AP NEWS

Tucows Reports Continuing Strong Financial Results for Second Quarter 2018

August 8, 2018

TORONTO, Aug. 08, 2018 (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 second quarter ended June 30, 2018. All figures are in U.S. dollars.

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

3 Months Ended June 30 6 Months Ended June 30 ----------------------------- ---------------------------- 2018 2017 % 2018 2017 % (Unaudited) (Unaudited) Change(Unaudited) (Unaudited) Chang e ----------------------------------------- ----------- ----------- ----- ----------- ----------- ---- Net revenue 81,087 84,223 -4 % 176,882 153,791 15 % ----------------------------------------- ----------- ----------- --- - ----------- ----------- -- - Net income 3,608 5,242 -31 % 7,352 7,686 -4 % ----------------------------------------- ----------- ----------- --- - ----------- ----------- -- - Basic Net earnings per common share 0.34 0.50 -32 % 0.69 0.73 -5 % ----------------------------------------- ----------- ----------- --- - ----------- ----------- -- - Adjusted EBITDA1 11,188 10,374 8 % 21,567 16,711 29 % ----------------------------------------- ----------- ----------- --- - ----------- ----------- -- - Net cash provided by operating activities 5,754 8,131 -29 % 15,327 10,534 46 % ----------------------------------------- ----------- ----------- --- - ----------- ----------- -- -

1. This Non-GAAP financial measure is described below and reconciled to GAAP net income in the accompanying table.

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

Revenue Gross Margin -------------------------------------------- ----------------------- ----------------- 3 Months ended 3 Months ended June 30 June 30 -------------------------------------------- ----------------------- ----------------- 2018 2017 2018 2017 (Unaudited) (Unaudited) (Unaudite(Unaudite d) d) -------------------------------------------- ----------- ----------- -------- -------- Network Access Services: -------------------------------------------------------------------------------------- Mobile Services 22,411 20,379 10,433 9,677 -------------------------------------------- ----------- ----------- ------ - ------ - Other Services 1,895 1,248 605 302 -------------------------------------------- ----------- ----------- ------ - ------ - Total Network Access Services 24,306 21,627 11,038 9,979 -------------------------------------------- ----------- ----------- -------- -------- Domain Services: -------------------------------------------------------------------------------------- Wholesale -------------------------------------------- ----------- ----------- -------- -------- Domain Services 42,540 48,550 6,696 6,101 -------------------------------------------- ----------- ----------- ------ - ------ - Value Added Services 4,601 5,415 3,853 4,800 -------------------------------------------- ----------- ----------- ------ - ------ - Total Wholesale 47,141 53,965 10,549 10,901 -------------------------------------------- ----------- ----------- -------- -------- Retail 8,477 7,663 4,031 3,115 -------------------------------------------- ----------- ----------- ------ - ------ - Portfolio 1,163 968 968 783 -------------------------------------------- ----------- ----------- ------ - ------ - Total Domain Services 56,781 62,596 15,548 14,799 -------------------------------------------- ----------- ----------- -------- -------- Network Expenses: -------------------------------------------------------------------------------------- Network, other costs - - (2,701 ) (2,261 ) -------------------------------------------- ----------- ----------- ------ - ------ - Network, depreciation and amortization costs - - (1,727 ) (1,169 ) -------------------------------------------- ----------- ----------- ------ - ------ - Total Network expenses - - (4,428 ) (3,430 ) -------------------------------------------- ----------- ----------- -------- -------- Total revenue/gross margin 81,087 84,223 22,158 21,348 -------------------------------------------- ----------- ----------- ------ - ------ -

“The second quarter once again saw solid performances from each of our businesses,” said Elliot Noss, President and Chief Executive Officer, Tucows Inc. “The domains business delivered consistent results outside of the expected in quarter impact of the transfer of 2.65 million very low margin names in the first quarter of this year. Ting Mobile delivered increases in year-over-year revenue and margin as we work towards the next phase of customer growth. Finally, Ting Internet continued its steady progress from network builds and expansions across the footprint to serviceable addresses, to subscriber activations, to dependable recurring monthly revenue.”

Financial Results

Net revenue for the second quarter of 2018 was $81.1 million compared to $84.2 million for the second quarter of 2017, with the decrease due primarily to the bulk transfer of 2.65 million very low margin domain names during the first quarter of 2018, which was partially offset by the continued growth of Ting Mobile.

Net income for the second quarter of 2018 was $3.6 million, or $0.34 per share, down from $5.2 million, or $0.50 per share, for the second quarter of 2017. Net income for the second quarter of 2018 includes acquisition and transaction costs of $0.8 million related to geographic headcount and operational alignments.

Adjusted EBITDA1 for the second quarter of 2018 increased 8% to $11.2 million from $10.4 million for the second quarter of 2017.

