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Tucows Reports Continuing Strong Financial Results for Fourth Quarter of 2015

TORONTO, Feb. 09, 2016 (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 fourth quarter ended December 31, 2015. All figures are in U.S. dollars.

Summary Financial Results
(In Thousands of US Dollars, Except Per Share Data)

3 Months Ended
December 31, 2015 (unaudited)
3 Months Ended
December 31, 2014 (unaudited)
12 Months Ended
December 31, 2015 (unaudited)
12 Months Ended
December 31, 2014
Net revenue 45,031 38,803 172,939 147,667
Adjusted EBITDA1 6,313 3,531 25,595 15,040
Net income 3,095 1,859 11,374 6,374
Net earnings per common share$0.29 $0.16 $1.04 $0.57
Net cash provided by operating activities 1,475 2,767 13,432 8,877

  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)

RevenueCost of Revenue


3 Months Ended
December 31, 2015 (unaudited)
3 Months Ended
December 31, 2014 (unaudited)
3 Months Ended
December 31, 2015 (unaudited)
3 Months Ended
December 31, 2014 (unaudited)
Domain Services
Wholesale
OpenSRS Domain Service21,38321,60917,86018,079
Value-Added Services2,296 2,305498531
Total Wholesale23,67923,91418,35818,610
Retail3,3022,8061,5031,216
Portfolio757917189241
Total Domain Services27,73827,63720,05020,067
Network Access Services 17,29311,1669,1886,755
Network, other costs--1,3261,127
Network, depreciation and amortization costs--353171
Total revenue/cost of revenue45,03138,80330,91728,120

“The fourth quarter marked a strong finish to a year that saw record performance across all of our key financial metrics,” said Elliot Noss, President and Chief Executive Officer, Tucows Inc. “Fourth quarter revenue topped $45 million, bringing our total for the year to $173 million – up 17% from 2014. Our growing Network Access business contributed to 79% and 70% year-over-year Adjusted EBITDA growth for the quarter and the year, totalling $6.3 million and $25.6 million, respectively. Earnings per share for fourth quarter and the year grew 81% and 82%, respectively, from the prior year to $0.29 and $1.04.”

“Notably, for the first time, Network Access contributed more gross margin during the quarter than Domain Services, with Network Access gross margin for 2015 nearly doubling from the prior year as the number of Ting Mobile accounts and devices expanded by 36% and 37%, respectively, over the course of the year.”

“Our strong cash flows from operations, alongside the operating leverage in our business model, particularly with the success and growth in Ting Mobile over the past few years, are now enabling us to pursue our ambitions on Ting Internet, while still returning capital to shareholders. During 2015, we invested $23.6 million in the repurchase of 1.1 million of our shares through our Dutch tender and open market buyback program.”

Net revenue for the fourth quarter of 2015 increased 16% to $45.0 million from $38.8 million for the fourth quarter of 2014.

Adjusted EBITDA1 for the fourth quarter of 2015 increased 79% to $6.3 million from $3.5 million for the fourth quarter of 2014. Net income for the fourth quarter of 2015 increased to $3.1 million, or $0.29 per share, compared with $1.9 million, or $0.16 per share, for the fourth quarter of 2014.

Cash and cash equivalents at the end of the fourth quarter of 2015 were $7.7 million compared with $11.9 million at the end of the third quarter of 2015 and $8.3 million at the end of the fourth quarter of 2014. The decrease relative to the third quarter of 2015 is primarily the result of the Company’s use of $5.4 million during the fourth quarter of 2015 to repurchase 231,047 shares of its common stock under its ongoing share buyback program, the use of $1.3 million for withholding taxes paid on the net-exercise of stock options and the use of $0.9 million to acquire additional property and equipment, the majority of which was invested in expanding Ting Internet’s fiber footprint. These were partially offset by a $2 million excess tax benefit on share-based compensation expense and the generation of cash flow from operating activities during the quarter of $1.5 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, Tuesday, February 9, 2016 at 5:00 p.m. (ET) to discuss the Company’s fourth 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 26560817 followed by the pound key. The telephone replay will be available until Tuesday, February 16, 2016 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).

