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Tucows Reports Financial Results for Third Quarter 2021
ソース: Nasdaq GlobeNewswire / 04 11 2021 17:50:36 America/New_York
TORONTO, Nov. 04, 2021 (GLOBE NEWSWIRE) -- Tucows Inc. (NASDAQ:TCX, TSX:TC), a provider of Fiber Internet Services, Mobile Services, Domain Name Services and other Internet services, today reported its financial results for the third quarter ended September 30, 2021. All figures are in U.S. dollars.
COVID-19: Tucows shareholders and prospective investors are encouraged to read Tucows’ public statement regarding COVID-19, which is available here: https://bit.ly/2LavpOc.
Note on the Financial Impact of Tucows’ Sale of Ting Mobile Customer Relationships and Transition to Mobile Services Enabler Platform:
As previously announced, effective August 1, 2020 most of Tucows’ mobile customers relationships were sold to DISH Networks (“DISH”) as part of Tucows’ transition of its mobile business to a Mobile Services Enabler (MSE) model from a Mobile Virtual Network Operator (MVNO) model, under which DISH became Tucows’ first MSE customer. Accordingly, the results of the Mobile Services segment for the third quarter of 2021 reflect operations under the new MSE model with the third quarter of 2020 being composed of approximately one month of operations under Tucows’ previous MVNO model and approximately two months under the new MSE model.
Under the terms of the earn out arrangement for the Ting customer base acquired by DISH, the income generated by the customer base acquired by Dish are recognized (net of expenses) as “Other Income” under the heading “Gain on Sale of Ting Customer Assets”. As a result, revenue and gross margin for the Mobile Services segment for the third quarter of 2021 were impacted by the significantly larger MVNO contribution for the third quarter of 2020. Tucows will recognize platform fees for customers owned by DISH under the Ting brand as well as customers under other DISH brands that are added to Tucows’ MSE platform, as Mobile Platform Services revenue under the terms of the MSE Agreement signed with DISH. For more information, see Tucows’ Financial Statements and Management Discussion and Analysis for the third quarter of 2021.
Summary Financial Results
(In Thousands of US Dollars, Except Per Share Data)
3 Months ended September 30 9 Months ended September 30 2021
(Unaudited)2020
(Unaudited)% Change 2021
(Unaudited)2020
(Unaudited)% Change Net revenue 75,893 74,311 2.1 % 221,861 240,418 (7.7 %) Gross Profit 18,024 19,941 (9.6 %) 53,716 68,057 (21.1 %) Gain on Sale of Ting Customer Assets1 5,564 1,090 410.5 % 15,767 1,090 1,346.5 % Net income 1,375 716 92.0 % 5,331 3,707 43.8 % Basic Net earnings per common share 0.13 0.07 85.7 % 0.50 0.35 42.9 % Adjusted EBITDA1 12,205 13,270 (8.0 %) 36,083 38,124 (5.4 %) Net cash provided by operating activities 1,492 11,432 (86.9 %) 19,095 34,444 (44.6 %) - This Non-GAAP financial measure is described below and reconciled to GAAP net income in the accompanying table.
Summary of Revenues, Gross Profit and Adjusted EBITDA
(In Thousands of US Dollars)Revenue Gross Profit Adj. EBITDA1 3 Months ended
September 303 Months ended
September 303 Months ended
September 302021
(Unaudited)2020
(Unaudited)2021
(Unaudited)2020
(Unaudited)2021
(Unaudited)2020
(Unaudited)Fiber Internet Services: Fiber Internet Services 6,672 4,657 3,019 2,975 (4,358 ) (1,052 ) Mobile Services: Retail Mobile Services 2,309 7,019 608 3,579 Mobile Platform Services 3,564 376 3,444 376 Other Professional Services 2,619 1,457 806 190 Total Mobile Services 8,492 8,852 4,858 4,145 7,648 5,182 Domain Services: Wholesale Domain Services 47,081 47,261 9,972 10,449 Value Added Services 4,862 4,380 4,174 3,691 Total Wholesale 51,943 51,641 14,146 14,140 Retail 8,786 9,161 4,330 4,721 Total Domain Services 60,729 60,802 18,476 18,861 12,024 12,024 Network Expenses: Network, other costs n/a n/a 3,445 2,612 n/a n/a Network, depreciation and amortization costs n/a n/a 4,643 3,315 n/a n/a Network, impairment n/a n/a 241 113 n/a n/a Total Network expenses n/a n/a 8,329 6,040 n/a n/a Total 75,893 74,311 18,024 19,941 n/a n/a “The third quarter once again saw solid financial performance across Tucows businesses,” said Elliot Noss, President and Chief Executive Officer, Tucows Inc. “Our Domains Services continued to deliver consistent performance, benefitting from the higher level of domains under management driven by the pandemic impact last year, as well as our success in maximizing gross margin. In our Mobile Services business, our third quarter results reflect the growing contribution of our new MSE Platform business, which continues to move forward in line with our expectations. And in our Fiber Internet Services business, we continued to make strong, steady progress in the accelerated build out of our network and our customer base, with serviceable addresses and subscribers increasing 48% and 67%, respectively, as we repeated our record level of new subscriber additions achieved in the second quarter.”
