TORONTO, May 5, 2022 /PRNewswire/ – Tucows Inc. (NASDAQ: TCX) (TSX: TC), a global internet services leader, today reported its financial results for the first quarter ended March 31, 2022. All figures are in U.S. dollars.
“The first quarter was a very solid start to 2022, with revenue and gross profit up 14% and 22% year-over-year, respectively, driven by strong growth in each of our Ting Internet Services (“Ting”) and Wavelo Platform Services (“Wavelo”) businesses, as our Tucows Domain Services (“Tucows Domains”) business delivered another quarter of consistent performance,” said Elliot Noss, President and Chief Executive Officer, Tucows Inc. “Adjusted EBITDA decreased 11% from the first quarter last year as we continued to accelerate the build of our Fiber network and ramp up of operations. We achieved a new record for trailing 12-month capital expenditure for the Ting opportunity.”
Financial Results
Net revenue for the first quarter of 2022 increased 14% to $81.1 million from $70.9 million for the first quarter of 2021. The increase was the result of growth in revenue from each of Ting Internet Services and Wavelo Platform Services businesses.
Gross profit for the first quarter of 2022 increased 22% to $21.2 million from $17.5 million for the first quarter of 2021. The increase was the result of the same factors as net revenue.
Net loss for the first quarter of 2021 was $3.0 million, or a loss of $0.28 per share, compared with net income of $2.1 million, or $0.20 per share, for the first quarter of 2021 with the loss being the result of accelerated build of our Ting Internet Services fiber network and ramp up of operations, higher depreciation and interest expenses.
Adjusted EBITDA1 for the first quarter of 2022 decreased 11% to $11.3 million from $12.7 million for the first quarter of 2021. The modest decline in adjusted EBITDA1 reflects the accelerated build of our Ting Internet Services fiber network and ramp up of operations.
Cash and cash equivalents at the end of the first quarter of 2022 were $6.2 million compared with $9.1 million at the end of the fourth quarter of 2021 and $8.3 million at the end of the first quarter of 2021.
Summary Financial Results(In Thousands of US Dollars, Except Per Share Data)
3 Months ended March 31
2022
(Unaudited)
2021
% Change
Net Revenues
81,099
70,875
14.4%
Gross Profit
21,198
17,453
21.5%
Gain on Sale of Ting Customer Assets, net1
4,752
5,395
(11.9%)
Net income
(3,020)
2,149
(240.5%)
Basic earnings per common share
(0.28)
0.20
(239.1%)
Adjusted EBITDA1
11,311
12,724
(11.1%)
Net cash provided by operating activities
5,407
14,086
(61.6%)
1. 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
Adj. EBITDA1
3 Months ended
March 31
Ting Internet Services:
Fiber Internet Services
9,788
5,082
5,750
2,473
(4,321)
(3,927)
Wavelo Platform Services:
Platform Services
6,097
638
5,912
553
Other Professional Services
750
–
(26)
Total Wavelo Platform Services
6,847
5,886
2,047
(1,080)
Tucows Domain Services:
Wholesale
Domain Services
46,836
46,991
10,439
11,218
Value Added Services
5,649
5,080
4,993
4,481
Total Wholesale
52,485
52,071
15,432
15,699
Retail
9,061
9,154
4,302
4,753
Total Tucows Domain Services
61,546
61,225
19,734
20,452
11,774
13,196
Corporate:
Mobile Services and Eliminations
2,918
3,930
308
1,210
1,811
4,535
Network Expenses:
Network, other costs
n/a
(4,180)
(3,238)
Network, depreciation of property and equipment
(5,895)
(3,638)
Network, amortization of intangible assets
(378)
(299)
Network, impairment of property and equipment
(27)
(60)
Total Network expenses
(10,480)
(7,235)
Total
Change in Reporting Segments
During the first quarter of 2022, Tucows completed a reorganization into three businesses: Fiber Internet Services (“Ting”), Platform Services (“Wavelo”) and Domain Services (“Tucows Domains”). Previously, we disclosed the three operating and reportable segments: Fiber Internet Services, Mobile Services and Domain Services. The previously named Mobile Services segment was renamed the Platform Services segment, and no longer includes the 10-year payment stream on transferred legacy subscribers earned as part of the DISH Purchase Agreement as well as the retail sale of mobile phones, retail telephony services and transition services, which are now part of the financial results reported under the Corporate category. The renamed Platform Services segment includes Platform and Professional Services offerings (now branded as Wavelo), as well as the billing solutions to Internet services providers (“ISPs”) that was previously reported under the Fiber Internet Services segment. The Fiber Internet Services segment now includes only the retail high speed Internet access operations, excluding the billing solutions moved to the new Platform Services segment. The offerings included in the Domain Services segment are unchanged. The Corporate category includes the aforementioned mobile services, as well as eliminations of intercompany transactions, portions of Finance and Human Resources that are centrally managed, Legal and Corporate IT. Prior period comparable results have been restated to reflect the changes in reporting segments. A quarterly summary of the Company’s restated segment revenue, gross margin and EBITDA for 2021 and annual 2020 can be found in the “KPI Summary Q1 2022” supplementary disclosure, posted on https://tucows.com/investors/financials/.
