarter ended June 30, 2015. All figures are in U.S. dollars.

Summary Financial Results
(In Thousands of US Dollars, Except Per Share Data)
3 Months Ended 3 Months Ended 6 Months Ended 6 Months Ended
June 30, 2015
(unaudited)
June 30, 2014
(unaudited)
June 30, 2015
(unaudited)
June 30, 2014
(unaudited)
Net revenue 42,889 35,588 83,357 69,990
Adjusted EBITDA1 5,357 3,275 12,250 6,589
Net income2 2,285 1,347 5,119 1,824
Net earnings per common share $ 0.21 $ 0.12 $ 0.46 $ 0.16
Net cash provided by operating activities 2,236 1,135 5,173 1,096
1. This Non-GAAP financial measure is described below and reconciled to GAAP net income in the accompanying table.
2. Net income for the three- and six-month periods ended June 30, 2015 include a provision of $0.9 million under the Company's overachievement bonus program as the Company expects to exceed its adjusted EBITDA target.
Summary of Revenues and Cost of Revenues
(In Thousands of US Dollars)
Revenue Revenue Cost of Revenue Cost of Revenue
3 Months Ended 3 Months Ended 3 Months Ended 3 Months Ended
June 30, 2015
(unaudited)
June 30, 2014
(unaudited)
June 30, 2015
(unaudited)
June 30, 2014
(unaudited)
Domain Services
Wholesale
OpenSRS Domain Service 21,287 21,503 17,750 17,809
Value-Added Services 2,356 2,396 501 563
Total Wholesale 23,643 23,899 18,251 18,372
Retail 3,009 2,540 1,323 1,111
Portfolio 819 889 178 213
Total Domain Services 27,471 27,328 19,752 19,696
Network Access Services 15,418 8,260 8,499 5,040
Network, other costs -- -- 1,495 1,145
Network, depreciation and amortization costs -- -- 291 174
Total revenue/cost of revenue 42,889 35,588 30,037 26,055

"Continuing growth in Ting Mobile as well as solid performance from our Domains business contributed to another quarter of record revenue as the operating leverage in our business drove further expansion of our gross margin to 29%2 from 26%2 in the second quarter of last year," said Elliot Noss, President and Chief Executive Officer, Tucows Inc. "This operating leverage continued to be reflected in our profitability, with Adjusted EBITDA1 for the second quarter increasing 64% year-over-year to $5.4 million, bringing our total for the year-to-date to $12.3 million."

Net revenue for the second quarter of 2015 increased 21% to $42.9 million from $35.6 million for the second quarter of 2014.

Adjusted EBITDA for the second quarter of 2015 increased 64% to $5.4 million from $3.3 million for the second quarter of 2014. Net income for the second quarter of 2015 increased to $2.3 million, or $0.21 per share, compared with $1.3 million, or $0.12 per share, for the second quarter of 2014.

Cash and cash equivalents at the end of the second quarter of 2015 were $15.3 million, up from $8.3 million at the end of the fourth quarter of 2014 and $14.2 million at the end of the second quarter of 2014. During the second quarter of 2015, Tucows generated cash flow from operating activities of $2.2 million and invested $1.1 million to acquire additional property and equipment, primarily investing $0.8 million in expanding Ting Internet's fiber footprint. The Company also used $0.5 million in cash to repurchase 25,413 shares of its common stock under its ongoing share buyback program.

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.

