AP NEWS

Tucows Reports Continuing Strong Financial Results for Third Quarter 2018

November 7, 2018

TORONTO, Nov. 07, 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 third quarter ended September 30, 2018. All figures are in U.S. dollars.

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

3 Months Ended September 30 9 Months Ended September 30 ---------------------------- ---------------------------- 2018 2017 % 2018 2017 % (Unaudited) (Unaudited) Chang(Unaudited) (Unaudited) Chang e e ----------------------------------------- ----------- ----------- ---- ----------- ----------- ---- Net revenue 83,519 85,008 -2 % 260,401 238,800 9 % ----------------------------------------- ----------- ----------- -- - ----------- ----------- -- - Net income 5,346 3,440 55 % 12,698 11,128 14 % ----------------------------------------- ----------- ----------- -- - ----------- ----------- -- - Basic Net earnings per common share 0.50 0.33 52 % 1.20 1.06 13 % ----------------------------------------- ----------- ----------- -- - ----------- ----------- -- - Adjusted EBITDA1 11,858 9,368 27 % 33,425 26,082 28 % ----------------------------------------- ----------- ----------- -- - ----------- ----------- -- - Net cash provided by operating activities 11,214 7,282 54 % 26,541 17,814 49 % ----------------------------------------- ----------- ----------- -- - ----------- ----------- -- -

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 September 30 September 30 -------------------------------------------- ----------------------- ----------------- 2018 2017 2018 2017 (Unaudited) (Unaudited) (Unaudite(Unaudite d) d) -------------------------------------------- ----------- ----------- -------- -------- Network Access Services: -------------------------------------------------------------------------------------- Mobile Services 22,546 21,749 11,147 9,384 -------------------------------------------- ----------- ----------- ------ - ------ - Other Services 2,033 1,442 1,161 847 -------------------------------------------- ----------- ----------- ------ - ------ - Total Network Access Services 24,579 23,191 12,308 10,231 -------------------------------------------- ----------- ----------- -------- -------- Domain Services: -------------------------------------------------------------------------------------- Wholesale -------------------------------------------- ----------- ----------- -------- -------- Domain Services 45,070 47,770 7,656 5,477 -------------------------------------------- ----------- ----------- ------ - ------ - Value Added Services 4,541 4,203 3,734 3,516 -------------------------------------------- ----------- ----------- ------ - ------ - Total Wholesale 49,611 51,973 11,390 8,993 -------------------------------------------- ----------- ----------- -------- -------- Retail 8,731 8,873 4,266 4,262 -------------------------------------------- ----------- ----------- ------ - ------ - Portfolio 598 971 450 791 -------------------------------------------- ----------- ----------- ------ - ------ - Total Domain Services 58,940 61,817 16,106 14,046 -------------------------------------------- ----------- ----------- -------- -------- Network Expenses: -------------------------------------------------------------------------------------- Network, other costs - - (2,315 ) (2,461 ) -------------------------------------------- ----------- ----------- ------ - ------ - Network, depreciation and amortization costs - - (1,838 ) (1,322 ) -------------------------------------------- ----------- ----------- ------ - ------ - Total Network expenses - - (4,153 ) (3,783 ) -------------------------------------------- ----------- ----------- -------- -------- Total revenue/gross margin 83,519 85,008 24,261 20,494 -------------------------------------------- ----------- ----------- ------ - ------ -

“Our third quarter results again demonstrate how the consistent performance and cash flow generation of our Domains and Ting Mobile businesses are enabling us to invest in the build out of the Ting Internet footprint for our next phase of outsized growth,” said Elliot Noss, President and Chief Executive Officer, Tucows Inc. “Gross margin contribution expanded in each of our businesses, with Domains benefiting from normalized margins following the Enom acquisition and Network Access benefiting from Ting Mobile’s lower costs, a larger subscriber base and higher usage per subscriber, as we continue to reposition our offering for renewed growth. Importantly, Ting Internet continues to steadily advance its network builds, grow its number of serviceable addresses, and expand its subscriber base. We now have five fully active towns where we are installing, activating and supporting customers every day.”

Financial Results

Net revenue for the third quarter of 2018 was $83.5 million compared with $85.0 million for the third quarter of 2018, with the decrease due primarily to acceleration of revenue in the first quarter of 2018 related to the bulk transfer of 2.65 million very low margin domain names, which was partially offset by the continued growth of Ting Mobile and a bulk transfer of 0.2 million very low margin domains names in the third quarter of 2018. Excluding the impact of these of bulk transfers, net revenue for the third quarter of 2018 increased 3.5% compared to the third quarter of 2017.