Notes:
- 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 certain 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, impairment and loss on disposition of property and equipment, 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 March 31
(Unaudited)
2021
Adjusted EBITDA
Depreciation of property and equipment
6,043
3,759
Impairment and loss on disposition of property and equipment
412
60
Amortization of intangible assets
2,843
2,619
Interest expense, net
1,796
936
Accretion of contingent consideration
98
96
Stock-based compensation
1,391
1,022
Unrealized loss (gain) on change in fair value of forward contracts
166
Unrealized loss (gain) on foreign exchange revaluation of foreign denominated monetary assets and liabilities
53
67
Acquisition and transition costs*
617
767
Income before provision for income taxes
(1,942)
3,232
*Acquisition and other costs represent transaction-related expenses, transitional expenses, such as redundant post-acquisition expenses, primarily related to our acquisitions, including Simply Bits in November 2021. Expenses include severance or transitional costs associated with department, operational or overall company restructuring efforts, including geographic alignments.
Management Commentary
Concurrent with the dissemination of this news release, management’s pre-recorded audio commentary (and transcript) discussing the quarter and outlook for the Company, has been 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, May 13), shareholders, analysts and prospective investors can submit questions to Tucows’ management at [email protected] 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, May 25, 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 helps connect more people to the benefit of internet access through communications service technology, domain services, and fiber-optic internet infrastructure. Ting (https://ting.com) delivers fixed fiber Internet access with outstanding customer support. Wavelo (http://wavelo.com) is a telecommunications software suite for service providers that simplifies the management of mobile and internet network access, provisioning, billing and subscription, developer tools, and more. 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 35,000 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).
Tuscows Inc.Consolidated Balance Sheets
(Dollar amounts in thousands of U.S. dollars)
March 31,
December 31
(unaudited)
Assets
Current assets:
Cash and cash equivalents
$ 6,201
$ 9,105
Accounts receivable
16,391
14,579
Contract asset
3,283
778
Inventory
3,558
3,277
Prepaid expenses and deposits
23,221
20,986
Derivative instrument asset, current portion
1,358
299
Deferred costs of fulfillment, current portion
96,986
94,506
Income taxes recoverable
3,249
3,474
Total current assets
154,247
147,004
Deferred costs of fulfillment, long-term portion
17,674
18,205
Derivative instrument asset, long-term portion
459
278
Property and equipment
191,456
172,662
Right of use operating lease asset
18,136
17,515
Contract costs
1,306
1,079
Deferred tax asset
20
22
Intangible assets
47,659
50,409
Goodwill
130,410
Investment
2,012
Total assets
$ 563,379
$ 539,596
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
$ 14,103
$ 10,016
Accrued liabilities
16,351
15,240
Customer deposits
16,974
Derivative instrument liability, current portion
125
Operating lease liability, current portion
3,463
3,150
Deferred revenue, current portion
128,413
124,116
Accreditation fees payable, current portion
882
Income taxes payable
307
102
Other current liabilities
2,974
3,078
Total current liabilities
182,844
173,683
Derivative instrument liability, long-term portion
Deferred revenue, long-term portion
23,753
23,677
Accreditation fees payable, long-term portion
156
170
Operating lease liability, long-term portion
12,220
11,853
Loan payable, long-term portion
207,183
190,748
Other long-term liability
1,804
Deferred tax liability
22,211
22,569
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; 10,762,581 shares issued and outstanding as of March 31, 2022 and 10,747,417 shares issued and outstanding as of December 31, 2021
29,655
28,515
Additional paid-in capital
3,530
2,764
Retained earnings
80,450
83,470
Accumulated other comprehensive income (loss)
1,377
343
Total stockholders’ equity
115,012
115,092
Total liabilities and stockholders’ equity
Tucows Inc.
