GlobeNewswire Inc | Feb 9, 2021 05:05PM EST

February 09, 2021

TORONTO, Feb. 09, 2021 (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, 2020. 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 Tucowss first MSE customer. Accordingly, the results of the Mobile Services business in the Network Access segment for the fourth quarter of 2020 reflects operations under the new MSE model with prior periods being composed entirely 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 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 Mobile Services in the Network Access segment for the fourth quarter of 2020 are lower than those for the fourth quarter of 2019. Tucows will recognize fees per subscriber for customers owned by DISH under the Ting brand as well as customers under DISHs Boost brand 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 fourth quarter of 2020.

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

3 Months ended December 31 12 Months ended December 31

2020 2019 2020 2019 (Unaudited) (Unaudited) % Change (Unaudited) (Unaudited) % Change ^1Net revenue 70,784 85,946 (17.6 %) 311,202 337,145 (7.7 %)Gross Profit 17,428 26,045 (33.1 %) 85,485 100,777 (15.2 %)Gain on Saleof Ting 6,522 - n/a 7,612 - n/aCustomerAssets^1Net income 2,068 5,778 (64.2 %) 5,775 15,398 (62.5 %)Basic Netearnings per 0.19 0.55 (65.5 %) 0.55 1.45 (62.1 %)common shareAdjusted 12,847 16,155 (20.5 %) 50,972 51,905 (1.8 %)EBITDA^2Net cashprovided by 1,637 13,196 (87.6 %) 36,081 40,381 (10.6 %)operatingactivities

1.Gain on Sale of Ting Customer Assets for 2020 includes proceeds of $11.1 million under the DISH earn-out arrangement, offset by the disposal of Ting Customer Assets totalling $3.5 million.2.This Non-GAAP financial measure is described below and reconciled to GAAP net income in the accompanying table.

Summary of Revenues and Gross profit(In Thousands of US Dollars)

Revenue Gross Profit 3 Months ended December 3 Months ended December 31 31

2020 2019 2020 2019 (Unaudited) (Unaudited) (Unaudited) (Unaudited)Network Access Services:Mobile Services Retail Mobile Services 1,806 21,140 821 9,445 Mobile Platform Services 188 - 132 - Other Professional Services 1,959 - 256 - Total Mobile Services 3,953 21,140 1,209 9,445 Fiber Internet Services 5,049 3,029 3,130 2,062 Total Network Access Services 9,002 24,169 4,339 11,507 Domain Services:Wholesale Domain Services 47,463 46,622 10,310 9,085 Value Added Services 5,373 4,809 4,483 4,128 Total Wholesale 52,836 51,431 14,793 13,213 Retail 8,654 8,648 4,382 4,682 Portfolio^3 292 1,698 177 1,526 Total Domain Services 61,782 61,777 19,352 19,421 Network Expenses:Network, other costs n/a n/a (2,681 ) (2,156 )Network, depreciation and n/a n/a (3,582 ) (2,727 )amortization costsTotal Network expenses n/a n/a (6,263 ) (4,883 ) Total 70,784 85,946 17,428 26,045

3. Beginning in the first quarter of 2020, portfolio revenue consisted of individual sales from Tucows surname portfolio following the sale of the Companys remaining domain name portfolio in the fourth quarter of 2019.

The fourth quarter was a solid finish to a very good year for Tucows, said Elliot Noss, President and Chief Executive Officer, Tucows Inc. Revenue and gross margin from our Domains and Ting Internet businesses, excluding the impact of large bulk domains sales from our Domains Portfolio in prior year periods, increased 6% and 13% year over year, respectively, for the fourth quarter, and for all of 2020 were up 5% and 13%.

Our Domains business continued to benefit from the elevated but decelerating transaction levels, resulting from the pandemic impact, which on top of the underlying consistency of this business and our focus on the quality of our customer base, resulted in the highest annual gross profit for this business in our 21-year history.

