Tucows Reports Continuing Strong Financial Results for the Second Quarter of 2015 - Tucows (NASDAQ:TCX)

– Quarter Highlighted by Record Revenue of $42.9 Million, Adjusted EBITDA of $5.4 Million and Net Earnings of $0.21 Per Share as Contribution of Ting Mobile Continues to Grow –

TORONTO, Aug. 6, 2015 (GLOBE NEWSWIRE) -- Tucows Inc. TCX TC, a provider of network access, domain names and other Internet services, today reported its financial results for the second quarter ended June 30, 2015. All figures are in U.S. dollars.


Summary Financial Results
(In Thousands of US Dollars, Except Per Share Data)
	3 Months Ended	3 Months Ended	6 Months Ended	6 Months Ended
	June 30, 2015 (unaudited)	June 30, 2014 (unaudited)	June 30, 2015 (unaudited)	June 30, 2014 (unaudited)
Net revenue	42,889	35,588	83,357	69,990

Adjusted EBITDA¹	5,357	3,275	12,250	6,589
Net income²	2,285	1,347	5,119	1,824
Net earnings per common share	$ 0.21	$ 0.12	$ 0.46	$ 0.16
Net cash provided by operating activities	2,236	1,135	5,173	1,096
1. This Non-GAAP financial measure is described below and reconciled to GAAP net income in the accompanying table.
2. Net income for the three- and six-month periods ended June 30, 2015 include a provision of $0.9 million under the Company's overachievement bonus program as the Company expects to exceed its adjusted EBITDA target.


Summary of Revenues and Cost of Revenues
(In Thousands of US Dollars)
	Revenue	Revenue	Cost of Revenue	Cost of Revenue
	3 Months Ended	3 Months Ended	3 Months Ended	3 Months Ended
	June 30, 2015 (unaudited)	June 30, 2014 (unaudited)	June 30, 2015 (unaudited)	June 30, 2014 (unaudited)
Domain Services
Wholesale
OpenSRS Domain Service	21,287	21,503	17,750	17,809
Value-Added Services	2,356	2,396	501	563
Total Wholesale	23,643	23,899	18,251	18,372
Retail	3,009	2,540	1,323	1,111
Portfolio	819	889	178	213
Total Domain Services	27,471	27,328	19,752	19,696
Network Access Services	15,418	8,260	8,499	5,040

Network, other costs	--	--	1,495	1,145
Network, depreciation and amortization costs	--	--	291	174
Total revenue/cost of revenue	42,889	35,588	30,037	26,055

"Continuing growth in Ting Mobile as well as solid performance from our Domains business contributed to another quarter of record revenue as the operating leverage in our business drove further expansion of our gross margin to 29%² from 26%² in the second quarter of last year," said Elliot Noss, President and Chief Executive Officer, Tucows Inc. "This operating leverage continued to be reflected in our profitability, with Adjusted EBITDA¹ for the second quarter increasing 64% year-over-year to $5.4 million, bringing our total for the year-to-date to $12.3 million."

Net revenue for the second quarter of 2015 increased 21% to $42.9 million from $35.6 million for the second quarter of 2014.

Adjusted EBITDA for the second quarter of 2015 increased 64% to $5.4 million from $3.3 million for the second quarter of 2014. Net income for the second quarter of 2015 increased to $2.3 million, or $0.21 per share, compared with $1.3 million, or $0.12 per share, for the second quarter of 2014.

Cash and cash equivalents at the end of the second quarter of 2015 were $15.3 million, up from $8.3 million at the end of the fourth quarter of 2014 and $14.2 million at the end of the second quarter of 2014. During the second quarter of 2015, Tucows generated cash flow from operating activities of $2.2 million and invested $1.1 million to acquire additional property and equipment, primarily investing $0.8 million in expanding Ting Internet's fiber footprint. The Company also used $0.5 million in cash to repurchase 25,413 shares of its common stock under its ongoing share buyback program.

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 and to project our future earnings and cash flows, we typically disclose and discuss a non-GAAP financial measure, Adjusted EBITDA, on investor conference calls and related events that exclude non-cash and other charges as we believe that the non-GAAP information enhances investors' overall understanding of our financial performance and the comparability of our operating results from period to period.

Adjusted EBITDA is one of the primary measures we use for planning and budgeting purposes, incentive compensation and to monitor and evaluate our financial and operating results. Since adjusted EBITDA is a non-GAAP financial performance measure, our calculation of adjusted EBITDA may be susceptible to varying calculations; 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 measure of discretionary cash available to invest in the growth of the business. See the Consolidated Statements of Cash Flows included in the attached financial statements. Non-GAAP financial measures do not reflect a comprehensive system of accounting, differ from GAAP measures with the same captions 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. However, the Company's management compensates 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.

