Tucows Reports Financial Results for First Quarter 2022

TORONTO, May 5, 2022 /CNW/ - 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 (Unaudited)	% Change
Net Revenues	81,099	70,875	14.4%
Gross Profit	21,198	17,453	21.5%
Gain on Sale of Ting Customer Assets, net^1	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 EBITDA^1	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		Gross Profit		Adj. EBITDA^1
	3 Months ended March 31		3 Months ended March 31		3 Months ended March 31
	2022 (Unaudited)	2021 (Unaudited)	2022 (Unaudited)	2021 (Unaudited)	2022 (Unaudited)	2021 (Unaudited)
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	638	5,886	553	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	n/a	(4,180)	(3,238)	n/a	n/a
Network, depreciation of property and equipment	n/a	n/a	(5,895)	(3,638)	n/a	n/a
Network, amortization of intangible assets	n/a	n/a	(378)	(299)	n/a	n/a
Network, impairment of property and equipment	n/a	n/a	(27)	(60)	n/a	n/a
Total Network expenses	n/a	n/a	(10,480)	(7,235)	n/a	n/a
Total	81,099	70,875	21,198	17,453	n/a	n/a

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: 

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 March 31
	2022  (Unaudited)	2021 (Unaudited)
Adjusted EBITDA	11,311	12,724
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
		2022		2021
		(unaudited)		(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		130,410
Investment		2,012		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		16,351		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		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		$         563,379		$         539,596

		Tucows  Inc.
		Consolidated Statements of Operations and Comprehensive Income
		(Dollar amounts in thousands of U.S. dollars)
		Three months ended March 31,
		2022		2021
		(unaudited)
Net revenues	$	81,099	$	70,875
Cost of revenues:
Direct cost of revenues		49,421		46,187
Network, other costs		4,180		3,238
Network, depreciation of property and equipment		5,895		3,638
Network, amortization of intagible assets (note 6)		378		299
Network, impairment of property and equipment		27		60
Total cost of revenues		59,901		53,422
Gross profit		21,198		17,453
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):
Interest expense, net		(1,796)		(936)
Gain on sale of Ting Customer Assets, net		4,752		5,395
Other expense, net		(50)		(96)
Total other income (expenses)		2,906		4,363
Income before provision for income taxes		(1,942)		3,232
Provision for income taxes		1,078		1,083
Net income for the period		(3,020)		2,149
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
Basic earnings per common share	$	(0.28)	$	0.20
Shares used in computing basic earnings per common share		10,754,758		10,617,807
Diluted earnings per common share	$	(0.28)	$	0.20
Shares used in computing diluted earnings per common share		10,754,758		10,796,762
(*) Stock-based compensation has been included in expenses as follows:
Network expenses	$	110	$	125
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)
		Three months ended March 31,
		2022		2021
Cash provided by:		(unaudited)
Operating activities:
Net income for the period	$	(3,020)	$	2,149
Items not involving cash:
Depreciation of property and equipment		6,043		3,759
Impairment of property and equipment		27		60
Amortization of debt discount and issuance costs		120		67
Amortization of intangible assets		2,843		2,619
Net amortization contract costs		(227)		(7)
Accretion of contingent consideration		98		96
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		-		166
Disposal of Ting Mobile customer assets		-		-
Stock-based compensation		1,391		1,022
Change in non-cash operating working capital:
Accounts receivable		(1,812)		(328)
Contract asset		(2,505)		-
Inventory		(281)		(442)
Prepaid expenses and deposits		(2,235)		2,266
Deferred costs of fulfillment		(1,949)		(4,111)
Income taxes recoverable		482		(689)
Accounts payable		2,267		1,451
Accrued liabilities		1,111		793
Customer deposits		(623)		125
Deferred revenue		4,368		5,349
Accreditation fees payable		(14)		77
Net cash provided by operating activities		5,407		14,086
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		8,311
Cash and cash equivalents, end of period	$	6,201	$	8,310
Supplemental cash flow information:
Interest paid	$	1,683	$	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)		Three months ended March 31,
(unaudited)		2022 (unaudited)		2021 (unaudited)
Adjusted EBITDA	$	11,311	$	12,724
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
Impairment of indefinite life intangible assets		-		-
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 other costs^1		617		767
Income before provision for income taxes	$	(1,942)	$	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.

SOURCE Tucows

Lawrence Chamberlain, [phone], [email protected]