Tucows Reports Financial Results for Fourth Quarter 2021
Published
TORONTO, Feb. 10, 2022 (GLOBE NEWSWIRE) -- Tucows Inc. (NASDAQ:TCX, TSX:TC), a global internet services leader, today reported its financial results for the fourth quarter ended December 31, 2021. All figures are in U.S. dollars.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 full year 2021 reflect operations under the new MSE model for the entire year compared to the year ended 2020 being composed of approximately five months of operations under the new MSE model and approximately seven months of operations under Tucows’ previous MVNO 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 is 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 2021 year were impacted by the significantly larger MVNO contribution 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 December 31* *12 Months ended December 31*
2021
(Unaudited) 2020
(Unaudited) % Change 2021
(Unaudited) 2020
(Unaudited) % Change
*Net revenues* 82,476 70,784 16.5 % 304,337 311,202 (2.2 %)
*Gross Profit* 24,577 17,428 41.0 % 78,293 85,485 (8.4 %)
*Gain on Sale of Ting Customer Assets, net*^*1* 4,263 6,522 (34.6 %) 20,030 7,612 163.1 %
*Net income* (1,967 ) 2,068 (195.1 %) 3,364 5,775 (41.7 %)
*Basic earnings per common share* (0.18 ) 0.19 (194.1 %) 0.32 0.55 (42.1 %)
*Adjusted EBITDA*^*1* 12,736 12,847 (0.9 %) 48,821 50,972 (4.2 %)
*Net cash provided by operating activities* 10,542 1,637 544.0 % 29,637 36,081 (17.9 %)
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* *Gross Profit* *Adj. EBITDA*^*1* *3 Months ended *
*December 31* *3 Months ended*
*December 31* *3 Months ended*
* December 31* 2021
(Unaudited) 2020
(Unaudited) 2021
(Unaudited) 2020
(Unaudited) 2021
(Unaudited) 2020
(Unaudited)
Fiber Internet Services:
Fiber Internet Services 8,577 5,049 5,771 3,130 (3,564 ) (835 )
Mobile Services:
Retail Mobile Services 2,523 1,806 753 821
Mobile Platform Services 5,542 188 5,393 132
Other Professional Services 4,473 1,959 2,692 256
Total Mobile Services 12,538 3,953 8,838 1,209 8,597 4,733
Domain Services:
Wholesale
Domain Services 47,137 47,463 10,516 10,312
Value Added Services 5,518 5,097 4,843 4,257
Total Wholesale 52,655 52,560 15,359 14,569
Retail 8,706 9,222 4,329 4,783
Total Domain Services 61,361 61,782 19,688 19,352 11,640 12,132
Network Expenses:
Network, other costs n/a n/a (4,474 ) (2,681 ) n/a n/a
Network, depreciation and amortization costs n/a n/a (5,347 ) (3,582 ) n/a n/a
Network, impairment n/a n/a 101 n/a n/a n/a
Total Network expenses n/a n/a (9,720 ) (6,263 ) n/a n/a
*Total* 82,476 70,784 24,577 17,428 n/a n/a “Tucows delivered another quarter of solid financial performance, highlighted by year-over-year increases in net revenue and gross profit of 17% and 41%, respectively, driven by growth in the Ting Fiber Internet customer base and the significantly higher contribution of our Mobile Services Enabler platform a year after its launch,” said Elliot Noss, President and Chief Executive Officer, Tucows Inc.“ Adjusted EBITDA decreased slightly by 0.9% year-over-year as we continued to invest in the Ting Fiber Internet opportunity, with the fourth quarter seeing another record for capital expenditure on our Fiber network.”
“The fourth quarter concluded a year of both solid financial results and strategic achievements across the Company. Tucows Domain Services posted a record year for both gross margin and adjusted EBITDA as that business reached a new, higher steady state level following the pandemic related growth of 2020. The first full year of our Mobile Services Enabler business, recently rebranded as our Communication Service Provider software platform, Wavelo, was very much in line with our expectations, as we focused on supporting the success of our first customer, DISH. 2021 also saw significant progress on the accelerated build of the Ting Fiber Internet network, with a 61% increase in capital expenditure, 48% increase in the number of serviceable addresses, and a more than 66% expansion of our subscriber base. All of this positions Tucows to continue to ramp investment of the consistent, strong cash flows generated by Tucows Domain Services and the Wavelo CSP Platform in the outsized Ting Fiber Internet opportunity.”
*Financial Results*
Net revenue for the fourth quarter of 2021 increased 17% to $82.5 million from $70.8 million for the fourth quarter of 2020. The increase was the result of growth in revenue from the Fiber Internet Services business and both the Mobile Platform Services and Other Professional Services components of the Mobile Services Enabler business.
