AP NEWS

Tucows Reports Continuing Strong Financial Results for Fourth Quarter and Full Year 2018

February 13, 2019

2018 Highlighted by Record Revenue, Adjusted EBITDA2 and Cash Flow from Operations

TORONTO, Feb. 13, 2019 (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, 2018. All figures are in U.S. dollars.

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

3 Months Ended December 31 12 Months Ended December 31 -------------------------------- -------------------------------- 2018 2017 % Change 2018 2017 % Change (Unaudited) (Unaudited) (Unaudited) (Unaudited) ----------------------------------------- ----------- ----------- -------- ----------- ----------- -------- Net revenue 85,612 90,621 -6% 346,013 329,421 5% ----------------------------------------- ----------- ----------- -------- ----------- ----------- -------- Net income1 4,436 11,199 -60% 17,135 22,327 -23% ----------------------------------------- ----------- ----------- -------- ----------- ----------- -------- Basic Net earnings per common share1 0.42 1.06 -60% 1.62 2.12 -24% ----------------------------------------- ----------- ----------- -------- ----------- ----------- -------- Adjusted EBITDA2,3 16,633 15,276 9% 50,057 41,357 21% ----------------------------------------- ----------- ----------- -------- ----------- ----------- -------- Net cash provided by operating activities 10,668 14,081 -24% 37,209 31,896 17% ----------------------------------------- ----------- ----------- -------- ----------- ----------- --------

1. Net Income and Earnings Per Share for the fourth quarter and Fiscal 2017 reflected a net positive implementation impact from the Tax Cuts and Jobs Act of 2017 of $5.8 million and $0.55 per share, respectively. 2. This Non-GAAP financial measure is described below and reconciled to GAAP net income in the accompanying table. 3. Adjusted EBITDA for the fourth quarter and twelve month period of 2017 reflect the impact of the purchase price accounting adjustment related to the fair value write down of deferred revenue from the Enom acquisition which lowered Adjusted EBITDA by $0.8 million and $7.8 million for the fourth quarter and twelve months of 2017, respectively.

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

Revenue Gross profit -------------------------------------------- ----------------------- ----------------- 3 Months ended 3 Months ended December 31 December 31 -------------------------------------------- ----------------------- ----------------- 2018 2017 2018 2017 (Unaudited) (Unaudited) (Unaudite(Unaudite d) d) -------------------------------------------- ----------- ----------- -------- -------- Network Access Services: -------------------------------------------------------------------------------------- Mobile Services 22,511 23,795 11,093 11,094 -------------------------------------------- ----------- ----------- ------ - ------ - Other Services 2,320 1,590 1,429 651 -------------------------------------------- ----------- ----------- ------ - ------ - Total Network Access Services 24,831 25,385 12,522 11,745 -------------------------------------------- ----------- ----------- -------- -------- Domain Services: -------------------------------------------------------------------------------------- Wholesale -------------------------------------------- ----------- ----------- -------- -------- Domain Services 43,396 48,320 7,752 6,514 -------------------------------------------- ----------- ----------- ------ - ------ - Value Added Services 4,180 4,305 3,438 3,733 -------------------------------------------- ----------- ----------- ------ - ------ - Total Wholesale 47,576 52,625 11,190 10,247 -------------------------------------------- ----------- ----------- -------- -------- Retail 8,880 8,711 4,475 4,141 -------------------------------------------- ----------- ----------- ------ - ------ - Portfolio 4,325 3,900 3,900 3,376 -------------------------------------------- ----------- ----------- ------ - ------ - Total Domain Services 60,781 65,236 19,565 17,764 -------------------------------------------- ----------- ----------- -------- -------- Network Expenses: -------------------------------------------------------------------------------------- Network, other costs - - (2,256 ) (2,260 ) -------------------------------------------- ----------- ----------- ------ - ------ - Network, depreciation and amortization costs - - (2,100 ) (1,513 ) -------------------------------------------- ----------- ----------- ------ - ------ - Total Network expenses - - (4,356 ) (3,773 ) -------------------------------------------- ----------- ----------- -------- -------- Total 85,612 90,621 27,731 25,736 -------------------------------------------- ----------- ----------- ------ - ------ -

