TORONTO, Aug. 3, 2023
/CNW/ - Tucows Inc. (NASDAQ: TCX) (TSX: TC), a global internet
services leader, today reported its financial results for the
second quarter ended June 30, 2023.
All figures are in U.S. dollars.
"Our second quarter results continue to show the potential of
the Tucows growth businesses, said Elliot
Noss, Tucows President and CEO. Our Ting and Wavelo
businesses saw 21% and 20% increases in revenue respectively, year
over year. But Wavelo was our standout business this quarter. The
business completed the migration of 8 million-plus subscribers and
had increases of 47% in revenue, 60% in gross profit, and 923% in
Adjusted EBITDA in Q2 compared to Q1. Our Tucows Domains business
has seen domains under management and transactions stabilize
post-pandemic, and we expect revenues and margin to similarly
return to incremental growth as we realize the benefits of foreign
exchange related price increases from the second half of 2022. And
we've again used cash flow from Wavelo and Tucows Domains to reduce
our syndicated debt this quarter."
Financial Results
Consolidated net revenue for the second quarter of 2023
increased 2.3% to $85.0 million from
$83.1 million for the second quarter
of 2022. The growth in Ting and Wavelo revenues was offset by
decreases in revenues in Tucows Domains and Tucows Corporate.
Although domains under management and transactions have stabilized
post pandemic, there was a lower contribution from Expiry
aftermarket sales in our Domains business.
Gross profit for the second quarter of 2023 decreased 18.2% to
$18 million from $22.1 million for the second quarter of 2022. The
decrease in Gross profit was driven primarily by increased network
depreciation and network expenses, as the Ting network footprint
expands. There were also impacts from lower year over year margin
from our Domains business related to lower Expiry aftermarket
sales. The decrease in Gross profit was partially offset by
growth in gross margin for both Ting and Wavelo.
Net loss for the second quarter of 2023 was $31.0 million, or a loss of $2.86 per share, compared with net loss of
$3.0 million, or $0.29 per share, for the second quarter of 2022,
with the loss being primarily the result of a one-time cost of
$14.7 million associated with the
early redemption of a portion of the Ting preferred shares, in
addition to costs from the continued investment in the Ting Fiber
network expansion, network depreciation, higher stock based
compensation, and higher interest expenses resulting from the new
Ting asset-backed security (ABS) facility.
Adjusted EBITDA1 for the second quarter of 2023
decreased 54% to $5.4 million from
$11.7 million for the second quarter
of 2022. The decrease in adjusted EBITDA1 was primarily
related to expected and reduced contribution from Ting, which has
been making strong investments into the expansion of its fiber
network. To a lesser extent the adjusted EBITDA decrease is also
related to lower contribution from Expiry aftermarket sales in
our Domains business, and the impact of the contract asset
unwinding in the Wavelo business.
Cash, cash equivalents, restricted cash and restricted cash
equivalents at the end of the second quarter of 2023 were
$159.6 million compared with
$11.8 million at the end of the first
quarter of 2023 and $6.5 million at
the end of the second quarter of 2022.
Summary Financial Results
(In
Thousands of US Dollars, Except Per Share Data)
|
3 Months ended June
30
|
6 Months ended June
30
|
2023
(unaudited)
|
2022
(unaudited)
|
%
Change
|
2023
(unaudited)
|
2022
(unaudited)
|
%
Change
|
Net
Revenues
|
84,978
|
83,084
|
2.0 %
|
165,408
|
164,183
|
0.7 %
|
Gross
Profit
|
18,032
|
22,053
|
(18.2) %
|
32,093
|
43,251
|
(26) %
|
Income Earned on
Sale of Transferred Assets, net
|
4,289
|
4,520
|
(5.1) %
|
8,659
|
9,272
|
(6.6) %
|
Net Income
(Loss)
|
(30,968)
|
(3,125)
|
(891) %
|
(50,051)
|
(6,145)
|
714 %
|
Basic earnings
(Loss) per common share
|
(2.86)
|
(0.29)
|
(886) %
|
(4.63)
|
(0.57)
|
712 %
|
Adjusted
EBITDA¹
|
5,395
|
11,700
|
(54) %
|
8,425
|
23,011
|
(63) %
|
Net cash by (used
in) operating activities
|
(1,587)
|
12,576
|
(113) %
|
(6,838)
|
17,983
|
(138) %
|
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
Margin
|
Adj.