Net income for the third quarter of 2018 increased 55% to $5.3 million, or $0.50 per share from $3.4 million, or $0.33 per share, for the third quarter of 2017.

Adjusted EBITDA1 for the third quarter of 2018 increased 27% to $11.9 million from $9.4 million for the third quarter of 2017.

Cash and cash equivalents at the end of the third quarter of 2018 was $10.8 million compared with $11.2 million at the end of the second quarter of 2018 and $12.5 million at the end of the third 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 9 months ended September 30 September 30 ------------------------------------------------------------------- ---------------- -------------------- 2018 2017 2018 2017 (unaudite(unaudit(unaudited) (unaudite d) ed) d) ------------------------------------------------------------------- -------- ------- ----------- -------- Net income for the period 5,346 3,440 12,698 11,128 ------------------------------------------------------------------- ------ - ----- - ----------- ------ - Depreciation of property and equipment 1,445 978 4,007 2,614 ------------------------------------------------------------------- ------ - ----- - ----------- ------ - Amortization of intangible assets 2,296 2,245 6,953 6,070 ------------------------------------------------------------------- ------ - ----- - ----------- ------ - Impairment of intangible assets - 2 - 2 ------------------------------------------------------------------- ------ - ----- - ----------- ------ - Interest expense, net 914 864 2,761 2,703 ------------------------------------------------------------------- ------ - ----- - ----------- ------ - Provision for income taxes 1,370 1,823 3,781 2,781 ------------------------------------------------------------------- ------ - ----- - ----------- ------ - Stock-based compensation 711 203 1,904 834 ------------------------------------------------------------------- ------ - ----- - ----------- ------ - Unrealized loss (gain) on change in fair value of forward contracts (35 ) 1 7 (37 ) ------------------------------------------------------------------- ------ - ----- - ----------- ------ - Unrealized loss (gain) on foreign exchange revaluation of foreign (269 ) (427 ) 191 (761 ) denominated monetary assets and liabilities ------------------------------------------------------------------- ------ - ----- - ----------- ------ - Acquisition and transition costs* 80 239 1,123 748 ------------------------------------------------------------------- -------- ------- ----------- -------- Adjusted EBITDA 11,858 9,368 33,425 26,082 ------------------------------------------------------------------- ------ - ----- - ----------- ------ - *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 CallAs per its new quarterly conference call format initiated last quarter, 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 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, 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 to the Company’s web site at http://www.tucows.com/investors/financials/ on Friday, November 16 at approximately 4:00 p.m. ET. All questions will receive a response, however, questions of a more specific 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 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) September December 30, 31, 2018 2017 ----------- --------- (unaudited) (unaudited ) Assets Current assets: Cash and cash equivalents $ 10,775 $ 18,049 Accounts receivable 11,529 12,376 Inventory 3,140 2,944 Prepaid expenses and deposits 14,554 14,186 Prepaid domain name registry and ancillary services fees, current portion 91,590 103,302 Income taxes recoverable 3,109 3,004 - ------- - - ------- Total current assets 134,697 153,861 Prepaid domain name registry and ancillary services fees, long-term portion 19,636 23,701 Property and equipment 40,220 24,620 Contract costs 1,383 - Intangible assets 51,505 58,414 Goodwill 90,054 90,054 Total assets $ 337,495 $ 350,650 - ------- - - ------- Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 8,242 $ 7,026 Accrued liabilities 6,877 6,412 Customer deposits 11,885 15,255 Derivative instrument liability 62 - Deferred rent, current portion 21 21 Loan payable, current portion 17,810 18,290 Deferred revenue, current portion 120,459 129,155 Accreditation fees payable, current portion 1,035 1,175 Income taxes payable 1,128 1,226 - ------- - - ------- Total current liabilities 167,519 178,560 Deferred revenue, long-term portion 28,033 31,427 Accreditation fees payable, long-term portion 260 289 Deferred rent, long-term portion 121 130 Loan payable, long-term portion 46,605 58,634 Deferred Gain 258 429 Deferred tax liability 19,265 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; 10,615,566 shares issued and outstanding as of September 30, 2018 and 10,583,879 shares issued and outstanding 15,635 15,368 as of December 31, 2017 Additional paid-in capital 3,462 2,167 Retained earnings 56,373 42,676 Accumulated other comprehensive income (36 ) - Total stockholders’ equity 75,434 60,211 - ------- - - ------- Total liabilities and stockholders’ equity $ 337,495 $ 350,650 - ------- - - -------