“The fourth quarter once again saw solid, consistent performance across the business, highlighted by year-over-year gross profit expansion in both Domains and Network Access and 9% growth in adjusted EBITDA,” said Elliot Noss, President and Chief Executive Officer, Tucows Inc. “The quarter capped off another record year in terms of revenue, gross profit, adjusted EBITDA and cash flow from operations. As importantly, the cash generation of the Domains and Ting Mobile businesses fueled our build-out of the Ting Internet footprint that will drive our next phase of outsized growth.”

“Ting Internet made strong, steady progress throughout the year, growing our serviceable addresses, customers and recurring monthly revenue, adding a sixth town early in the year and readying for the seventh announced just last week. At Ting Mobile, we again delivered strong year-over-year growth in revenue, margin and gross profit. In our Domains business, we made significant progress in the integration of Enom, with more than half of the $5 million in expected EBITDA synergies now realized, as well as the development of the new platform, positioning this business for potential new growth opportunities.”

“All of these achievements position Tucows for an exciting 2019 in each of our businesses and improving growth that will drive long-term value for our shareholders.”

Financial Results

Net revenue for the fourth quarter of 2018 was $85.6 million compared with $90.6 million for the fourth quarter of 2017, with the decrease due primarily to acceleration of revenue related to the bulk transfer of 2.8 million very low margin domain names in the first and third quarters of 2018. Excluding the impact of these of bulk transfers, net revenue for the fourth quarter of 2018 increased 2% compared to the fourth quarter of 2017.

Net income for the fourth quarter of 2018 was $4.4 million, or $0.42 per share compared with $11.2 million, or $1.06 per share, for the fourth quarter of 2017. Net income for the fourth quarter of 2017 was positively impacted by the tax related implementation impacts from the Tax Cuts and Jobs Act of 2017 for $5.8 million or $0.55 per share.

Adjusted EBITDA1 for the fourth quarter of 2018 increased 9% to $16.6 million from $15.3 million for the fourth quarter of 2017.

Cash and cash equivalents at the end of the fourth quarter of 2018 were $12.6 million compared with $10.8 million at the end of the third quarter of 2018 and $18.0 million at the end of the fourth 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 12 months ended December 31 December 31 ------------------------------------------------------------------- -------------------- -------------------- 2018 2017 2018 2017 (unaudited) (unaudite(unaudited) (unaudite d) d) ------------------------------------------------------------------- ----------- -------- ----------- -------- Net income for the period 4,436 11,199 17,135 22,327 ------------------------------------------------------------------- ----------- ------ - ----------- ------ - Depreciation of property and equipment 1,716 1,114 5,722 3,727 ------------------------------------------------------------------- ----------- ------ - ----------- ------ - Amortization of intangible assets 2,290 2,330 9,243 8,400 ------------------------------------------------------------------- ----------- ------ - ----------- ------ - Impairment of intangible assets - 110 - 111 ------------------------------------------------------------------- ----------- ------ - ----------- ------ - Interest expense, net 926 865 3,687 3,567 ------------------------------------------------------------------- ----------- ------ - ----------- ------ - Provision for income taxes 5,239 (1,032 ) 9,020 1,748 ------------------------------------------------------------------- ----------- ------ - ----------- ------ - Stock-based compensation 670 623 2,574 1,457 ------------------------------------------------------------------- ----------- ------ - ----------- ------ - Unrealized loss (gain) on change in fair value of forward contracts 201 54 207 18 ------------------------------------------------------------------- ----------- ------ - ----------- ------ - Unrealized loss (gain) on foreign exchange revaluation of foreign 752 (45 ) 943 (804 ) denominated monetary assets and liabilities ------------------------------------------------------------------- ----------- ------ - ----------- ------ - Acquisition and transition costs* 403 58 1,526 806 ------------------------------------------------------------------- ----------- -------- ----------- -------- Adjusted EBITDA 16,633 15,276 50,057 41,357 ------------------------------------------------------------------- ----------- ------ - ----------- ------ - *Acquisition 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. -------------------------------------------------------------------------------------------------------------