Cash and cash equivalents at the end of the second quarter of 2018 was $11.2 million compared with $16.6 million at the end of the first quarter of 2018 and $15.1 million at the end of the second quarter of 2017.

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, interest income, stock-based compensation, asset impairment, gains and losses from unrealized foreign currency transactions and infrequently occurring items, including acquisition and transitions 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 June 6 months ended June 30 30 ------------------------------------------------------------------- -------------------- -------------------- 2018 2017 2018 2017 (unaudited) (unaudite(unaudited) (unaudite d) d) ------------------------------------------------------------------- ----------- -------- ----------- -------- Net income for the period 3,608 5,242 7,352 7,686 ------------------------------------------------------------------- ----------- ------ - ----------- ------ - Depreciation of property and equipment 1,330 879 2,562 1,636 ------------------------------------------------------------------- ----------- ------ - ----------- ------ - Amortization of intangible assets 2,326 2,063 4,657 3,825 ------------------------------------------------------------------- ----------- ------ - ----------- ------ - Interest expense, net 951 970 1,847 1,838 ------------------------------------------------------------------- ----------- ------ - ----------- ------ - Provision for income taxes 1,228 1,083 2,411 958 ------------------------------------------------------------------- ----------- ------ - ----------- ------ - Stock-based compensation 615 313 1,193 631 ------------------------------------------------------------------- ----------- ------ - ----------- ------ - Unrealized loss (gain) on change in fair value of forward contracts 46 (20 ) 43 (38 ) ------------------------------------------------------------------- ----------- ------ - ----------- ------ - Unrealized loss (gain) on foreign exchange revaluation of foreign 282 (283 ) 459 (334 ) denominated monetary assets and liabilities ------------------------------------------------------------------- ----------- ------ - ----------- ------ - Acquisition and transition costs* 802 127 1,043 509 ------------------------------------------------------------------- ----------- -------- ----------- -------- Adjusted EBITDA 11,188 10,374 21,567 16,711 ------------------------------------------------------------------- ----------- ------ - ----------- ------ - *Acquisition and other costs represents transaction-related expenses, transitional expenses, such as duplicative post-acquisition expenses, related to our acquisition of Enom in January 2017. Expenses include severance or transitional costs associated with department, operational or overall company restructuring efforts, including geographic alignments. -------------------------------------------------------------------------------------------------------------

Conference CallBeginning this quarter, Tucows is evolving the format of its quarterly conference calls. Concurrent with the dissemination of this news release, management’s pre-recorded remarks discussing the quarter and outlook for the Company have been posted to the Company’s web site at http://www.tucows.com/investors/financials. In lieu of the usual question and answer period on past calls, for the next seven days (until Wednesday, August 15), shareholders and analysts can submit questions to Tucows’ management at ir@tucows.com. Management will post responses to questions of general interest to the Company’s web site at http://www.tucows.com/investors/financials/ on Wednesday, August 22 at 9:00 a.m. ET. Questions that are more specific will be responded to directly. All questions will receive a response.

About TucowsTucows 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) and Enom (http://www.enom.com) manage a combined 24 million domain names and millions of value-added services through a global reseller network of over 38,000 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 ).

TucowsInc. Consolidated Balance Sheets (Dollar amounts in thousands of U.S. dollars) June 30, December 31, 2018 2017 ----------- --------- (unaudited) (unaudited ) Assets Current assets: Cash and cash equivalents $ 11,161 $ 18,049 Accounts receivable 12,214 12,376 Inventory 3,248 2,944 Prepaid expenses and deposits 15,428 14,186 Prepaid domain name registry and ancillary services fees, current portion 94,754 103,302 Income taxes recoverable 3,137 3,004 - ------- - - ------- Total current assets 139,942 153,861 Prepaid domain name registry and ancillary services fees, long-term portion 20,701 23,701 Property and equipment 34,538 24,620 Contract costs 1,354 - Intangible assets 53,693 58,414 Goodwill 90,054 90,054 Total assets $ 340,282 $ 350,650 - ------- - - ------- Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 7,340 $ 7,026 Accrued liabilities 6,770 6,412 Customer deposits 12,934 15,255 Derivative instrument liability 337 - Deferred rent, current portion 21 21 Loan payable, current portion 17,721 18,290 Deferred revenue, current portion 122,976 129,155 Accreditation fees payable, current portion 1,099 1,175 Income taxes payable 1,477 1,226 - ------- - - ------- Total current liabilities 170,675 178,560 Derivative instrument liability, long-term portion (note 5) 27 - Deferred revenue, long-term portion 29,075 31,427 Accreditation fees payable, long-term portion 269 289 Deferred rent, long-term portion 126 130 Loan payable, long-term portion 51,012 58,634 Deferred Gain 258 429 Deferred tax liability 19,577 19,834 Redeemable non-controlling interest - 1,136 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; 10,603,366 shares issued and outstanding as of June 30, 2018 and 10,583,879 shares issued and outstanding as of 15,548 15,368 December 31, 2017 Additional paid-in capital 2,931 2,167 Retained earnings 51,027 42,676 Accumulated other comprehensive income (243 ) - Total stockholders’ equity 69,263 60,211 - ------- - - ------- Total liabilities and stockholders’ equity $ 340,282 $ 350,650 - ------- - - -------