Gross profit for the fourth quarter of 2021 increased 41% to $24.6 million from $17.4 million for the fourth quarter of 2020. The increase was driven by the same factors as net revenue.
Net loss for the fourth quarter of 2021 was $2.0 million, or a loss of $0.18 per share, compared with net income of $2.1 million, or $0.19 per share, for the fourth quarter of 2020 with the loss driven by a higher effective tax rate.
Adjusted EBITDA^1 for the fourth quarter of 2021 decreased 0.9% to $12.7 million from $12.8 million for the fourth quarter of 2020. The modest decline in adjusted EBITDA^1 reflects the continued investment in Fiber Internet Services.
Cash and cash equivalents at the end of the fourth quarter of 2021 were $9.1 million compared with $5.5 million at the end of the third quarter of 2021 and $8.3 million at the end of the fourth 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 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 December 31* *12 months ended December 31* 2021
(Unaudited) 2020
(Unaudited) 2021
(Unaudited) 2020
(Unaudited)
*Adjusted EBITDA* 12,736 12,847 48,821 50,972
Depreciation of property and equipment 5,254 3,377 17,986 12,632
Impairment and loss on disposition of property and equipment (100 ) (17 ) 435 1,621
Amortization of intangible assets 2,756 2,644 10,007 11,420
Impairment of definite life intangible assets - - - 1,431
Disposal of Ting Mobile customer assets - - - 3,513
Interest expense, net 1,509 855 4,617 3,611
Accretion of contingent consideration 98 86 383 344
Stock-based compensation 1,235 1,054 4,592 3,718
Unrealized loss (gain) on change in fair value of forward contracts - (237 ) 606 (500 )
Unrealized loss (gain) on foreign exchange revaluation of foreign denominated monetary assets and liabilities 39 (19 ) 219 461
Acquisition and transition costs* 671 441 2,706 1,961
*Income before provision for income taxes* 1,274 4,663 7,270 10,760
*Acquisition and other costs represent transaction-related expenses, transitional expenses, such as redundant post-acquisition expenses, primarily related to our acquisitions Cedar in January 2020 and Simply Bits in November 2021 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.
*
Management Commentary*
At 6:00 p.m. ET today, Thursday February 10, 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. Prior to reading/listening to management’s commentary on the quarter, interested parties are invited to watch a business background reporting update video by Tucows’ President and Chief Executive Officer, Elliot Noss, which was posted at 5:05 p.m. ET today, Thursday, February 10, on the Investors, videos, decks and reports page of the Investors section of the Company’s web site: https://www.tucows.com/investors/investor-videos/.
In lieu of a live question and answer period, for the subsequent eight days, until Friday, February 18, 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, March 3, 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/internet) delivers fixed fiber Internet access with outstanding customer support. Wavelo (https://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).
*Tucows Inc.*
*Consolidated Balance Sheets*
*(Dollar amounts in thousands of U.S. dollars)* *December 31,**
* *December 31,* *2021* *2020* *(unaudited)* *(unaudited)*
*Assets*
Current assets:
Cash and cash equivalents $ 9 105 $ 8 311
Accounts receivable 14 579 15 540
Contract asset, current portion 778 -
Inventory 3 277 1 875
Prepaid expenses and deposits 20 986 16 845
Derivative instrument asset, current portion 299 3 860
Deferred costs of fulfillment, current portion 94 506 93 467
Income taxes recoverable 3 474 1 302
Total current assets 147 004 141 200
Deferred costs of fulfillment, long-term portion 18 205 17 599
Derivative instrument asset, long-term portion 278 -
Property and equipment 172 662 117 530
Right of use operating lease asset 17 515 11 238
Contract costs 1 079 362
Deferred tax asset 22 226
Intangible assets 50 409 47 444
Goodwill 130 410 116 304
Investment 2 012 -
Total assets $ 539 596 $ 451 903
*Liabilities and Stockholders' Equity*
Current liabilities:
Accounts payable $ 10 016 $ 6 329
Accrued liabilities 15 240 10 235
Customer deposits 16 974 15 402
Derivative instrument liability, current portion 125 99
Operating lease liability, current portion 3 150 1 761
Deferred revenue, current portion 124 116 127 336