Adjusted EBITDA excludes depreciation expense, amortization of intangibles, income tax provision, interest expense, interest income, stock-based compensation, asset impairment, net deferred revenue, which comprises the change in deferred revenue, net of prepaid domain name registry and other Internet services fees, to reflect the material amount of cash we collect and pay for domain registrations and other Internet services at the time of activation, unrealized foreign exchange gain/loss from the translation of monetary accounts denominated in non U.S. dollars to U.S. dollars as well as the revaluation of foreign exchange contracts and our foreign denominated assets and liabilities and infrequently occurring items listed in the itemized reconciliations between GAAP and non-GAAP financial measures included in this press release.

2. Excludes contribution of the Portfolio group.

Conference Call

Tucows management will host a conference call today, Thursday, August 6, 2015 at 5:00 p.m. (ET) to discuss the Company's second quarter 2015 results. Participants can access the conference call by dialing 1-888-231-8191 or 647-427-7450 or via the Internet at http://www.tucows.com/investors.

For those unable to participate in the conference call at the scheduled time, it will be archived for replay both by telephone and via the Internet beginning approximately one hour following completion of the call. To access the archived conference call by telephone, dial 416-849-0833 or 1-855-859-2056 and enter the pass code 85694270 followed by the pound key. The telephone replay will be available until Thursday, August 13, 2015 at midnight. To access the archived conference call as an MP3 via the Internet, go to http://www.tucows.com/investors.

About Tucows

Tucows is a provider of network access, domain names and other Internet services. Ting (https://ting.com) delivers mobile phone service and fixed Internet access with outstanding customer support. OpenSRS (http://opensrs.com) manages over fourteen million domain names and millions of value-added services through a global reseller network of over 13,000 web hosts and ISPs. Hover (http://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 (http://tucows.com).


Tucows Inc.
Consolidated Balance Sheets
(Dollar amounts in U.S. dollars)

	June 30,	December 31,
	2015	2014
	(unaudited)

Assets

Current assets:
Cash and cash equivalents	$ 15,300,762	$ 8,271,377
Accounts receivable	8,208,238	6,789,685
Inventory	619,413	393,774
Prepaid expenses and deposits	5,678,128	3,697,292
Prepaid domain name registry and ancillary services fees, current portion	46,922,331	44,614,858
Other assets	--	8,199,000
Deferred tax asset, current portion	3,316,406	2,498,196
Income taxes recoverable	227,759	997
Total current assets	80,273,037	74,465,179

Prepaid domain name registry and ancillary services fees, long-term portion	11,676,068	11,764,765
Property and equipment	6,156,918	1,609,787
Deferred tax asset, long-term portion	5,417,090	4,880,423
Intangible assets	14,768,934	14,202,585
Goodwill	21,005,143	18,873,127
Total assets	$ 139,297,190	$ 125,795,866


Liabilities and Stockholders' Equity

Current liabilities:
Accounts payable	$ 3,777,159	$ 3,579,920
Accrued liabilities	5,274,863	3,941,549
Customer deposits	4,914,645	4,461,727
Derivative instrument liability	1,374,202	1,115,805
Deferred rent, current portion	10,783	--
Loan payable, current portion	3,500,000	--
Deferred revenue, current portion	58,633,546	55,495,566
Accreditation fees payable, current portion	503,644	466,201
Deferred tax liability, current portion	24,765	--
Income taxes payable	1,483,258	473,480
Total current liabilities	79,496,865	69,534,248

Derivative instrument liability, long-term portion	149,445	--
Deferred revenue, long-term portion	15,639,306	15,610,753
Accreditation fees payable, long-term portion	122,846	128,243
Deferred rent, long-term portion	92,642	92,878
Other liabilities	1,545,832	--
Deferred tax liability, long-term portion	5,015,677	4,787,351

Redeemable non-controlling interest	3,012,150	--

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;11,083,976 shares issued and outstanding as of June 30, 2015 and 11,329,732 shares issued and outstanding as of December 31, 2014 (1)	14,411,616	14,130,059
Additional paid-in capital	22,492,630	29,090,058
Deficit	(1,848,495)	(6,955,283)
Accumulated other comprehensive income (loss)	(833,324)	(622,441)
Total stockholders' equity	34,222,427	35,642,393
Total liabilities and stockholders' equity	$ 139,297,190	$ 125,795,866

(1) Shares issued and outstanding at both June 30, 2014 and December 31, 2013 reflects the 1-for-4 reverse split of common shares that became effective on December 31, 2013.