TucowsInc. Consolidated Statements of Operations (Dollar amounts in thousands of U.S. dollars) Three months ended Nine months ended September September 30, 30, 2018 2017 2018 2017 ------------ ------------ ------------ ------------ (unaudited) (unaudited) Net revenues $ 83,519 $ 85,008 $ 260,401 $ 238,800 Cost of revenues: Cost of revenues 55,105 60,731 178,578 169,488 Network expenses (*) 2,315 2,461 7,590 7,064 Depreciation of property and equipment 1,339 823 3,698 2,128 Amortization of intangible assets 499 499 1,497 1,335 Total cost of revenues 59,258 64,514 191,363 180,015 ---------- - ---------- - ---------- - ---------- - Gross profit 24,261 20,494 69,038 58,785 Expenses: Sales and marketing (*) 8,412 7,384 24,629 22,051 Technical operations and development (*) 2,207 1,910 6,657 5,402 General and administrative (*) 4,120 3,381 12,906 10,124 Depreciation of property and equipment 106 155 309 486 Amortization of intangible assets 1,797 1,746 5,456 4,735 Impairment of indefinite life intangible assets - 2 - 2 Loss (gain) on currency forward contracts (27 ) (54 ) 22 (115 ) Total expenses 16,615 14,524 49,979 42,685 ---------- - ---------- - ---------- - ---------- - Income from operations 7,646 5,970 19,059 16,100 Other income (expenses): Interest expense, net (914 ) (864 ) (2,761 ) (2,703 ) Other income, net (16 ) 157 181 512 Total other income (expenses) (930 ) (707 ) (2,580 ) (2,191 ) ---------- - ---------- - ---------- - ---------- - Income before provision for income taxes 6,716 5,263 16,479 13,909 Provision for income taxes 1,370 1,823 3,781 2,781 ---------- - ---------- - ---------- - ---------- - Net income before redeemable non-controlling 5,346 3,440 12,698 11,128 interest Redeemable non-controlling interest - (69 ) (26 ) (312 ) Net income attributable to redeemable - 69 26 312 non-controlling interest ---------- - ---------- - ---------- - ---------- - Net income for the period 5,346 3,440 12,698 11,128 Other comprehensive income, net of tax Unrealized income (loss) on hedging activities 144 309 (112 ) 638 Net amount reclassified to earnings 63 (318 ) 76 (416 ) Other comprehensive income (loss) net of tax of $ (59) and $ 5 for the three months ended September 30, 2018 and September 30, 2017, $ 19 and $ (127) 207 (9 ) (36 ) 222 for the nine months ended September 30, 2018 and September 30, 2017 ---------- - ---------- - ---------- - ---------- - Comprehensive income, net of tax for the period $ 5,553 $ 3,431 $ 12,662 $ 11,350 ---------- - ---------- - ---------- - ---------- - Basic earnings per common share $ 0.50 $ 0.33 $ 1.20 $ 1.06 ---------- - ---------- - ---------- - ---------- - Shares used in computing basic earnings per common 10,611,579 10,564,311 10,599,243 10,522,841 share ---------- - ---------- - ---------- - ---------- - Diluted earnings per common share $ 0.50 $ 0.32 $ 1.18 $ 1.03 ---------- - ---------- - ---------- - ---------- - Shares used in computing diluted earnings per 10,794,297 10,785,342 10,795,668 10,785,050 common share ---------- - ---------- - ---------- - ---------- - (*) Stock-based compensation has been included in expenses as follows: Network expenses $ 70 $ 52 $ 153 $ 60 Sales and marketing $ 307 $ 197 $ 739 $ 318 Technical operations and development $ 150 $ 96 $ 501 $ 215 General and administrative $ 184 $ (143 ) $ 511 $ 241