Conference CallConcurrent 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 Tucows web site at http://www.tucows.com/investors/financials. In lieu of a live question and answer period, for the next five days (until Monday, February 18), shareholders, analysts and prospective investors 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 Tuesday, February 26 at approximately 4:00 p.m. ET. All questions will receive a response, however, questions of a more specific nature may be responded to directly.

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 23 million domain names and millions of value-added services through a global reseller network of over 37,000 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) December December 31, 31, 2018 2017* - ------- - --------- (unaudited) (unaudited ) Assets Current assets: Cash and cash equivalents $ 12,637 $ 18,049 Accounts receivable 10,837 12,376 Inventory 3,775 2,944 Prepaid expenses and deposits 15,472 14,186 Prepaid domain name registry and ancillary services fees, current portion 87,782 103,302 Income taxes recoverable 1,423 3,004 - ------- - - ------- Total current assets 131,926 153,861 Prepaid domain name registry and ancillary services fees, long-term portion 18,745 23,701 Property and equipment 48,065 24,620 Contract costs 1,390 - Intangible assets 49,395 58,414 Goodwill 90,054 90,054 Total assets $ 339,575 $ 350,650 - ------- - - ------- Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 8,445 $ 7,026 Accrued liabilities 5,899 6,412 Customer deposits 11,919 15,255 Derivative instrument liability 1,276 - Deferred rent, current portion 21 21 Loan payable, current portion 18,400 18,290 Deferred revenue, current portion 116,734 129,155 Accreditation fees payable, current portion 985 1,175 Income taxes payable 1,668 1,226 - ------- - - ------- Total current liabilities 165,347 178,560 Deferred revenue, long-term portion 26,960 31,427 Accreditation fees payable, long-term portion 250 289 Deferred rent, long-term portion 116 130 Loan payable, long-term portion 46,201 58,634 Deferred Gain - 429 Deferred tax liability 20,925 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; 10,627,988 shares issued and outstanding as of December 31, 2018 and 10,583,879 shares issued and outstanding 15,823 15,368 as of December 31, 2017 Additional paid-in capital 3,953 2,167 Retained earnings 60,810 42,676 Accumulated other comprehensive income (810 ) - Total stockholders’ equity 79,776 60,211 - ------- - - ------- Total liabilities and stockholders’ equity $ 339,575 $ 350,650 - ------- - - ------- *The Company has initially applied ASC 2014-09 (Topic 606) using the modified retrospective method. Under this method, the comparative information is not restated.