2. Excludes contribution of the Portfolio group.

Conference Call

Tucows management will host a conference call today, Thursday, August 6, 2015 at 5:00 p.m. (ET) to discuss the Company's second 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 85694270 followed by the pound key. The telephone replay will be available until Thursday, August 13, 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)
June 30, December 31,
2015 2014
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 15,300,762 $ 8,271,377
Accounts receivable 8,208,238 6,789,685
Inventory 619,413 393,774
Prepaid expenses and deposits 5,678,128 3,697,292
Prepaid domain name registry and ancillary services fees, current portion 46,922,331 44,614,858
Other assets -- 8,199,000
Deferred tax asset, current portion 3,316,406 2,498,196
Income taxes recoverable 227,759 997
Total current assets 80,273,037 74,465,179
Prepaid domain name registry and ancillary services fees, long-term portion 11,676,068 11,764,765
Property and equipment 6,156,918 1,609,787
Deferred tax asset, long-term portion 5,417,090 4,880,423
Intangible assets 14,768,934 14,202,585
Goodwill 21,005,143 18,873,127
Total assets $ 139,297,190 $ 125,795,866
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 3,777,159 $ 3,579,920
Accrued liabilities 5,274,863 3,941,549
Customer deposits 4,914,645 4,461,727
Derivative instrument liability 1,374,202 1,115,805
Deferred rent, current portion 10,783 --
Loan payable, current portion 3,500,000 --
Deferred revenue, current portion 58,633,546 55,495,566
Accreditation fees payable, current portion 503,644 466,201
Deferred tax liability, current portion 24,765 --
Income taxes payable 1,483,258 473,480
Total current liabilities 79,496,865 69,534,248
Derivative instrument liability, long-term portion 149,445 --
Deferred revenue, long-term portion 15,639,306 15,610,753
Accreditation fees payable, long-term portion 122,846 128,243
Deferred rent, long-term portion 92,642 92,878
Other liabilities 1,545,832 --
Deferred tax liability, long-term portion 5,015,677 4,787,351
Redeemable non-controlling interest 3,012,150 --
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;11,083,976 shares issued and outstanding as of June 30, 2015 and 11,329,732 shares issued and outstanding as of December 31, 2014 (1) 14,411,616 14,130,059
Additional paid-in capital 22,492,630 29,090,058
Deficit (1,848,495) (6,955,283)
Accumulated other comprehensive income (loss) (833,324) (622,441)
Total stockholders' equity 34,222,427 35,642,393
Total liabilities and stockholders' equity $ 139,297,190 $ 125,795,866
(1) Shares issued and outstanding at both June 30, 2014 and December 31, 2013 reflects the 1-for-4 reverse split of common shares that became effective on December 31, 2013.
Tucows Inc.
Consolidated Statements of Operations
(Dollar amounts in U.S. dollars)
Three months ended June 30, Six months ended June 30,
2015 2014 2015 2014
(unaudited) (unaudited)
Net revenues $ 42,889,220 $ 35,588,001 $ 83,357,053 $ 69,990,395
Cost of revenues:
Cost of revenues 28,250,672 24,736,004 55,072,046 49,052,643
Network expenses (*) 1,494,838 1,144,697 2,716,934 2,288,341
Depreciation of property and equipment 279,929 173,963 479,571 356,937
Amortization of intangible assets 11,532 -- 15,456 --
Total cost of revenues 30,036,971 26,054,664 58,284,007 51,697,921
Gross profit 12,852,249 9,533,337 25,073,046 18,292,474
Expenses:
Sales and marketing (*) 4,847,963 3,762,441 8,647,138 7,784,215
Technical operations and development (*) 1,189,276 1,107,532 2,303,471 2,197,430
General and administrative (*) 2,173,254 1,886,319 3,988,442 3,654,119
Depreciation of property and equipment 62,022 52,538 121,284 108,842
Amortization of intangible assets 56,997 219,030 110,212 438,060
Impairment of indefinite life intangible assets 37,805 326,457 50,298 577,145
Loss on currency forward contracts 602,439 96,545 1,559,297 647,916
Total expenses 8,969,756 7,450,862 16,780,142 15,407,727
Income from operations 3,882,493 2,082,475 8,292,904 2,884,747
Other income (expenses):
Interest expense, net (57,402) (69,348) (82,177) (143,181)
Total other income (expenses) (57,402) (69,348) (82,177) (143,181)
Income before provision for income taxes 3,825,091 2,013,127 8,210,727 2,741,566
Provision for income taxes 1,540,096 665,945 3,091,789 917,545
Net income 2,284,995 1,347,182 5,118,938 1,824,021
Redeemable non-controlling interest (49,985) -- (71,467) --
Net (earnings) loss attributable to redeemable non-controlling interest 49,985 -- 71,467 --
Net income 2,284,995 1,347,182 5,118,938 1,824,021
Other comprehensive income (loss), net of tax
Unrealized loss on hedging activities (38,046) 285,136 (998,912) (165,382)
Net amount reclassified to earnings 371,955 145,141 788,029 380,192