Accreditation fees payable, current portion 882 940
Income taxes payable 102 863
Other liabilities, current portion 3 078 -
Total current liabilities 173 683 162 965
Derivative instrument liability, long-term portion - 114
Deferred revenue, long-term portion 23 677 24 909
Accreditation fees payable, long-term portion 170 195
Operating lease liability, long-term portion 11 853 9 179
Loan payable, long-term portion 190 748 121 733
Other long-term liability 1 804 3 416
Deferred tax liability 22 569 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; 10,747,417 shares issued and outstanding as of December 31, 2021 and 10,612,414 shares issued and outstanding as of December 31, 2020 28 515 20 798
Additional paid-in capital 2 764 1 458
Retained earnings 83 470 80 106
Accumulated other comprehensive income (loss) 343 2 336
Total stockholders' equity 115 092 104 698
Total liabilities and stockholders' equity $ 539 596 $ 451 903
*Tucows Inc.**
* *Consolidated Statements of Operations and Comprehensive Income**
* *(Dollar amounts in thousands of U.S. dollars)**
* *Three months ended December 31,* *Twelve months ended December 31,**
* *2021* *2020* *2021* *2020* *(unaudited)* *(unaudited)*
Net revenues $ 82 476 $ 70 784 $ 304 337 $ 311 202
Cost of revenues:
Direct cost of revenues 48 179 47 093 193 039 200 401
Network expenses (*) 4 474 2 681 14 769 10 194
Depreciation of property and equipment 5 108 3 252 17 452 12 144
Amortization of intangible assets 239 330 583 1 340
Impairment of property and equipment (101 ) - 201 1 638
Total cost of revenues 57 899 53 356 226 044 225 717
Gross profit 24 577 17 428 78 293 85 485
Expenses:
Sales and marketing (*) $ 11 892 $ 7 753 $ 39 471 $ 34 274
Technical operations and development (*) 4 266 3 447 14 310 12 427
General and administrative (*) 7 138 5 194 22 370 20 268
Depreciation of property and equipment 150 125 534 488
Loss on disposition of property and equipment - (17 ) 234 (17 )
Amortization of intangible assets 2 515 2 314 9 424 10 080
Impairment of definite life intangible assets - - - 1 431
Loss (gain) on currency forward contracts - (284 ) (277 ) (383 )
Total expenses 25 961 18 532 86 066 78 568
Income from operations (1 384 ) (1 104 ) (7 773 ) 6 917
Other income (expenses):
Interest expense, net (1 509 ) (855 ) (4 617 ) (3 611 )
Gain on sale of Ting Customer Assets, net 4 263 6 522 20 030 7 612
Other expense, net (96 ) 100 (370 ) (158 )
Total other income (expenses) 2 658 5 767 15 043 3 843
Income before provision for income taxes 1 274 4 663 7 270 10 760
Provision for income taxes 3 241 2 595 3 906 4 985
Net income before redeemable non-controlling interest (1 967 ) 2 068 3 364 5 775
Redeemable non-controlling interest - - - -
Net income attributable to redeemable non-controlling interest - - - -
Net income for the period (1 967 ) 2 068 3 364 5 775
Other comprehensive income, net of tax
Unrealized income (loss) on hedging activities 458 1 044 572 1 653
Net amount reclassified to earnings 174 (79 ) (2 565 ) 210
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 632 965 (1 993 ) 1 863
Comprehensive income, net of tax for the period $ (1 335 ) $ 3 033 $ 1 371 $ 7 638
Basic earnings per common share $ (0,18 ) $ 0,19 $ 0,32 $ 0,55
Shares used in computing basic earnings per common share 10 717 349 10 605 451 10 662 337 10 590 684
Diluted earnings per common share $ (0,18 ) $ 0,19 $ 0,31 $ 0,54
Shares used in computing diluted earnings per common share 10 883 860 10 745 710 10 817 468 10 692 281
(*) Stock-based compensation has been included in expenses as follows:
Network expenses $ 131 $ 139 $ 531 $ 472
Sales and marketing $ 444 $ 475 $ 1 941 $ 1 678
Technical operations and development $ 214 $ 198 $ 824 $ 756
General and administrative $ 446 $ 242 $ 1 296 $ 812
*Tucows Inc.*
*Consolidated Statements of Cash Flows**
* *(Dollar amounts in thousands of U.S. dollars)**
* *Three months ended December 31,* *Twelve months ended December 31,* *2021* *2020* *2021* *2020*
Cash provided by: *(unaudited)**
* *(unaudited)**
*
Operating activities:
Net income for the period $ (1 967 ) $ 2 068 $ 3 364 $ 5 775
Items not involving cash:
Depreciation of property and equipment 5 258 3 377 17 986 12 632
Impairment of property and equipment (101 ) - 201 1 638
Amortization of debt discount and issuance costs 98 67 300 269
