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 30		3 Months ended September 30		3 Months ended September 30
	2021 (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

Tucows Reports Financial Results for Third Quarter 2021