Consolidated Statements of Operations and Comprehensive Income
Three months ended March 31,
Net revenues
$
Cost of revenues:
Direct cost of revenues
49,421
46,187
4,180
3,238
5,895
3,638
Network, amortization of intagible assets (note 6)
378
27
Total cost of revenues
59,901
53,422
Gross profit
Expenses:
Sales and marketing (*)
11,987
8,311
Technical operations and development (*)
3,765
3,132
General and administrative (*)
7,296
4,953
Depreciation of property and equipment
148
121
Loss on disposition of property and equipment
385
Amortization of intangible assets
2,465
2,320
Loss (gain) on currency forward contracts
(253)
Total expenses
26,046
18,584
Income from operations
(4,848)
(1,131)
Other income (expenses):
(1,796)
(936)
Gain on sale of Ting Customer Assets, net
Other expense, net
(50)
(96)
Total other income (expenses)
2,906
4,363
Provision for income taxes
1,078
1,083
Net income for the period
Other comprehensive income, net of tax
Unrealized income (loss) on hedging activities
968
368
Net amount reclassified to earnings
66
(834)
Other comprehensive income net of tax expense (recovery)of $(235) and $398 for the three months ended June 30, 2021 and June 30,2020, $(375) and $32 for the six months ended June 30, 2021 and June 30, 2020
1,034
(466)
Comprehensive income, net of tax for the period
(1,986)
1,683
Shares used in computing basic earnings per common share
10,754,758
10,617,807
Diluted earnings per common share
Shares used in computing diluted earnings per common share
10,796,762
(*) Stock-based compensation has been included in expenses as follows:
Network expenses
110
Sales and marketing
375
505
Technical operations and development
118
167
General and administrative
788
225
Tucows Inc.
Consolidated Statements of Cash Flows
(Dollar amounts in thousands of U.S. dollars)
Cash provided by:
Operating activities:
Net income for the period
Items not involving cash:
Impairment of property and equipment
Amortization of debt discount and issuance costs
120
Net amortization contract costs
(227)
(7)
Deferred income taxes (recovery)
(686)
(220)
Excess tax benefits on share-based compensation expense
(52)
(172)
Net Right of use operating assets/Operating lease liability
59
55
Loss on disposal of domain names
2
1
Loss (gain) on change in the fair value of forward contracts
Disposal of Ting Mobile customer assets
Change in non-cash operating working capital:
(1,812)
(328)
(2,505)
(281)
(442)
(2,235)
2,266
Deferred costs of fulfillment
(1,949)
(4,111)
482
(689)
2,267
1,451
1,111
793
(623)
Deferred revenue
4,368
5,349
Accreditation fees payable
(14)
77
Financing activities:
Proceeds received on exercise of stock options
515
229
Payment of tax obligations resulting from net exercise of stock options
(218)
Proceeds received on loan payable
16,500
Payment of loan payable costs
(177)
Contingent consideration for acquisition of Cedar Holdings Group
(2,000)
Net cash (used in) provided by financing activities
14,838
11
Investing activities:
Additions to property and equipment
(23,054)
(13,944)
Investment in securities
(95)
(154)
Net cash used in investing activities
(23,149)
(14,098)
(Decrease) increase in cash and cash equivalents
(2,904)
(1)
Cash and cash equivalents, beginning of period
9,105
Cash and cash equivalents, end of period
6,201
8,310
Supplemental cash flow information:
Interest paid
949
Income taxes paid, net
896
2,381
Supplementary disclosure of non-cash investing and financing activities:
Property and equipment acquired during the period not yet paid for
1,909
3,320
Reconciliation of Adjusted EBITDA to Income before Provision for Income Taxes
(In Thousands of U.S. Dollars)
(unaudited)
2022 (unaudited)
2021 (unaudited)
Impairment of indefinite life intangible assets
Acquisition and other costs1
3,233
1Acquisition and other costs represent transaction-related expenses, transitional expenses, such as redundant post-acquisition expenses, primarily related to our acquisitions, including Simply Bits in November 2021. 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, Wavelo, OpenSRS, Enom, Ascio and Hover are registered trademarks of Tucows Inc. or its subsidiaries.
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SOURCE Tucows
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