Tucows Inc.
Consolidated Balance Sheets
(Dollar amounts in U.S. dollars)
December 31, December 31,
2015 2014
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 7,723,253 $ 8,271,377
Accounts receivable 7,171,388 6,789,685
Inventory 903,775 393,774
Prepaid expenses and deposits 5,067,790 3,697,292
Prepaid domain name registry and ancillary services fees, current portion 44,708,041 44,614,858
Other assets - 8,199,000
Deferred tax asset, current portion 3,243,718 2,498,196
Income taxes recoverable 2,292,915 997
Total current assets 71,110,880 74,465,179
Prepaid domain name registry and ancillary services fees, long-term portion 11,040,929 11,764,765
Property and equipment 7,126,676 1,609,787
Deferred tax asset, long-term portion 4,377,374 4,880,423
Intangible assets 14,469,677 14,202,585
Goodwill 21,005,143 18,873,127
Total assets $129,130,679 $ 125,795,866
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 4,166,135 $ 3,579,920
Accrued liabilities 5,855,686 3,941,549
Customer deposits 5,136,909 4,461,727
Derivative instrument liability 2,027,086 1,115,805
Deferred rent, current portion 19,463 -
Loan payable, current portion 3,500,000 -
Deferred revenue, current portion 56,646,390 55,495,566
Accreditation fees payable, current portion 465,300 466,201
Income taxes payable 444,053 473,480
Total current liabilities 78,261,022 69,534,248
Derivative instrument liability, long-term portion - -
Deferred revenue, long-term portion 14,947,639 15,610,753
Accreditation fees payable, long-term portion 118,480 128,243
Deferred rent, long-term portion 100,864 92,878
Other liabilities 1,459,960 -
Deferred tax liability, long-term portion 4,876,691 4,787,351
Redeemable non-controlling interest 3,036,598 -
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;10,685,599 shares issued and outstanding as of December 31, 2015 and 11,329,732 shares issued and outstanding as of December 31, 2014 14,530,633 14,130,059
Additional paid-in capital 8,526,395 29,090,058
Deficit 4,381,849 (6,955,283)
Accumulated other comprehensive income (loss) (1,109,452) (622,441)
Total stockholders' equity 26,329,425 35,642,393
Total liabilities and stockholders' equity $129,130,679 $ 125,795,866

Tucows Inc.
Consolidated Statements of Operations
(Dollar amounts in U.S. dollars)
Three months ended December 31,
Year ended December 31,
2015 2014 2015 2014
(unaudited) (unaudited)
Net revenues$ 45,030,537 $ 38,802,529 $ 172,939,499 $ 147,667,107
Cost of revenues:
Cost of revenues 29,238,042 26,822,484 113,089,970 101,861,002
Network expenses (*) 1,326,564 1,126,779 5,464,777 4,554,635
Depreciation of property and equipment 341,252 170,714 1,144,989 699,670
Amortization of intangible assets 11,532 - 38,520 -
Total cost of revenues 30,917,390 28,119,977 119,738,256 107,115,307
Gross profit 14,113,147 10,682,552 53,201,243 40,551,800
Expenses:
Sales and marketing (*) 5,150,010 4,016,364 18,537,810 15,394,065
Technical operations and development (*) 1,097,793 1,067,149 4,502,845 4,305,715
General and administrative (*) (note 1) 2,835,544 2,499,025 10,661,949 9,459,008
Depreciation of property and equipment 74,233 58,905 259,307 226,432
Amortization of intangible assets 56,997 51,330 224,206 596,620
Impairment of indefinite life intangible assets 137,268 - 206,116 577,145
Loss on currency forward contracts 110,912 137,855 792,900 357,760
Total expenses 9,462,757 7,830,628 35,185,133 30,916,745
Income from operations 4,650,390 2,851,924 18,016,110 9,635,055
Other income (expenses):
Interest expense, net 87,983 (51) (73,153) (206,730)
Total other income (expenses) 87,983 (51) (73,153) (206,730)
Income before provision for income taxes 4,738,373 2,851,873 17,942,957 9,428,325
Provision for income taxes 1,643,038 992,703 6,569,227 3,054,229
Net income 3,095,335 1,859,170 11,373,730 6,374,096
Redeemable non-controlling interest (121,759) - (284,509) -
Net (earnings) loss attributable to redeemable non-controlling interest 121,759 - 284,509 -
Net income 3,095,335 1,859,170 11,373,730 6,374,096
Other comprehensive income (loss), net of tax
Unrealized loss on hedging activities (308,217) (401,214) (2,031,465) (1,004,115)
Net amount reclassified to earnings 392,095 188,762 1,544,454 626,655
Other comprehensive income (loss) net of tax of $46,286 and $110,668 for the three months ended December 31, 2015 and December 31, 2014 and $287,994 and $196,623 for the year ended December 31, 2015 and December 31, 2014 83,878 (212,452) (487,011) (377,460)
Comprehensive income, net of tax for the period $ 3,179,213 $ 1,646,718 $ 10,886,719 $ 5,996,636
Basic earnings per common share$ 0.29 $ 0.16 $ 1.04 $ 0.57
Shares used in computing basic earnings per common share 10,704,251 11,310,469 10,968,500 11,220,874
Diluted earnings per common share$ 0.28 $ 0.16 $ 1.00 $ 0.54
Shares used in computing diluted earnings per common share 11,034,147 11,763,744 11,360,084 11,730,398
(*) Stock-based compensation has been included in expenses as follows:
Network expenses$ 6,651 $ 8,541 $ 28,915 $ 30,938
Sales and marketing$ 43,627 $ 39,074 $ 188,035 $ 143,514
Technical operations and development$ 26,593 $ 26,536 $ 111,239 $ 85,904
General and administrative$ 70,926 $ 51,541 $ 197,836 $ 282,382