TucowsInc. Consolidated Statements of Operations (Dollar amounts in thousands of U.S. dollars) Three months ended June 30, Six months ended June 30, 2018 2017 2018 2017 ------------ ------------ ------------ ------------ (unaudited) (unaudited) Net revenues $ 81,087 $ 84,223 $ 176,882 $ 153,791 Cost of revenues: Cost of revenues 54,501 59,445 123,473 108,756 Network expenses (*) 2,701 2,261 5,275 4,604 Depreciation of property and equipment 1,228 714 2,359 1,305 Amortization of intangible assets 499 455 998 836 Total cost of revenues 58,929 62,875 132,105 115,501 ---------- - ---------- - ---------- - ---------- - Gross profit 22,158 21,348 44,777 38,290 Expenses: Sales and marketing (*) 7,852 7,447 16,217 14,667 Technical operations and development (*) 2,355 1,798 4,450 3,492 General and administrative (*) 4,256 3,285 8,786 6,742 Depreciation of property and equipment 102 165 203 331 Loss on disposition of property and equipment - 2 - 2 Amortization of intangible assets 1,827 1,608 3,659 2,989 Loss (gain) on currency forward contracts 52 (27 ) 49 (61 ) Total expenses 16,444 14,278 33,364 28,162 ---------- - ---------- - ---------- - ---------- - Income from operations 5,714 7,070 11,413 10,128 Other income (expenses): Interest expense, net (951 ) (970 ) (1,847 ) (1,838 ) Other income, net 73 225 197 354 Total other income (expenses) (878 ) (745 ) (1,650 ) (1,484 ) ---------- - ---------- - ---------- - ---------- - Income before provision for income taxes 4,836 6,325 9,763 8,644 Provision for income taxes 1,228 1,083 2,411 958 ---------- - ---------- - ---------- - ---------- - Net income before redeemable non-controlling 3,608 5,242 7,352 7,686 interest Redeemable non-controlling interest - (117 ) (26 ) (243 ) Net income attributable to redeemable - 117 26 243 non-controlling interest ---------- - ---------- - ---------- - ---------- - Net income for the period 3,608 5,242 7,352 7,686 Other comprehensive income, net of tax Unrealized income (loss) on hedging activities (273 ) 143 (256 ) 329 Net amount reclassified to earnings 13 (17 ) 13 (98 ) Other comprehensive income (loss) net of tax of $84 and and $71 for the three months ended June (260 ) 126 (243 ) 231 30, 2018 and June 30, 2017, $78 and $131 for the six months ended June 30, 2018 and June 30, 2017 ---------- - ---------- - ---------- - ---------- - Comprehensive income, net of tax for the period $ 3,348 $ 5,368 $ 7,109 $ 7,917 ---------- - ---------- - ---------- - ---------- - Basic earnings per common share $ 0.34 $ 0.50 $ 0.69 $ 0.73 ---------- - ---------- - ---------- - ---------- - Shares used in computing basic earnings per common 10,597,228 10,528,219 10,592,994 10,501,407 share ---------- - ---------- - ---------- - ---------- - Diluted earnings per common share $ 0.33 $ 0.49 $ 0.68 $ 0.71 ---------- - ---------- - ---------- - ---------- - Shares used in computing diluted earnings per 10,803,007 10,793,031 10,797,017 10,785,685 common share ---------- - ---------- - ---------- - ---------- - (*) Stock-based compensation has been included in expenses as follows: Network expenses $ 28 $ 3 $ 84 $ 8 Sales and marketing $ 245 $ 61 $ 431 $ 120 Technical operations and development $ 174 $ 58 $ 351 $ 119 General and administrative $ 168 $ 191 $ 327 $ 384