Tucows Inc.
Consolidated Statements of Operations
(Dollar amounts in U.S. dollars)

	Three months ended June 30,		Six months ended June 30,
	2015	2014	2015	2014
	(unaudited)		(unaudited)

Net revenues	$ 42,889,220	$ 35,588,001	$ 83,357,053	$ 69,990,395

Cost of revenues:
Cost of revenues	28,250,672	24,736,004	55,072,046	49,052,643
Network expenses (*)	1,494,838	1,144,697	2,716,934	2,288,341
Depreciation of property and equipment	279,929	173,963	479,571	356,937
Amortization of intangible assets	11,532	--	15,456	--
Total cost of revenues	30,036,971	26,054,664	58,284,007	51,697,921

Gross profit	12,852,249	9,533,337	25,073,046	18,292,474

Expenses:
Sales and marketing (*)	4,847,963	3,762,441	8,647,138	7,784,215
Technical operations and development (*)	1,189,276	1,107,532	2,303,471	2,197,430
General and administrative (*)	2,173,254	1,886,319	3,988,442	3,654,119
Depreciation of property and equipment	62,022	52,538	121,284	108,842
Amortization of intangible assets	56,997	219,030	110,212	438,060
Impairment of indefinite life intangible assets	37,805	326,457	50,298	577,145
Loss on currency forward contracts	602,439	96,545	1,559,297	647,916
Total expenses	8,969,756	7,450,862	16,780,142	15,407,727

Income from operations	3,882,493	2,082,475	8,292,904	2,884,747

Other income (expenses):
Interest expense, net	(57,402)	(69,348)	(82,177)	(143,181)
Total other income (expenses)	(57,402)	(69,348)	(82,177)	(143,181)

Income before provision for income taxes	3,825,091	2,013,127	8,210,727	2,741,566

Provision for income taxes	1,540,096	665,945	3,091,789	917,545
Net income	2,284,995	1,347,182	5,118,938	1,824,021


Redeemable non-controlling interest	(49,985)	--	(71,467)	--

Net (earnings) loss attributable to redeemable non-controlling interest	49,985	--	71,467	--

Net income	2,284,995	1,347,182	5,118,938	1,824,021

Other comprehensive income (loss), net of tax
Unrealized loss on hedging activities	(38,046)	285,136	(998,912)	(165,382)
Net amount reclassified to earnings	371,955	145,141	788,029	380,192

Other comprehensive income (loss) net of tax of $111,897 and $133,761 for the three months ended June 30, 2014 and June 30, 2013, and $224,137 and $230,538 for the six months ended June 30, 2014 and June 30, 2013 (2013 : $96,777)	333,909	430,277	(210,883)	214,810

Comprehensive income (loss), net of tax for the period	$ 2,618,904	$ 1,777,459	$ 4,908,055	$ 2,038,831

Basic earnings per common share	$ 0.21	$ 0.12	$ 0.46	$ 0.16

Shares used in computing basic earnings per common share	11,047,136	11,219,101	11,094,618	11,124,357

Diluted earnings per common share	$ 0.20	$ 0.11	$ 0.44	$ 0.16

Shares used in computing diluted earnings per common share	11,456,670	11,729,547	11,518,105	11,684,529



(*) Stock-based compensation has been included in expenses as follows:
Network expenses	$ 6,916	$ 7,932	$ 15,797	$ 14,058
Sales and marketing	$ 30,804	$ 33,909	$ 66,803	$ 60,319
Technical operations and development	$ 18,447	$ 20,370	$ 36,652	$ 35,617
General and administrative	$ 29,190	$ 29,044	$ 67,082	$ 56,103

(1) Shares used in computing earnings per share as well as earnings per common share reflects the 1-for-4 reverse split of common shares that became effective on December 31, 2013.