In Mobile, the fourth quarter -- our first full quarter under our new MSE model -- is off to a good start, setting the stage as we look forward to increasing that revenue in the future as DISH adds customers under the Ting Mobile brand and we migrate DISHs Boost customers to the MSE platform.

And In our Ting Internet business, we achieved our second consecutive quarter of capital expenditures above $10 million -- just shy of our third quarter record -- and by far our best quarter ever for new serviceable addresses. The quarter capped off a year in which we grew serviceable addresses by 53% year-over-year, total subscribers by 51%, contributing to year-over-year growth in revenue and gross margin of 67% and 52%, respectively. All of this sets us up very well for continued growth in all of these key metrics as we accelerate our capital expenditure spending in 2021.

Financial Results Net revenue for the fourth quarter of 2020 was $70.8 million, a decrease of 18% from $85.9 million for the fourth quarter of 2019. The majority of the decrease was the result of the absence of Ting Mobile MVNO revenue in the fourth quarter of 2020 following the Companys sale of its Ting Mobile customer relationships to DISH and the related earn out being recognized as Other Income. The decrease was also due in part to a $1.5 million bulk sale in the Domains Portfolio business in the fourth quarter of 2019 that was not repeated in the fourth quarter of 2020 as the Company exited its Domains Portfolio business at the end of 2019. Excluding the Mobile Services business, as well as the impact of the bulk Domains sale in the third quarter of 2019, net revenue for the combined Domains and Ting Internet businesses for the fourth quarter of 2020 increased 6% from the fourth quarter of 2019.

Gross profit for the fourth quarter of 2020 was $17.4 million, a decrease of 33% from $26.0 million for the fourth quarter of 2019. The decrease in gross profit is attributable to the same factors as the decrease in revenue. Excluding the Mobile Services business, as well as the impact of the bulk Domains sale in the fourth quarter of 2019, gross margin for the combined Domains and Ting Internet businesses for the fourth quarter of 2020 increased 13% from the fourth quarter of 2019.

Net income for the fourth quarter of 2020 was $2.1 million, or $0.19 per share, a decrease of 64% from $5.8 million, or $0.55 per share for the fourth quarter of 2019.

Adjusted EBITDA1 for the fourth quarter of 2020 was $12.8 million, a decrease of 20% compared with $16.2 million for the fourth quarter of 2019. Excluding the impact of an outsized Portfolio bulk domain name sale in the fourth quarter of 2019, Adjusted EBITDA for the fourth quarter of 2020 decreased 12% compared to the fourth quarter of 2019.

Cash and cash equivalents at the end of the fourth quarter of 2020 were $8.3 million compared with $10.2 million at the end of the third quarter of 2020 and $20.4 million at the end of the fourth quarter of 2019.

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 Companys 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 Companys 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 Companys adjusted EBITDA definition excludes depreciation, amortization of intangible assets, income tax provision, interest expense (net), accretion of contingent consideration, stock-based compensation, disposal of Ting Mobile customer assets, gains and losses from unrealized foreign currency transactions and infrequently occurring items, 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 net income to adjusted EBITDA (dollars in thousands):