TucowsInc. Consolidated Statements of Cash Flows (Dollar amounts in thousands of U.S. dollars) Three months ended Six months ended June June 30, 30, 2018 2017 2018 2017 -------- -------- --------- --------- Cash provided by: (unaudited) (unaudited) Operating activities: Net income for the period $ 3,608 $ 5,242 $ 7,352 $ 7,686 Items not involving cash: Depreciation of property and equipment 1,330 879 2,562 1,636 Loss on write off of property and equipment - 9 - 9 Amortization of debt discount and issuance costs 69 80 139 147 Amortization of intangible assets 2,326 2,064 4,657 3,825 Change in capitalized contract costs 25 - 50 - Deferred income taxes (recovery) (445 ) (2,885 ) (492 ) (1,565 ) Excess tax benefits on share-based compensation expense (197 ) (1,182 ) (341 ) (2,171 ) Amortization of deferred rent (4 ) 1 (4 ) 5 Loss on disposal of domain names 28 7 65 18 Other income (42 ) (128 ) (171 ) (257 ) Loss (gain) on change in the fair value of forward contracts 46 (163 ) 43 (301 ) Stock-based compensation 615 313 1,193 631 Change in non-cash operating working capital: Accounts receivable 471 (905 ) 162 (864 ) Inventory (350 ) (1,267 ) (304 ) (1,096 ) Prepaid expenses and deposits (717 ) 1,186 (1,242 ) (2,371 ) Prepaid domain name registry and ancillary services fees 204 2,976 11,548 (2,513 ) Income taxes recoverable 165 2,513 430 (147 ) Accounts payable (1,862 ) (592 ) 270 (4,038 ) Accrued liabilities (401 ) (1,818 ) 358 13 Customer deposits (46 ) 3,152 (2,321 ) 3,068 Deferred revenue 1,067 (1,273 ) (8,531 ) 8,968 Accreditation fees payable (136 ) (78 ) (96 ) (149 ) Net cash provided by operating activities 5,754 8,131 15,327 10,534 ------ - ------ - ------- - ------- - Financing activities: Proceeds received on exercise of stock options 32 85 39 105 Payment of tax obligations resulting from net exercise of stock (141 ) (609 ) (288 ) (1,322 ) options Proceeds received on loan payable 2,500 - 2,500 86,998 Repayment of loan payable (6,253 ) (4,572 ) (10,825 ) (10,830 ) Payment of loan payable costs - (13 ) (4 ) (604 ) Net cash (used in) provided by financing activities (3,862 ) (5,109 ) (8,578 ) 74,347 ------ - ------ - ------- - ------- - Investing activities: Additions to property and equipment (7,319 ) (2,909 ) (12,436 ) (6,602 ) Acquisition of a portion of the minority interest in Ting - - (1,200 ) (2,000 ) Virginia, LLC Acquisition of Enom Incorporated, net of cash - - - (76,238 ) Acquisition of intangible assets - - (1 ) - Net cash used in investing activities (7,319 ) (2,909 ) (13,637 ) (84,840 ) ------ - ------ - ------- - ------- - Decrease in cash and cash equivalents (5,427 ) 113 (6,888 ) 41 Cash and cash equivalents, beginning of period 16,588 15,033 18,049 15,105 Cash and cash equivalents, end of period $ 11,161 $ 15,146 $ 11,161 $ 15,146 ------ - ------ - ------- - ------- - Supplemental cash flow information: Interest paid $ 961 $ 975 $ 1,862 $ 1,848 Income taxes paid, net $ 2,240 $ 2,663 $ 3,577 $ 5,006 Supplementary disclosure of non-cash investing and financing activities: Property and equipment acquired during the period not yet paid $ 258 $ 232 $ 258 $ 232 for

Reconciliation of Net income to Adjusted EBITDA (Dollar amounts in thousands of U.S. dollars) Three months Six months ended ended June 30, June 30, 2018 2017 2018 2017 ------ -------- ------ -------- (unaudited) (unaudited) Net income for the period $ 3,608 $ 5,242 $ 7,352 $ 7,686 Depreciation of property and equipment 1,330 879 2,562 1,636 Amortization of intangible assets 2,326 2,063 4,657 3,825 Interest expense, net 951 970 1,847 1,838 Provision for income taxes 1,228 1,083 2,411 958 Stock-based compensation 615 313 1,193 631 Unrealized loss (gain) on change in fair value of forward contracts 46 (20 ) 43 (38 ) Unrealized loss (gain) on foreign exchange revaluation of foreign 282 (283 ) 459 (334 ) denominated monetary assets and liabilities Acquisition and other costs1 802 127 1,043 509 Adjusted EBITDA $ 11,188 $ 10,374 $ 21,567 $ 16,711 ------ ------ - ------ ------ - 1Acquisition and other costs represents transaction-related expenses, transitional expenses, such as duplicative post-acquisition expenses, primarily related to our acquisition of Enom in January 2017. 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 expectation 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 and Hover are registered trademarks of Tucows Inc. or its subsidiaries.

Contact:Lawrence ChamberlainLoderock Advisors(416) 519-4196 lawrence.chamberlain@loderockadvisors.com

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