Financial Results
Net revenue for the third quarter of 2021 was $75.9 million compared with $74.3 million for the third quarter of 2020. The increase was the result of growth in revenue from the Fiber Internet Services and both Mobile Platform Services and Other Professional Services under the new MSE model, which were partially offset by the absence of Ting Mobile MVNO revenue in the third quarter of 2021, following the Company’s sale of its Ting Mobile customer relationships to DISH on August 1, 2020 and the related earn out being recognized as Other Income. This compares with approximately one month’s contribution in the third quarter of 2020. Excluding the Mobile Services business, net revenue for the combined Domains Services and Fiber Internet businesses for the third quarter of 2021 increased 3% from the third quarter of 2020. Revenue for Mobile Services for the third quarter of 2021 decreased 4% from the third quarter of 2020.
Gross profit for the third quarter of 2021 was $18.0 million compared with $19.9 million for the third quarter of 2020. Excluding the Mobile Services business, gross margin for the combined Domains Services and Fiber Internet Services businesses for the third quarter of 2021 decreased 2% from the third quarter of 2020. Gross profit for Mobile Services for the third quarter of 2021 increased 17% from the third quarter of 2020 due to growth in revenue under the new MSE model.
Net income for the third quarter of 2021 was $1.4 million, or $0.13 per share, compared with $0.7 million, or $0.07 per share, for the third quarter of 2020.
Adjusted EBITDA1 for the third quarter of 2021 was $12.2 million compared with $13.3 million for the third quarter of 2020. Adjusted EBITDA1 reflects the continued investment in Fiber Internet Services.
Cash and cash equivalents at the end of the third quarter of 2021 were $5.5 million compared with $7.3 million at the end of the second quarter of 2021 and $10.2 million at the end of the third quarter of 2020.
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 (net), accretion of contingent consideration, stock-based compensation, asset impairment, gains and losses from unrealized foreign currency transactions and costs that are one-time in nature and not indicative of on-going performance (profitability), 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 adjusted EBITDA to income before provision for income taxes (dollars in thousands):
3 months ended September 30 9 months ended September 30 2021
(Unaudited)2020
(Unaudited)2021
(Unaudited)2020
(Unaudited)Adjusted EBITDA 12,205 13,270 36,083 38,124 Depreciation of property and equipment 4,758 3,110 12,728 9,255 Impairment and loss on disposition of property and equipment 470 113 536 1,638 Amortization of intangible assets 2,288 2,645 7,253 8,776 Impairment of definite life intangible assets - - - 1,431 Disposal of Ting Mobile customer assets - 3,513 - 3,513 Interest expense, net 1,169 760 3,108 2,756 Accretion of contingent consideration 96 86 287 258 Stock-based compensation 1,126 1,016 3,357 2,664 Unrealized loss (gain) on change in fair value of forward contracts 249 (175 ) 606 (263 ) Unrealized loss (gain) on foreign exchange revaluation of foreign denominated monetary assets and liabilities 72 81 178 479 Acquisition and transition costs* 901 565 2,034 1,520 Income before provision for income taxes 1,076 1,556 5,996 6,097 *Acquisition and other costs represent transaction-related expenses, transitional expenses, such as redundant post-acquisition expenses, primarily related to our acquisition of Ascio in March 2019 and Cedar in January 2020 and disposition of certain Ting Mobile assets in August 2020. Expenses include severance or transitional costs associated with department, operational or overall company restructuring efforts, including geographic alignments. Conference Call
Concurrent with the dissemination of its quarterly financial results news release at 5:05 pm ET on Thursday, November 4, management’s pre-recorded audio commentary (and transcript) discussing the quarter and outlook for the Company, will be posted to the Tucows website at http://www.tucows.com/investors/financials. In lieu of a live question and answer period, for the subsequent eight days, until Friday, November 12, shareholders, analysts and prospective investors can submit questions to Tucows’ management at ir@tucows.com. Management will post responses to questions of general interest (audio recording and transcript) to the Company’s website at http://www.tucows.com/investors/financials/ on Thursday, November 18, at approximately 4 pm ET. All questions will receive a response, however, questions of a more specific nature may be responded to directly.