3 months ended December 12 months ended 31 December 31

2020 2019 2020 2019 (Unaudited) (Unaudited) (Unaudited) (Unaudited)Net income for the period 2,068 5,778 5,775 15,398 Depreciation of property and 3,377 2,516 12,632 8,961 equipmentImpairment of property and - - 1,638 - equipmentLoss (gain) on disposition of (17 ) - (17 ) 73 property and equipmentAmortization of intangible 2,644 2,870 11,420 10,333 assetsImpairment of definite life - - 1,431 - intangible assetsDisposal of Ting Mobile - - 3,513 - customer assetsInterest expense, net 855 1,220 3,611 4,769 Accretion of contingent 86 - 344 - considerationProvision for income taxes 2,595 2,964 4,985 9,173 Stock-based compensation 1,054 836 3,718 2,876 Unrealized loss (gain) onchange in fair value of forward (237 ) (109 ) (500 ) (313 )contractsUnrealized loss (gain) onforeign exchange revaluation of (19 ) (180 ) 461 (581 )foreign denominated monetaryassets and liabilitiesAcquisition and transition 441 260 1,961 1,216 costs* Adjusted EBITDA 12,847 16,155 50,972 51,905 *Acquisition and other costs represent transaction-related expenses,transitional expenses, such as redundant post-acquisition expenses, primarilyrelated to our acquisition of Ascio in March 2019 and Cedar in January 2020 anddisposition of certain Ting Mobile assets in August 2020. Expenses includeseverance or transitional costs associated with department, operational oroverall 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 Tuesday, February 9, managements 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 seven days, until Wednesday, February 17, 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 Companys website at http://www.tucows.com/investors/financials/ on Tuesday, February 23 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 network access, mobile technology services, domain names 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) December December 31, 31, 2020 2019 (unaudited) (unaudited) Assets Current assets: Cash and cash equivalents $ 8,311 $ 20,393 Accounts receivable 15,540 14,564 Inventory 1,875 3,457 Prepaid expenses and deposits 16,845 13,478 Derivative instrument asset, current portion 3,860 731 Deferred costs of fulfillment, current portion 93,467 91,252 Income taxes recoverable 1,302 1,800 Total current assets 141,200 145,675 Deferred costs of fulfillment, long-term 17,599 17,915 portionProperty and equipment 117,530 82,121 Right of use operating lease asset 11,238 11,335 Contract costs 362 1,400 Deferred tax asset 226 - Intangible assets 47,444 57,654 Goodwill 116,304 109,818 Total assets $ 451,903 $ 425,918 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 6,329 $ 6,671 Accrued liabilities 10,235 9,373 Customer deposits 15,402 14,074 Derivative instrument liability, current 99 - portionOperating lease liability, current portion 1,761 1,413 Deferred revenue, current portion 127,336 123,101 Accreditation fees payable, current portion 940 952 Income taxes payable 863 1,324 Total current liabilities 162,965 156,908 Derivative instrument liability, long-term 114 - portionDeferred revenue, long-term portion 24,909 26,202 Accreditation fees payable, long-term portion 195 216 Operating lease liability, long-term portion 9,179 9,424 Loan payable, long-term portion 121,733 113,503 Other long-term liability 3,416 - Deferred tax liability 24,694 25,471 Stockholders' equity: Preferred stock - no par value, 1,250,000 - - shares authorized; none issued and outstandingCommon stock - no par value, 250,000,000shares authorized; 10,612,414 shares issuedand outstanding as of December 31, 2020 and 20,798 16,633 10,585,159 shares issued and outstanding as ofDecember 31, 2019Additional paid-in capital 1,458 880 Retained earnings 80,106 76,208 Accumulated other comprehensive income (loss) 2,336 473 Total stockholders' equity 104,698 94,194 Total liabilities and stockholders' equity $ 451,903 $ 425,918