EBITDA¹
|
3 Months ended June
30
|
3 Months ended June
30
|
3 Months ended June
30
|
2023
(unaudited)
|
2022
(unaudited)
|
2023
(unaudited)
|
2022
(unaudited)
|
2023
(unaudited)
|
2022
(unaudited)
|
Ting Internet
Services:
|
Fiber Internet
Services
|
12,408
|
10,221
|
7,051
|
5,804
|
(10,336)
|
(6,185)
|
|
|
|
|
|
|
|
Wavelo Platform
Services:
|
Platform
Services
|
10,342
|
7,970
|
10,012
|
7,768
|
|
|
Other Professional
Services
|
409
|
1,000
|
40
|
144
|
|
|
Total Wavelo
Platform
Services
|
10,751
|
8,970
|
10,052
|
7,912
|
3,427
|
3,872
|
|
|
|
|
|
|
|
Tucows Domain
Services:
|
Wholesale
|
|
|
|
|
|
|
Domain
Services
|
46,782
|
46,979
|
9,492
|
10,041
|
|
|
Value Added
Services
|
4,745
|
5,597
|
4,162
|
4,954
|
|
|
Total
Wholesale
|
51,527
|
52,576
|
13,654
|
14,995
|
|
|
|
|
|
|
|
|
|
Retail
|
8,429
|
8,487
|
4,275
|
4,968
|
|
|
Total Tucows
Domain
Services
|
59,956
|
61,063
|
17,929
|
19,963
|
10,578
|
12,107
|
|
|
|
|
|
|
|
Corporate:
|
Mobile Services and
Eliminations
|
1,863
|
2,830
|
(797)
|
105
|
1,726
|
1,906
|
|
|
|
|
|
|
|
Network
Expenses:
|
Network, other
costs
|
n/a
|
n/a
|
(6,993)
|
(4,764)
|
n/a
|
n/a
|
Network, depreciation
of property and equipment
|
n/a
|
n/a
|
(8,757)
|
(6,589)
|
n/a
|
n/a
|
Network, amortization
of intangible assets
|
n/a
|
n/a
|
(379)
|
(378)
|
n/a
|
n/a
|
Network,
impairment
|
n/a
|
n/a
|
(74)
|
-
|
n/a
|
n/a
|
Total Network
Expenses
|
n/a
|
n/a
|
(16,203)
|
(11,731)
|
n/a
|
n/a
|
|
|
|
|
|
|
|
Total
|
84,978
|
83,084
|
18,032
|
22,053
|
5,395
|
11,700
|
1. This Non-GAAP financial measure is
described below and reconciled to GAAP net income in the
accompanying table.
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, loss on debt extinguishment and
costs that are 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 income before provision for
income taxes to Adjusted EBITDA (dollars in thousands):
|
3 Months ended June
30
|
6 Months ended June
30
|
2023
(unaudited)
|
2022
(unaudited)
|
2023
(unaudited)
|
2022
(unaudited)
|
Net income (Loss)
for the period
|
(30,968)
|
(3,125)
|
(50,051)
|
(6,145)
|
Less:
|
|
|
|
|
Provision for income
taxes
|
(3,025)
|
738
|
(4,735)
|
1,817
|
Depreciation of
property and equipment
|
8,907
|
6,735
|
17,495
|
12,778
|
Impairment of property
and equipment
|
74
|
95
|
2,016
|
507
|
Amortization of
intangible assets
|
2,609
|
2,843
|
5,481
|
5,686
|
Interest expense,
net
|
10,501
|
2,422
|
18,381
|
4,217
|
Loss on debt
extinguishment
|
14,680
|
-
|
14,680
|
-
|
Accretion of contingent
consideration
|
-
|
50
|
-
|
148
|
Stock-based
compensation
|
2,052
|
1,436
|
4,298
|
2,828
|
Unrealized loss (gain)
on foreign exchange revaluation of foreign denominated monetary
assets and liabilities
|
(126)
|
46
|
(84)
|
100
|
Acquisition and
transition costs*
|
691
|
460
|
944
|
1,076
|
|
|
|
|
|
Adjusted
EBITDA
|
5,395
|
11,700
|
8,425
|
23,012
|
* 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 its quarterly financial
results news release at 5:05 p.m. ET on Thursday, August 3, 2023, 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.
Following management's prepared commentary, for the subsequent
seven days, until Thursday, August 10,
2023, shareholders, analysts and prospective investors can
submit questions to Tucows' management at ir@tucows.com. Management
will post responses to questions in an audio recording and
transcript to the Company's website
at http://www.tucows.com/investors/financials, on Tuesday, August 22, 2023, at approximately
4 p.m. 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 (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. Tucows Domains
(https://tucowsdomains.com) manages approximately 24 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, Ting, Wavelo, and Hover are registered trademarks of
Tucows Inc. or its subsidiaries.
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.
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SOURCE Tucows Inc.