About Tucows
Tucows is a provider of Fiber Internet Services, Mobile Services, Domain Name Services and other Internet services. Ting Internet (https://ting.com/internet) delivers fixed fiber Internet access with outstanding customer support. Tucows’ mobile services enabler (MSE) platform provides network access, provisioning and billing services for mobile virtual network operators (MVNOs). OpenSRS (https://opensrs.com), Enom (https://www.enom.com) and Ascio (https://ascio.com) combined manage approximately 25 million domain names and millions of value-added services through a global reseller network of over 36,000 web hosts and ISPs. Hover (https://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 (https://tucows.com).
Tucows Inc. Consolidated Balance Sheets (Dollar amounts in thousands of U.S. dollars) September 30, December 31, 2021 2020 (unaudited) (unaudited) Assets Current assets: Cash and cash equivalents $ 5,535 $ 8,311 Accounts receivable 14,822 15,540 Contract asset, current portion 2,783 - Inventory 3,111 1,875 Prepaid expenses and deposits 18,719 16,845 Derivative instrument asset, current portion - 3,860 Deferred costs of fulfillment, current portion 94,970 93,467 Income taxes recoverable 3,892 1,302 Total current assets 143,832 141,200 Deferred costs of fulfillment, long-term portion 18,226 17,599 Derivative instrument asset, long-term portion 78 - Property and equipment 155,236 117,530 Right of use operating lease asset 16,138 11,238 Contract costs 806 362 Deferred tax asset 153 226 Intangible assets 40,413 47,444 Goodwill 116,304 116,304 Investment 2,012 - Total assets $ 493,198 $ 451,903 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 9,260 $ 6,329 Accrued liabilities 12,176 10,235 Customer deposits 15,139 15,402 Derivative instrument liability, current portion 453 99 Operating lease liability, current portion 2,588 1,761 Deferred revenue, current portion 127,792 127,336 Accreditation fees payable, current portion 913 940 Income taxes payable 62 863 Total current liabilities 168,383 162,965 Derivative instrument liability, long-term portion - 114 Deferred revenue, long-term portion 24,195 24,909 Accreditation fees payable, long-term portion 177 195 Operating lease liability, long-term portion 11,103 9,179 Loan payable, long-term portion 149,937 121,733 Other long-term liability 3,703 3,416 Deferred tax liability 22,481 24,694 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; 10,696,779 shares issued and outstanding as of September 30, 2021 and 10,612,414 shares issued and outstanding as of December 31, 2020 25,520 20,798 Additional paid-in capital 2,550 1,458 Retained earnings 85,437 80,106 Accumulated other comprehensive income (loss) (288 ) 2,336 Total stockholders' equity 113,219 104,698 Total liabilities and stockholders' equity $ 493,198 $ 451,903 Tucows Inc. Consolidated Statements of Operations and Comprehensive Income (Dollar amounts in thousands of U.S. dollars) Three months ended
September 30,Nine months ended
September 30,2021 2020 2021 2020 (unaudited) (unaudited) Net revenues $ 75,893 $ 74,311 $ 221,861 $ 240,418 Cost of revenues: Direct cost of revenues 49,540 48,330 144,860 153,308 Network expenses (*) 3,445 2,612 10,295 7,513 Depreciation of property and equipment 4,622 2,985 12,344 8,892 Amortization of intangible assets 21 330 344 1,010 Impairment of property and equipment 241 113 302 1,638 Total cost of revenues 57,869 54,370 168,145 172,361 Gross profit 18,024 19,941 53,716 68,057 Expenses: Sales and marketing (*) $ 9,892 $ 8,318 $ 27,579 $ 26,521 Technical operations and development (*) 3,742 3,162 10,044 8,980 General and administrative (*) 5,069 4,868 15,232 15,074 Depreciation of property and equipment 136 125 384 363 Loss on disposition of property and equipment 229 - 234 - Amortization of intangible assets 2,267 2,315 6,909 7,766 Impairment of definite life intangible assets - - - 1,431 Loss (gain) on currency forward contracts (87 ) (159 ) (277 ) (99 ) Total expenses 21,248 18,629 60,105 60,036 Income from operations (3,224 ) 1,312 (6,389 ) 8,021 Other income (expenses): Interest expense, net (1,169 ) (760 ) (3,108 ) (2,756 ) Gain on sale of Ting Customer Assets, net 5,564 1,090 15,767 1,090 Other expense, net (95 ) (86 ) (274 ) (258 ) Total other income (expenses) 4,300 244 12,385 (1,924 ) Income before provision for income taxes 1,076 1,556 5,996 6,097 Provision for income taxes (299 ) 840 665 2,390 Net income before redeemable non-controlling interest 1,375 716 5,331 3,707 Redeemable non-controlling interest - - - - Net income attributable to redeemable non-controlling interest - - - - Net income for the period 1,375 716 5,331 3,707 Other comprehensive income, net of tax Unrealized income (loss) on hedging activities (501 ) 729 115 609 Net amount reclassified to earnings (884 ) 46 (2,739 ) 289 Other comprehensive income net of tax expense (recovery) of $(419) and $230 for the three months ended September 30, 2021 and September 30, 2020, ($794) and $262 for the nine months ended September 30, 2021 and Septmeber 30, 2020 (1,385 ) 775 (2,624 ) 898 Comprehensive income, net of tax for the period $ (10 ) $ 1,491 $ 2,707 $ 4,605 Basic earnings per common share $ 0.13 $ 0.07 $ 0.50 $ 0.35 Shares used in computing basic earnings per common share 10,679,309 10,577,731 10,643,798 10,585,785 Diluted earnings per common share $ 0.13 $ 0.07 $ 0.49 $ 0.35 Shares used in computing diluted earnings per common share 10,819,716 10,682,808 10,800,361 10,679,162 (*) Stock-based compensation has been included in expenses as follows: Network expenses $ 131 $ 138 $ 400 $ 333 Sales and marketing $ 443 $ 457 $ 1,498 $ 1,203 Technical operations and development $ 209 $ 208 $ 610 $ 558 General and administrative $ 344 $ 214 $ 849 $ 570 Tucows Inc. Consolidated Statements of Cash Flows (Dollar amounts in thousands of U.S. dollars) Three months ended
September 30,Nine months ended
September 30,2021 2020 2021 2020 Cash provided by: (unaudited) (unaudited) Operating activities: Net income for the period $ 1,375 $ 716 $ 5,331 $ 3,707 Items not involving cash: Depreciation of property and equipment 4,758 3,110 12,728 9,255 Impairment of property and equipment 241 113 302 1,638 Amortization of debt discount and issuance costs 68 68 202 202 Amortization of intangible assets 2,288 2,645 7,253 8,776 Net amortization contract costs (189 ) (15 ) (444 ) 109 Impairment of definite life intangible assets - - - 1,431 Other - - - 223 Accretion of contingent consideration 96 86 287 258 Deferred income taxes (recovery) (488 ) 180 (1,368 ) (927 ) Excess tax benefits on share-based compensation expense (323 ) (164 ) (868 ) (508 ) Net Right of use operating assets/Operating lease liability (2,378 ) 137 (2,149 ) 249 Loss on disposal of domain names - - 1 15 Loss (gain) on change in the fair value of forward contracts 249 (175 ) 606 (263 ) Write-down on disposal of Ting Mobile customer assets - 3,513 - 3,513 Stock-based compensation 1,126 1,016 3,357 2,664 Change in non-cash operating working capital: Accounts receivable (11 ) 118 718 2,670 Contract asset (2,783 ) - (2,783 ) - Inventory (275 ) (123 ) (1,236 ) 1,681 Prepaid expenses and deposits 