Tucows Inc. Consolidated Statements of Operations and Comprehensive Income (Dollar amounts in thousands of U.S. dollars) Three months ended December Year ended December 31, 31, 2020 2019 2020 2019 (unaudited) (unaudited) Net revenues $ 70,784 $ 85,946 $ 311,202 $ 337,145 Cost of revenues:Cost of 47,093 55,018 200,401 217,579 revenuesNetwork 2,681 2,156 10,194 9,190 expenses (*)Depreciationof property 3,252 2,405 12,144 8,475 and equipmentAmortizationof intangible 330 322 1,340 1,124 assetsImpairment ofproperty and - - 1,638 - equipmentTotal cost of 53,356 59,901 225,717 236,368 revenues Gross profit 17,428 26,045 85,485 100,777 Expenses: Sales and 7,753 7,904 34,274 34,270 marketing (*)Technicaloperations and 3,447 1,566 12,427 9,717 development(*)General andadministrative 5,194 4,062 20,268 17,880 (*)Depreciationof property 125 111 488 486 and equipmentLoss (gain) ondisposition of (17 ) - (17 ) 73 property andequipmentAmortizationof intangible 2,314 2,548 10,080 9,209 assetsImpairment ofdefinite life - - 1,431 - intangibleassetsLoss (gain) oncurrency (284 ) (108 ) (383 ) (198 )forwardcontractsTotal expenses 18,532 16,083 78,568 71,437 Income from (1,104 ) 9,962 6,917 29,340 operations Other income (expenses):Interest (855 ) (1,220 ) (3,611 ) (4,769 )expense, netGain on saleof Ting 6,522 - 7,612 - CustomerAssets, netOther income 100 - (158 ) - (expense), netTotal otherincome 5,767 (1,220 ) 3,843 (4,769 )(expenses) Income beforeprovision for 4,663 8,742 10,760 24,571 income taxes Provision for 2,595 2,964 4,985 9,173 income taxesNet income for 2,068 5,778 5,775 15,398 the period Othercomprehensive income, net oftaxUnrealizedincome on 1,044 487 1,653 1,101 hedgingactivitiesNet amountreclassified (79 ) 15 210 182 to earningsOthercomprehensiveincome net oftax expense of$288 and $161for the threemonths endedDecember 31,2020 and December 31, 965 502 1,863 1,2832019, $550 and$411 for theyears endedDecember 31,2020 andDecember 31,2019 Comprehensiveincome, net of $ 3,033 $ 6,280 $ 7,638 $ 16,681 tax for theperiod Basic earningsper common $ 0.19 $ 0.55 $ 0.55 $ 1.45 share Shares used incomputingbasic earnings 10,605,451 10,577,080 10,590,684 10,623,799 per commonshare Dilutedearnings per $ 0.19 $ 0.54 $ 0.54 $ 1.43 common share Shares used incomputingdiluted 10,745,710 10,693,430 10,692,281 10,772,812 earnings percommon share (*)Stock-basedcompensationhas been included inexpenses asfollows:Network $ 139 $ 82 $ 472 $ 307 expensesSales and $ 475 $ 395 $ 1,678 $ 1,251 marketingTechnicaloperations and $ 198 $ 168 $ 756 $ 596 developmentGeneral and $ 242 $ 191 $ 812 $ 722 administrative