TucowsInc. Consolidated Statements of Cash Flows (Dollar amounts in thousands of U.S. dollars) Three months ended Nine months ended September 30, September 30, 2018 2017 2018 2017 -------- -------- --------- --------- Cash provided by: (unaudited) (unaudited) Operating activities: Net income for the period $ 5,346 $ 3,440 $ 12,698 $ 11,128 Items not involving cash: Depreciation of property and equipment 1,445 978 4,007 2,614 Loss on write off of property and equipment - 8 - 17 Amortization of debt discount and issuance costs 72 57 211 204 Amortization of intangible assets 2,296 2,245 6,953 6,070 Impairment of indefinite life intangible asset - 2 - 2 Change in capitalized contract costs (29 ) - 21 - Deferred income taxes (recovery) (369 ) (1,445 ) (861 ) (3,011 ) Excess tax benefits on share-based compensation expense (191 ) (444 ) (532 ) (2,615 ) Amortization of deferred rent (5 ) - (9 ) 6 Loss on disposal of domain names 5 8 70 25 Other income - (129 ) (171 ) (386 ) Loss (gain) on change in the fair value of forward contracts (30 ) 1 13 (37 ) Stock-based compensation 711 203 1,904 834 Change in non-cash operating working capital: Accounts receivable 685 533 847 (332 ) Inventory 108 (643 ) (196 ) (1,739 ) Prepaid expenses and deposits 874 202 (368 ) (2,169 ) Prepaid domain name registry and ancillary services fees 4,229 3,084 15,777 570 Income taxes recoverable (137 ) 2,225 293 1,815 Accounts payable 778 (644 ) 1,048 (4,682 ) Accrued liabilities 107 981 465 994 Customer deposits (1,049 ) (1,905 ) (3,370 ) 1,163 Deferred revenue (3,559 ) (1,425 ) (12,090 ) 7,543 Accreditation fees payable (73 ) (50 ) (169 ) (200 ) Net cash provided by operating activities 11,214 7,282 26,541 17,814 ------ - ------ - ------- - ------- - Financing activities: Proceeds received on exercise of stock options 23 68 62 173 Payment of tax obligations resulting from net exercise of stock (116 ) (117 ) (404 ) (1,438 ) options Proceeds received on loan payable - - 2,500 86,998 Repayment of loan payable (4,387 ) (4,573 ) (15,212 ) (15,403 ) Payment of loan payable costs (4 ) (16 ) (8 ) (620 ) Net cash (used in) provided by financing activities (4,484 ) (4,638 ) (13,062 ) 69,710 ------ - ------ - ------- - ------- - Investing activities: Additions to property and equipment (7,003 ) (2,859 ) (19,439 ) (9,461 ) 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 (113 ) (2,384 ) (114 ) (2,384 ) Net cash used in investing activities (7,116 ) (5,243 ) (20,753 ) (90,082 ) ------ - ------ - ------- - ------- - Decrease in cash and cash equivalents (386 ) (2,599 ) (7,274 ) (2,558 ) Cash and cash equivalents, beginning of period 11,161 15,146 18,049 15,105 Cash and cash equivalents, end of period $ 10,775 $ 12,547 $ 10,775 $ 12,547 ------ - ------ - ------- - ------- - Supplemental cash flow information: Interest paid $ 919 $ 870 $ 2,781 $ 2,717 Income taxes paid, net $ 1,793 $ 1,308 $ 5,370 $ 6,313 Supplementary disclosure of non-cash investing and financing activities: Property and equipment acquired during the period not yet paid $ 382 $ 186 $ 382 $ 186 for

Reconciliation of Net income to Adjusted EBITDA (In Thousands of US Dollars) (unaudited) Three months ended Nine months ended September September 30, 30, 2018 2017 2017 (unaudite (unaudit 2018 (unaudited) (unaudite d) ed) d) -------- - ------- ---------------- - -------- Net income for the period $ 5,346 $ 3,440 12,698 $ 11,128 Depreciation of property and equipment 1,445 978 4,007 2,614 Amortization of intangible assets 2,296 2,245 6,953 6,070 Impairment of intangible assets - 2 - 2 Interest expense, net 914 864 2,761 2,703 Provision for income taxes 1,370 1,823 3,781 2,781 Stock-based compensation 711 203 1,904 834 Unrealized loss (gain) on change in fair value of forward (35 ) 1 7 (37 ) contracts Unrealized loss (gain) on foreign exchange revaluation of (269 ) (427 ) 191 (761 ) foreign denominated monetary assets and liabilities Acquisition and other costs1 80 239 1,123 748 Adjusted EBITDA $ 11,858 $ 9,368 33,425 $ 26,082 ------ - ----- - ---------------- ------ - 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

AP RADIO
Update hourly