TucowsInc. Consolidated Statements of Operations (Dollar amounts in thousands of U.S. dollars) Three months ended December Year ended December 31, 31, 2018 20171 2018 20171 ---------- - ---------- - ---------- - ---------- - (unaudited) (unaudited) Net revenues $ 85,612 $ 90,621 $ 346,013 $ 329,421 Cost of revenues: Cost of revenues 53,525 61,112 232,103 230,600 Network expenses (*) 2,256 2,260 9,846 9,324 Depreciation of property and equipment 1,601 1,014 5,298 3,142 Amortization of intangible assets 499 499 1,996 1,834 Total cost of revenues 57,881 64,885 249,243 244,900 ---------- - ---------- - ---------- - ---------- - Gross profit 27,731 25,736 96,770 84,521 Expenses: Sales and marketing (*) 8,434 7,372 33,063 29,423 Technical operations and development (*) 2,091 1,855 8,748 7,258 General and administrative (*) 4,804 3,468 17,710 13,594 Depreciation of property and equipment 115 100 424 585 Amortization of intangible assets 1,791 1,831 7,247 6,566 Impairment of indefinite life intangible assets - 110 - 111 Loss (gain) on currency forward contracts 232 17 254 (98 ) Total expenses 17,467 14,753 67,446 57,439 ---------- - ---------- - ---------- - ---------- - Income from operations 10,264 10,983 29,324 27,082 Other income (expenses): Interest expense, net (926 ) (865 ) (3,687 ) (3,567 ) Other income, net 337 49 518 560 Total other income (expenses) (589 ) (816 ) (3,169 ) (3,007 ) ---------- - ---------- - ---------- - ---------- - Income before provision for income taxes 9,675 10,167 26,155 24,075 Provision for income taxes 5,239 (1,032 ) 9,020 1,748 ---------- - ---------- - ---------- - ---------- - Net income before redeemable non-controlling 4,436 11,199 17,135 22,327 interest Redeemable non-controlling interest - (75 ) (26 ) (387 ) Net income attributable to redeemable - 75 26 387 non-controlling interest ---------- - ---------- - ---------- - ---------- - Net income for the period 4,436 11,199 17,135 22,327 Other comprehensive income, net of tax Unrealized income (loss) on hedging activities (910 ) (88 ) (1,022 ) 550 Net amount reclassified to earnings 136 (234 ) 212 (650 ) Other comprehensive income (loss) net of tax of $ 241 and $ 183 for the three months ended December 31, 2018 and December 31, 2017, $ 259 and $ - for (774 ) (322 ) (810 ) (100 ) the year ended December 31, 2018 and December 31, 2017 ---------- - ---------- - ---------- - ---------- - Comprehensive income, net of tax for the period $ 3,662 $ 10,877 $ 16,325 $ 22,227 ---------- - ---------- - ---------- - ---------- - Basic earnings per common share $ 0.42 $ 1.06 $ 1.62 $ 2.12 ---------- - ---------- - ---------- - ---------- - Shares used in computing basic earnings per common 10,621,181 10,580,429 10,604,722 10,537,356 share ---------- - ---------- - ---------- - ---------- - Diluted earnings per common share $ 0.41 $ 1.04 $ 1.59 $ 2.07 ---------- - ---------- - ---------- - ---------- - Shares used in computing diluted earnings per 10,791,940 10,802,817 10,794,170 10,793,622 common share ---------- - ---------- - ---------- - ---------- - (*) Stock-based compensation has been included in expenses as follows: Network expenses $ 70 $ 50 $ 223 $ 110 Sales and marketing $ 286 $ 255 $ 1,025 $ 573 Technical operations and development $ 135 $ 145 $ 636 $ 360 General and administrative $ 179 $ 173 $ 690 $ 414 1The Company has initially applied ASC 2014-09 (Topic 606) using the modified retrospective method. Under this method, the comparative information is not restated.