918 2,905 (1,874 ) (317 ) Deferred costs of fulfillment 1,442 984 (2,130 ) (4,073 ) Income taxes recoverable 532 (2,475 ) (2,502 ) (1,681 ) Accounts payable 271 509 2,289 759 Accrued liabilities (1,828 ) (668 ) 1,941 (334 ) Customer deposits (673 ) 69 (263 ) 463 Deferred revenue (2,873 ) (1,070 ) (258 ) 4,927 Accreditation fees payable (51 ) (47 ) (45 ) 7 Net cash provided by operating activities 1,492 11,432 19,095 34,444 Financing activities: Proceeds received on exercise of stock options 1,368 632 2,844 678 Payment of tax obligations resulting from net exercise of stock options (89 ) (132 ) (387 ) (479 ) Repurchase of common stock - - - (3,281 ) Proceeds received on loan payable 10,000 - 28,000 - Payment of loan payable costs - - - (32 ) Net cash (used in) provided by financing activities 11,279 500 30,457 (3,114 ) Investing activities: Cost of Domain Names acquired - - - - Additions to property and equipment (14,488 ) (10,636 ) (50,093 ) (32,729 ) Gross proceeds from the waiver of rights to .online registry - - - - Acquisition of other assets - - - - Acquisition of Cedar Holdings Group, net of cash of $66 - - - (8,770 ) Acquisition of Ascio Technologies Inc. (net of cash of $1,437) - - - - Acquisition of intangible assets (6 ) - (223 ) (69 ) Investment in securities - - (2,012 ) - Net cash used in investing activities (14,494 ) (10,636 ) (52,328 ) (41,568 ) (Decrease) increase in cash and cash equivalents (1,723 ) 1,296 (2,776 ) (10,238 ) Cash and cash equivalents, beginning of period 7,258 8,859 8,311 20,393 Cash and cash equivalents, end of period $ 5,535 $ 10,155 $ 5,535 $ 10,155 Supplemental cash flow information: Interest paid $ 1,144 $ 635 $ 3,038 $ 2,638 Income taxes paid, net $ 212 $ 3,249 $ 6,008 $ 5,449 Supplementary disclosure of non-cash investing and financing activities: Property and equipment acquired during the period not yet paid for $ 1,772 $ 1,697 $ 1,772 $ 1,697 Fair value of shares issues for acquisition of Cedar Holdings Group $ - $ - $ - $ 2,000 Fair value of contingent consideration for acquisition of Cedar Holdings Group $ - $ - $ - $ 3,072 Reconciliation of Net income to Adjusted EBITDA (In Thousands of U.S. Dollars) Three months ended September 30, Nine months ended September 30, (unaudited) 2021 (unaudited) 2020 (unaudited) 2021 (unaudited) 2020 (unaudited) Net income for the period $ 1,375 $ 716 $ 5,331 $ 3,707 Depreciation of property and equipment 4,758 3,110 12,728 9,255 Impairment of property and equipment 470 113 536 1,638 Amortization of intangible assets 2,288 2,645 7,253 8,776 Impairment of indefinite life intangible assets - - - 1,431 Write-down on disposal of Ting Mobile assets - 3,513 - 3,513 Interest expense, net 1,169 760 3,108 2,756 Accretion of contingent consideration 96 86 287 258 Provision for income taxes (299 ) 840 665 2,390 Stock-based compensation 1,126 1,016 3,357 2,664 Unrealized loss (gain) on change in fair value of forward contracts 249 (175 ) 606 (263 ) Unrealized loss (gain) on foreign exchange revaluation of foreign denominated monetary assets and liabilities 72 81 178 479 Acquisition and other costs1 901 565 2,034 1,520 Adjusted EBITDA $ 12,205 $ 13,270 $ 36,083 $ 38,124 1Acquisition and other costs represents transaction-related expenses, transitional expenses, such as duplicative post-acquisition expenses. Expenses include severance and 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 Chamberlain
(416) 519-4196
lawrence.chamberlain@loderockadvisors.com
- This Non-GAAP financial measure is described below and reconciled to GAAP net income in the accompanying table.