Tucows Inc.
Consolidated Statements of Cash Flows
(Dollar amounts in U.S. dollars)

	Three months ended June 30,		Six months ended June 30,
	2015	2014	2015	2014
Cash provided by:	(unaudited)		(unaudited)
Operating activities:
Net income for the period	$ 2,284,995	$ 1,347,182	$ 5,118,938	$ 1,824,021
Items not involving cash:
Depreciation of property and equipment	341,951	226,501	600,855	465,779
Amortization of intangible assets	68,529	219,030	125,668	438,060
Impairment of indefinite life intangible asset	37,805	326,457	50,298	577,145
Deferred income taxes (recovery)	(801,919)	(415,246)	(966,169)	(758,477)
Excess tax benefits from share-based compensation expense	--	594,899	--	(418,901)
Amortization of deferred rent	13,039	9,168	10,547	12,380
Disposal of domain names	11,357	7,247	17,685	8,869
Loss (gain) on change in the fair value of forward contracts	(97,451)	(192,460)	61,342	(105,314)
Stock-based compensation	124,605	85,357	249,653	186,334
Change in non-cash operating working capital:
Accounts receivable	(1,088,453)	(350,806)	(1,257,038)	(1,613,727)
Inventory	(45,294)	28,293	(158,444)	(171,454)
Prepaid expenses and deposits	(592,614)	(259,698)	(1,892,392)	(626,534)
Prepaid domain name registry and ancillary services fees	(755,932)	(606,215)	(2,218,776)	(2,421,898)
Income taxes recoverable	121,248	(133,242)	783,016	(566,543)
Accounts payable	(109,990)	(866,473)	7,576	803,942
Accrued liabilities	1,169,753	253,027	1,110,533	(169,371)
Customer deposits	589,361	16,054	452,918	(13,075)
Deferred revenue	983,586	867,445	3,045,096	3,616,378
Accreditation fees payable	(18,981)	(21,755)	32,046	28,332
Net cash (used in) provided by operating activities	2,235,595	1,134,765	5,173,352	1,095,946

Financing activities:
Proceeds received on exercise of stock options	299,472	130,782	547,455	1,041,863
Excess tax benefits on share-based compensation expense	676,060	--	1,088,702	1,013,800
Repurchase of common stock	(489,536)	--	(8,201,681)	(82,286)
Proceeds received on loan payable	--	--	3,500,000	--
Repayment of loan payable	--	(325,000)	--	(941,667)
Net cash provided by (used in) financing activities	485,996	(194,218)	(3,065,524)	1,031,710

Investing activities:
Additions to property and equipment	(1,149,020)	(313,281)	(1,340,782)	(382,026)
Gross proceeds on waiver of rights to .online registry	--	--	6,619,832	--

Additional cost of acquisition of Ting Virginia, LLC., net of cash of $21,423	50,000	--	(357,493)	--
Net cash used in investing activities	(1,099,020)	(313,281)	4,921,557	(382,026)

Increase (decrease) in cash and cash equivalents	1,622,571	627,266	7,029,385	1,745,630

Cash and cash equivalents, beginning of period	13,678,191	13,537,252	8,271,377	12,418,888
Cash and cash equivalents, end of period	$ 15,300,762	$ 14,164,518	$ 15,300,762	$ 14,164,518

Supplemental cash flow information:
Interest paid	$ 57,409	$ 69,437	$ 96,302	$ 143,386
Income taxes paid, net	$ 1,380,448	$ 588,916	$ 1,944,470	$ 1,258,540

Supplementary disclosure of non-cash investing activity:
Property and equipment acquired during the period not yet paid for	$ 70,577	$ 19,637	$ 70,577	$ 19,637

Tucows Inc.
Reconciliation of Net income to Adjusted EBITDA
(In Thousands of US Dollars)

	Three months ended June 30,		Six months ended June 30,
	2015	2014	2015	2014
	(unaudited)		(unaudited)

Net income for the period	$ 2,285	$ 1,347	$ 5,119	$ 1,824
Depreciation of property and equipment	342	227	601	466
Amortization of intangible assets	106	545	176	1,015
Interest expense, net	57	69	82	143
Provision for income taxes	1,540	666	3,092	918
Change in net deferred revenue ¹	200	266	891	1,198
Stock-based compensation	125	85	250	186
Loss (gain) on currency forward contracts	702	70	2,039	839

Adjusted EBITDA	$ 5,357	$ 3,275	$ 12,250	$ 6,589

(1) Net deferred revenue comprises the change in deferred revenue, net of prepaid domain name registry and other Internet services fees, to reflect the material amount of cash we collect and pay for domain registrations and other Internet services at the time of activation. Net deferred revenue for the three months ended March 31, 2015, includes a benefit of $0.1 million as a result of the translation of deferred revenue and prepaid domain name registry and other Internet services fees to our reporting currency of US dollars.

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, in particular, our expectations for Ting and its impact on our financial performance. 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, including the acceptance of Ting in the market. 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® is a registered trademark of Tucows Inc. or its subsidiaries. All other trademarks and service marks are the properties of their respective owners.

CONTACT: Lawrence Chamberlain NATIONAL Equicom (416) 815-0700 ext. 257 lchamberlain@tmxequicom.com

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