Amortization of intangible assets 2 754 2 644 10 007 11 420
Net amortization contract costs (273 ) (3 ) (717 ) 106
Impairment of definite life intangible assets - - - 1 431
Other - - - 223
Accretion of contingent consideration 96 86 383 344
Deferred income taxes (recovery) 40 (3 012 ) (1 328 ) (3 939 )
Excess tax benefits on share-based compensation expense (686 ) (353 ) (1 554 ) (861 )
Net Right of use operating assets/Operating lease liability (55 ) (44 ) (2 204 ) 205
Loss on disposal of domain names - 2 1 17
Loss (gain) on change in the fair value of forward contracts - (237 ) 606 (500 )
Disposal of Ting Mobile customer assets - - - 3 513
Stock-based compensation 1 235 1 054 4 592 3 718
Change in non-cash operating working capital:
Accounts receivable 868 (2 951 ) 1 586 (281 )
Contract asset 2 005 - (778 ) -
Inventory 449 (736 ) (787 ) 945
Prepaid expenses and deposits (2 100 ) (3 142 ) (3 974 ) (3 459 )
Deferred costs of fulfillment 485 2 174 (1 645 ) (1 899 )
Income taxes recoverable 1 108 2 589 (1 394 ) 908
Accounts payable 1 779 (1 664 ) 4 068 (902 )
Accrued liabilities 2 918 710 4 859 376
Customer deposits 908 1 030 645 1 493
Deferred revenue (4 237 ) (1 985 ) (4 495 ) 2 942
Accreditation fees payable (38 ) (40 ) (83 ) (33 )
Net cash provided by operating activities 10 542 1 634 29 637 36 081
Financing activities:
Proceeds received on exercise of stock options 1 974 307 4 818 985
Payment of tax obligations resulting from net exercise of stock options - (77 ) (387 ) (556 )
Repurchase of common stock - - - (3 281 )
Proceeds received on loan payable 41 000 8 000 69 000 8 000
Payment of loan payable costs (296 ) - (296 ) (32 )
Net cash (used in) provided by financing activities 42 678 8 230 73 136 5 116
Investing activities:
Proceeds on disposal of property and equipment 510 - 510 -
Additions to property and equipment (23 082 ) (11 708 ) (73 175 ) (44 437 )
Acquisition of Cedar Holdings Group, net of cash of $66 - - - (8 770 )
Acquisition of Simply Bits, net of cash of $801 (24 028 ) - (24 028 ) -
Acquisition of Uniregistry (2 499 ) - (2 499 ) -
Acquisition of intangible assets (551 ) - (774 ) (72 )
Investment in securities - - (2 012 ) -
Net cash used in investing activities (49 651 ) (11 708 ) (101 979 ) (53 279 )
(Decrease) increase in cash and cash equivalents 3 570 (1 844 ) 794 (12 082 )
Cash and cash equivalents, beginning of period 5 535 10 155 8 311 20 393
Cash and cash equivalents, end of period $ 9 105 $ 8 311 $ 9 105 $ 8 311
Supplemental cash flow information:
Interest paid $ 1 429 $ 813 $ 4 485 $ 3 573
Income taxes paid, net $ 2 771 $ 3 477 $ 8 828 $ 8 926
Supplementary disclosure of non-cash investing and financing activities:
Property and equipment acquired during the period not yet paid for $ 99 $ 1 129 $ 99 $ 1 129
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 Adjusted EBITDA to Income before Provision for Income Taxes*
*(In Thousands of U.S. Dollars) * *Three months ended December 31,*
*Twelve months ended December 31,*
*(unaudited) * *2021 (unaudited)* *2020 (unaudited)* *2021 (unaudited)* *2020 (unaudited)*
* *
*Adjusted EBITDA* $ 12 736 $ 12 847 $ 48 821 $ 50 972
Depreciation of property and equipment 5 254 3 377 17 986 12 632
Impairment and loss on disposition of property and equipment (100 ) (17 ) 435 1 621
Amortization of intangible assets 2 756 2 644 10 007 11 420
Impairment of indefinite life intangible assets - - - 1 431
Write-down on disposal of Ting Mobile assets - - - 3 513
Interest expense, net 1 509 855 4 617 3 611
Accretion of contingent consideration 98 86 383 344
Stock-based compensation 1 235 1 054 4 592 3 718
Unrealized loss (gain) on change in fair value of forward contracts - (237 ) 606 (500 )
Unrealized loss (gain) on foreign exchange revaluation of foreign denominated
monetary assets and liabilities 39 (19 ) 219 461
Acquisition and other costs^1 671 441 2 706 1 961 Income before provision for income taxes $ 1 274 $ 4 663 $ 7 270
$ 10 760
^1Acquisition and other costs represent transaction-related expenses, transitional expenses, such as redundant post-acquisition expenses, primarily related to our acquisitions Cedar in January 2020 and Simply Bits in November 2021 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.
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.
Contact:
Lawrence Chamberlain
(416) 519-4196
lawrence.chamberlain@loderockadvisors.com