Other comprehensive income (loss) net of tax of $111,897 and $133,761 for the three months ended June 30, 2014 and June 30, 2013, and $224,137 and $230,538 for the six months ended June 30, 2014 and June 30, 2013 (2013 : $96,777) 333,909 430,277 (210,883) 214,810
Comprehensive income (loss), net of tax for the period $ 2,618,904 $ 1,777,459 $ 4,908,055 $ 2,038,831
Basic earnings per common share $ 0.21 $ 0.12 $ 0.46 $ 0.16
Shares used in computing basic earnings per common share 11,047,136 11,219,101 11,094,618 11,124,357
Diluted earnings per common share $ 0.20 $ 0.11 $ 0.44 $ 0.16
Shares used in computing diluted earnings per common share 11,456,670 11,729,547 11,518,105 11,684,529
(*) Stock-based compensation has been included in expenses as follows:
Network expenses $ 6,916 $ 7,932 $ 15,797 $ 14,058
Sales and marketing $ 30,804 $ 33,909 $ 66,803 $ 60,319
Technical operations and development $ 18,447 $ 20,370 $ 36,652 $ 35,617
General and administrative $ 29,190 $ 29,044 $ 67,082 $ 56,103
(1) Shares used in computing earnings per share as well as earnings per common share reflects the 1-for-4 reverse split of common shares that became effective on December 31, 2013.
Tucows Inc.
Consolidated Statements of Cash Flows
(Dollar amounts in U.S. dollars)
Three months ended June 30, Six months ended June 30,
2015 2014 2015 2014
Cash provided by: (unaudited) (unaudited)
Operating activities:
Net income for the period $ 2,284,995 $ 1,347,182 $ 5,118,938 $ 1,824,021
Items not involving cash:
Depreciation of property and equipment 341,951 226,501 600,855 465,779
Amortization of intangible assets 68,529 219,030 125,668 438,060
Impairment of indefinite life intangible asset 37,805 326,457 50,298 577,145
Deferred income taxes (recovery) (801,919) (415,246) (966,169) (758,477)
Excess tax benefits from share-based compensation expense -- 594,899 -- (418,901)
Amortization of deferred rent 13,039 9,168 10,547 12,380
Disposal of domain names 11,357 7,247 17,685 8,869
Loss (gain) on change in the fair value of forward contracts (97,451) (192,460) 61,342 (105,314)
Stock-based compensation 124,605 85,357 249,653 186,334
Change in non-cash operating working capital:
Accounts receivable (1,088,453) (350,806) (1,257,038) (1,613,727)
Inventory (45,294) 28,293 (158,444) (171,454)
Prepaid expenses and deposits (592,614) (259,698) (1,892,392) (626,534)
Prepaid domain name registry and ancillary services fees (755,932) (606,215) (2,218,776) (2,421,898)
Income taxes recoverable 121,248 (133,242) 783,016 (566,543)
Accounts payable (109,990) (866,473) 7,576 803,942
Accrued liabilities 1,169,753 253,027 1,110,533 (169,371)
Customer deposits 589,361 16,054 452,918 (13,075)
Deferred revenue 983,586 867,445 3,045,096 3,616,378
Accreditation fees payable (18,981) (21,755) 32,046 28,332
Net cash (used in) provided by operating activities 2,235,595 1,134,765 5,173,352 1,095,946
Financing activities:
Proceeds received on exercise of stock options 299,472 130,782 547,455 1,041,863
Excess tax benefits on share-based compensation expense 676,060 -- 1,088,702 1,013,800
Repurchase of common stock (489,536) -- (8,201,681) (82,286)
Proceeds received on loan payable -- -- 3,500,000 --
Repayment of loan payable -- (325,000) -- (941,667)
Net cash provided by (used in) financing activities 485,996 (194,218) (3,065,524) 1,031,710
Investing activities:
Additions to property and equipment (1,149,020) (313,281) (1,340,782) (382,026)
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 50,000 -- (357,493) --
Net cash used in investing activities (1,099,020) (313,281) 4,921,557 (382,026)
Increase (decrease) in cash and cash equivalents 1,622,571 627,266 7,029,385 1,745,630
Cash and cash equivalents, beginning of period 13,678,191 13,537,252 8,271,377 12,418,888
Cash and cash equivalents, end of period $ 15,300,762 $ 14,164,518 $ 15,300,762 $ 14,164,518
Supplemental cash flow information:
Interest paid $ 57,409 $ 69,437 $ 96,302 $ 143,386
Income taxes paid, net $ 1,380,448 $ 588,916 $ 1,944,470 $ 1,258,540
Supplementary disclosure of non-cash investing activity:
Property and equipment acquired during the period not yet paid for $ 70,577 $ 19,637 $ 70,577 $ 19,637
Tucows Inc.
Reconciliation of Net income to Adjusted EBITDA
(In Thousands of US Dollars)
Three months ended June 30, Six months ended June 30,
2015 2014 2015 2014
(unaudited) (unaudited)
Net income for the period $ 2,285 $ 1,347 $ 5,119 $ 1,824
Depreciation of property and equipment 342 227 601 466
Amortization of intangible assets 106 545 176 1,015
Interest expense, net 57 69 82 143
Provision for income taxes 1,540 666 3,092 918
Change in net deferred revenue 1 200 266 891 1,198
Stock-based compensation 125 85 250 186
Loss (gain) on currency forward contracts 702 70 2,039 839
Adjusted EBITDA $ 5,357 $ 3,275 $ 12,250 $ 6,589
(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 NATIONAL Equicom (416) 815-0700 ext. 257 lchamberlain@tmxequicom.com

Source:Tucows