Tucows Inc.
Consolidated Statements of Cash Flows
(Dollar amounts in U.S. dollars)
Three months ended
December 31,

Year ended
December 31,

2015 2014 2015 2014
Cash provided by: (unaudited) (unaudited)
Operating activities:
Net income for the period $ 3,095,335 $ 1,859,170 $ 11,373,730 $ 6,374,096
Items not involving cash:
Depreciation of property and equipment 415,485 229,619 1,404,296 926,102
Amortization of intangible assets 68,529 51,330 262,726 596,620
Impairment of indefinite life intangible asset 137,268 - 206,116 577,145
Deferred income taxes recovery 1,154,115 (276,779) 134,861 (1,084,470)
Excess tax benefits from share-based compensation expense - 250,555 - -
Amortization of deferred rent 9,532 2,687 27,449 16,899
Disposal of domain names 3,515 7,301 24,066 26,878
Loss on change in the fair value of forward contracts (24,118) 30,633 136,276 50,624
Stock-based compensation 147,797 125,692 526,025 542,738
Change in non-cash operating working capital:
Accounts receivable 774,701 125,005 (220,188) (1,484,282)
Inventory (161,315) (2,748) (442,806) (84,088)
Prepaid expenses and deposits (389,949) 624,939 (1,282,054) 611,747
Prepaid domain name registry and ancillary services fees 2,699,524 1,516,718 630,653 (331,453)
Income taxes recoverable (4,256,771) 718,357 (2,321,345) (75,744)
Accounts payable 47,353 21,490 249,931 1,152,042
Accrued liabilities 173,903 (1,016,351) 1,691,356 28,515
Customer deposits 421,959 392,395 675,182 (39,219)
Deferred revenue (2,819,673) (1,871,865) 366,273 1,088,083
Accreditation fees payable (22,089) (20,711) (10,664) (14,889)
Net cash provided by operating activities 1,475,101 2,767,437 13,431,883 8,877,344
Financing activities:
Proceeds received on exercise of stock options 65,766 93,108 803,135 1,478,924
Payment of tax obligations resulting from net exercise of stock options (1,306,981) - (1,306,981) -
Excess tax benefits from share-based compensation expense 2,030,225 133,422 3,431,018 1,888,734
Repurchase of common stock (5,437,110) - (23,616,286) (1,181,857)
Proceeds received on loan payable - - 3,500,000 -
Repayment of loan payable - - - (6,300,000)
Net cash (used in) provided by financing activities (4,648,100) 226,530 (17,189,114) (4,114,199)
Investing activities:
Additions to property and equipment (916,236) (112,836) (2,967,360) (711,656)
Acquisition of other assets - (8,199,000) - (8,199,000)
Gross proceeds from the waiver of rights to .online registry (85,872) - 6,533,960 -
Additional cost of acquisition of Ting Virginia, LLC., net of cash of $21,423 - - (357,493) -
Net cash (used in) provided by investing activities (1,002,108) (8,311,836) 3,209,107 (8,910,656)
Decrease in cash and cash equivalents (4,175,107) (5,317,869) (548,124) (4,147,511)
Cash and cash equivalents, beginning of period 11,898,360 13,589,246 8,271,377 12,418,888
Cash and cash equivalents, end of period$ 7,723,253 $ 8,271,377 $ 7,723,253 $ 8,271,377
Supplemental cash flow information:
Interest paid$ 46,126 $ 143 $ 173,197 $ 207,777
Income taxes paid, net$ 592,798 $ 447,071 $ 3,132,105 $ 2,172,047
Supplementary disclosure of non-cash investing activity:
Property and equipment acquired during the period not yet paid for$ 63,499 $ 66,397 $ 63,499 $ 66,397

Tucows Inc.
Reconciliation of Net income to Adjusted EBITDA
(In Thousands of US Dollars)
Three months ended December 31,
Year ended December 31,
2015 2014 2015 2014
(unaudited) (unaudited)
Net income for the period $ 3,095 $ 1,859 $11,374$6,374
Depreciation of property and equipment 415 230 1,404 927
Amortization of intangible assets 69 51 263 596
Impairment of indefinite life intangible assets 137 - 206 577
Interest expense, net (88) - 73 206
Provision for income taxes 1,643 993 6,570 3,055
Change in net deferred revenue 1 (97) (320) 1,084 863
Stock-based compensation 148 126 526 543
Loss on currency forward contracts 991 592 4,095 1,899
Adjusted EBITDA$ 6,313 $ 3,531 $25,595$15,040
(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 year ended December 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) 848-1457 lchamberlain@national.ca

Source:Tucows Inc