Tucows Inc. Consolidated Statements of Cash Flows (Dollar amounts in thousands of U.S. dollars) Three months ended Year ended December 31, December 31, 2020 2019 2020 2019 Cash provided by: (unaudited) (unaudited)Operating activities: Net income for the $ 2,068 $ 5,778 $ 5,775 $ 15,398 periodItems not involving cash:Depreciation of 3,377 2,516 12,632 8,961 property and equipmentImpairment of property - - 1,638 142 and equipmentAmortization of debtdiscount and issuance 67 65 269 297 costsAmortization of 2,644 2,870 11,420 10,333 intangible assetsNet amortization (3 ) (2 ) 106 (10 )contract costsAccretion of contingent 86 - 344 - considerationImpairment of definite - - 1,431 - life intangible assetOther - - 223 - Deferred income taxes (3,012 ) (456 ) (3,939 ) 1,285 (recovery)Excess tax benefits onshare-based (353 ) 156 (861 ) (634 )compensation expenseNet Right of useoperating assets/ (44 ) (27 ) 205 (32 )Operating leaseliabilityLoss on disposal of 2 43 17 115 domain namesLoss (gain) on changein the fair value of (237 ) (109 ) (500 ) (313 )forward contractsDisposal of Ting Mobile - - 3,513 - customer assetsStock-based 1,054 836 3,718 2,876 compensationChange in non-cashoperating working capital:Accounts receivable (2,951 ) (1,095 ) (281 ) (3,015 )Inventory (736 ) 446 945 318 Prepaid expenses and (3,142 ) 6,147 (3,459 ) 2,904 depositsDeferred costs of 2,174 3,924 (1,899 ) 7,678 fulfillmentIncome taxes 2,589 1,210 908 (89 )recoverableAccounts payable (1,661 ) 1,556 (902 ) (1,222 )Accrued liabilities 710 (4,945 ) 376 2,329 Customer deposits 1,030 (846 ) 1,493 27 Deferred revenue (1,985 ) (4,838 ) 2,942 (6,900 )Accreditation fees (40 ) (33 ) (33 ) (67 )payableNet cash provided by 1,637 13,196 36,081 40,381 operating activities Financing activities: Proceeds received onexercise of stock 307 83 985 395 optionsPayment of taxobligations resulting (77 ) (4 ) (556 ) (548 )from net exercise ofstock optionsRepurchase of common - - (3,281 ) (4,986 )stockProceeds received on 8,000 12,000 8,000 57,371 loan payableRepayment of loan - (3,530 ) - (8,130 )payablePayment of loan payable - (2 ) (32 ) (641 )costsNet cash provided by 8,230 8,547 5,116 43,461 financing activities Investing activities: Additions to property (11,708 ) (12,913 ) (44,437 ) (44,070 )and equipmentAcquisition of CedarNetworks (net of cashof $66 and net of - - (8,770 ) - shares issued of$2,000)Acquisition of AscioTechnologies Inc. (net - (426 ) - (28,450 )of cash of $1)Acquisition of (3 ) - (72 ) (3,566 )intangible assetsNet cash used in (11,711 ) (13,339 ) (53,279 ) (76,086 )investing activities (Decrease) increase incash and cash (1,844 ) 8,404 (12,082 ) 7,756 equivalents Cash and cashequivalents, beginning 10,155 11,989 20,393 12,637 of periodCash and cashequivalents, end of $ 8,311 $ 20,393 $ 8,311 $ 20,393 period Supplemental cash flow information:Interest paid $ 813 $ 1,224 $ 3,573 $ 4,785 Income taxes paid, net $ 3,477 $ 1,818 $ 8,926 $ 7,941 Supplementarydisclosure of non-cash investing and financingactivities:Property and equipmentacquired during the $ 1,129 $ 548 $ 1,129 $ 548 period not yet paid forFair value of sharesissued for acquisition $ - $ - $ 2,000 $ - of Cedar Holdings GroupFair value ofcontingentconsideration for $ - $ - $ 3,072 $ - acquisition of CedarHoldings Group

Reconciliation ofNet income to Adjusted EBITDA(In Thousands of Three months ended Year ended December 31,U.S. Dollars) December 31,(unaudited) 2020 2019 2020 2019 (unaudited) (unaudited) (unaudited) (unaudited) Net income for the $ 2,068 $ 5,778 $ 5,775 $ 15,398 periodDepreciation ofproperty and 3,377 2,516 12,632 8,961 equipmentImpairment ofproperty and - - 1,638 - equipmentLoss (gain) ondisposition of (17 ) - (17 ) 73 property andequipmentAmortization of 2,644 2,870 11,420 10,333 intangible assetsImpairment ofdefinite life - - 1,431 - intangible assetsDisposal of TingMobile customer - - 3,513 - assetsInterest expense, 855 1,220 3,611 4,769 netAccretion ofcontingent 86 - 344 - considerationProvision for 2,595 2,964 4,985 9,173 income taxesStock-based 1,054 836 3,718 2,876 compensationUnrealized loss(gain) on change in (237 ) (109 ) (500 ) (313 )fair value offorward contractsUnrealized loss(gain) on foreignexchangerevaluation of (19 ) (180 ) 461 (581 )foreign denominatedmonetary assets andliabilitiesAcquisition and 441 260 1,961 1,216 other costs^1 Adjusted EBITDA $ 12,847 $ 16,155 $ 50,972 $ 51,905 ^1Acquisition and other costs represents transaction-related expenses,transitional expenses, such as redundant post-acquisition expenses, primarilyrelated to our acquisition of Ascio in March 2019 and Cedar in January 2020 anddisposition of certain Ting Mobile assets in August 2020. Expenses includeseverance or transitional costs associated with department, operational oroverall 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 managements 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