TucowsInc. Consolidated Statements of Cash Flows (Dollar amounts in thousands of U.S. dollars) Three months ended Year ended December December 31, 31, 2018 2017* 2018 2017* ------ - -------- ------- - --------- Cash provided by: (unaudited) (unaudited) Operating activities: Net income for the period $ 4,436 $ 11,199 $ 17,135 $ 22,327 Items not involving cash: Depreciation of property and equipment 1,716 1,114 5,722 3,727 Loss on write off of property and equipment - - - 17 Amortization of debt discount and issuance costs 70 69 281 273 Amortization of intangible assets 2,290 2,330 9,243 8,400 Net amortization contract costs (7 ) - 14 - Impairment of indefinite life intangible asset - 110 - 111 Deferred income taxes (recovery) 1,899 (326 ) 1,038 (3,337 ) Excess tax benefits on share-based compensation expense (165 ) (181 ) (697 ) (2,796 ) Amortization of deferred rent (5 ) - (14 ) 6 Loss on disposal of domain names 271 266 341 291 Other income (258 ) (129 ) (429 ) (515 ) Loss (gain) on change in the fair value of forward contracts 194 54 207 17 Stock-based compensation 670 623 2,574 1,457 Change in non-cash operating working capital: Accounts receivable 692 1,340 1,539 1,010 Inventory (635 ) 5 (831 ) (1,733 ) Prepaid expenses and deposits (918 ) 527 (1,286 ) (1,642 ) Prepaid domain name registry and ancillary services fees 4,699 3,460 20,476 4,030 Income taxes recoverable 2,398 (2,241 ) 2,691 (426 ) Accounts payable (877 ) 856 171 (3,826 ) Accrued liabilities (978 ) (2,269 ) (513 ) (1,275 ) Customer deposits 34 (78 ) (3,336 ) 1,085 Deferred revenue (4,798 ) (2,610 ) (16,888 ) 4,933 Accreditation fees payable (60 ) (38 ) (229 ) (238 ) Net cash provided by operating activities 10,668 14,081 37,209 31,896 ------ - ------ - ------- - ------- - Financing activities: Proceeds received on exercise of stock options 50 48 112 222 Payment of tax obligations resulting from net exercise of stock (41 ) (23 ) (445 ) (1,462 ) options Proceeds received on loan payable 4,500 - 7,000 86,998 Repayment of loan payable (4,384 ) (4,572 ) (19,596 ) (19,976 ) Payment of loan payable costs - - (8 ) (620 ) Net cash (used in) provided by financing activities 125 (4,547 ) (12,937 ) 65,162 ------ - ------ - ------- - ------- - Investing activities: Additions to property and equipment (8,480 ) (3,474 ) (27,919 ) (12,935 ) Acquisition of a portion of the minority interest in Ting - - (1,200 ) (2,000 ) Virginia, LLC Acquisition of Enom Incorporated, net of cash - - - (76,237 ) Acquisition of intangible assets (451 ) (558 ) (565 ) (2,942 ) Net cash used in investing activities (8,931 ) (4,032 ) (29,684 ) (94,114 ) ------ - ------ - ------- - ------- - (Decrease) increase in cash and cash equivalents 1,862 5,502 (5,412 ) 2,944 Cash and cash equivalents, beginning of period 10,775 12,547 18,049 15,105 Cash and cash equivalents, end of period $ 12,637 $ 18,049 $ 12,637 $ 18,049 ------ - ------ - ------- - ------- - Supplemental cash flow information: Interest paid $ 931 $ 871 $ 3,712 $ 3,587 Income taxes paid, net $ 1,742 $ 1,502 $ 7,112 $ 7,815 Supplementary disclosure of non-cash investing and financing activities: Property and equipment acquired during the period not yet paid $ 1,462 $ 214 $ 1,462 $ 214 for *The Company has initially applied ASC 2014-09 (Topic 606) using the modified retrospective method. Under this method, the comparative information is not restated.

Reconciliation of Net income to Adjusted EBITDA (In Thousands of US Dollars) (unaudited) Three months ended December Year ended December 31, 31, 2017 2017 2018 (unaudited) (unaudite 2018 (unaudited) (unaudite d) d) ---------------- - -------- ---------------- - -------- Net income for the period $ 4,436 $ 11,199 $ 17,135 $ 22,327 Depreciation of property and equipment 1,716 1,114 5,722 3,727 Amortization of intangible assets 2,290 2,330 9,243 8,400 Impairment of intangible assets - 110 - 111 Interest expense, net 926 865 3,687 3,567 Provision for income taxes 5,239 (1,032 ) 9,020 1,748 Stock-based compensation 670 623 2,574 1,457 Unrealized loss (gain) on change in fair value of 201 54 207 18 forward contracts Unrealized loss (gain) on foreign exchange revaluation of foreign denominated monetary 752 (45 ) 943 (804 ) assets and liabilities Acquisition and other costs1 403 58 1,526 806 Adjusted EBITDA $ 16,633 $ 15,276 $ 50,057 $ 41,357 ---------------- ------ - ---------------- ------ - 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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