Tucows Reports Financial Results for First Quarter 2024

Rhea-AI Summary

Tucows Inc. reported strong financial results for Q1 2024 with revenue, gross profit, and adjusted EBITDA showing significant year-over-year growth. The company saw an 8.7% increase in consolidated net revenue, a 30.3% increase in gross profit, and a 38.7% rise in adjusted EBITDA. Despite a net loss of $26.5 million, Tucows' performance was driven by Wavelo, Ting, and Tucows Domains segments. The company continues to focus on deleveraging and strategic investments to drive future growth.

Positive

• Consolidated net revenue increased by 8.7% year-over-year, reaching $87.5 million.

• Gross profit saw a significant rise of 30.3%, reaching $18.3 million.

• Adjusted EBITDA increased by 38.7% to $4.2 million.

• All business segments, including Domains, Ting, and Wavelo, experienced revenue growth.

• The company made strategic investments in Ting and Wavelo while managing debt to drive growth.

Negative

• The net loss for Q1 2024 was $26.5 million, primarily due to higher taxes, interest expenses, and network depreciation.

• Increased network depreciation and expenses offset some of the gross profit gains.

• There was a slight increase in operating loss due to planned investments in Ting.

• Cash equivalents decreased to $79.4 million compared to $105.0 million in Q4 2023.

• The company reported an 8% decrease in net cash from operating activities.

Insights

Financial Analyst

The reported 8.7% increase in consolidated net revenue for Tucows is a solid indication of growth, particularly since it encompasses all business segments. The significant 30.3% rise in gross profit suggests improved efficiency or higher-margin products. However, the net loss widening by 39% raises concerns about the sustainability of the company's growth strategy. While adjusted EBITDA growth is impressive, the increased net loss may reflect significant investment costs or operational inefficiencies that need to be addressed. The reduction in cash equivalents from the previous quarter might indicate heavy investment or debt payments, which could impact liquidity but may also suggest a strategic use of cash flows.

Debt Market Analyst

Tucows' proactive deleveraging approach, indicated by the payments on the syndicated debt, shows a commitment to balance sheet health. This can be a positive signal to investors concerned about long-term financial stability. However, the increase in interest expenses contributing to a net loss raises questions about the current cost of borrowing and the potential impact of interest rate fluctuations on future debt servicing. It will be essential to monitor how this strategy will affect the company's leverage ratios and interest coverage, especially in the context of rising interest rates.

TORONTO, May 9, 2024 /PRNewswire/ - Tucows Inc. (NASDAQ: TCX) (TSX: TC), a global internet services leader, today reported its financial results for the first quarter ended March 31, 2024. All figures are in U.S. dollars.

"We finished the first quarter of 2024 with strong year-over-year growth of revenue, gross margin and adjusted EBITDA, driven by Wavelo's performance on a fully-migrated Boost subscriber base, robust subscriber growth at Ting, and a solid quarter from Tucows Domains," said Elliot Noss, Tucows President and CEO. "We continue to balance investment in building the Ting and Wavelo businesses with managing our debt. In Q1, we continued to deleverage the business with payments on the syndicated debt using cash flow from Wavelo and Tucows Domains."

Financial Results

Consolidated net revenue for the first quarter of 2024 increased 8.7% to $87.5 million from $80.4 million for the first quarter of 2023. Revenue in all business segments increased, with strong dollar gains year over year from Domains, Ting and Wavelo.

Gross profit for the first quarter of 2024 increased 30.3% to $18.3 million from $14.1 million from the first quarter of 2023. The increase in gross profit was driven primarily by gross profit gains from Wavelo, as well as gross profit increases for Ting and Domains. The increase was partially offset by increased network depreciation and network expenses as the Ting network footprint expands.

Net loss for the first quarter of 2024 was $26.5 million, or a loss of $2.42 per share, compared with net loss of $19.1 million, or $1.77 per share, for the first quarter of 2023. The increased loss is primarily the result of higher taxes and interest expenses, higher network depreciation, and a slightly higher operating loss as part of the planned investment in Ting.

Adjusted EBITDA¹ for the first quarter of 2024 increased 38.7% to $4.2 million from $3.0 million for the first quarter of 2023. The increase in adjusted EBITDA¹ was primarily driven by strong growth and cost management of the Wavelo business. Cash equivalents, restricted cash and restricted cash equivalents at the end of the first quarter of 2024 were $79.4 million compared with $105.0 million at the end of the fourth quarter of 2023 and $11.8 million at the end of the first quarter of 2023.

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

	3 Months ended March 31
	2024 (unaudited)	2023 (unaudited)	% Change
Net Revenues	87,457	80,430	9 %
Gross Profit	18,316	14,061	30 %
Income Earned on Sale of Transferred Assets, net	3,621	4,370	(17) %
Net Income (Loss)	(26,484)	(19,083)	(39) %
Basic earnings (Loss) per common share	(2.42)	(1.77)	(37) %
Adjusted EBITDA¹	4,202	3,030	39 %
Net cash by (used in) operating activities	(5,678)	(5,251)	(8) %

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

Summary of Revenues, Gross Profit and Adjusted EBITDA
(In Thousands of US Dollars)

	Revenue		Gross Margin		Adj. EBITDA¹
	3 Months ended March 31		3 Months ended March 31		3 Months ended March 31
	2024 (unaudited)	2023 (unaudited)	2024 (unaudited)	2023 (unaudited)	2024 (unaudited)	2023 (unaudited)
Ting Internet Services:
Fiber Internet Services	14,102	11,853	8,742	7,868	(9,537)	(9,273)
Wavelo Platform Services:
Platform Services	9,365	6,498	9,033	6,164
Other Professional Services	25	802	6	110
Total Wavelo Platform Services	9,390	7,300	9,039	6,274	2,787	335
Tucows Domain Services:
Wholesale
Domain Services	48,151	46,293	9,488	9,291
Value Added Services	4,703	4,531	4,156	3,925
Total Wholesale	52,854	50,824	13,644	13,216
Retail	9,028	8,418	4,892	4,305
Total Tucows Domain Services	61,882	59,242	18,536	17,521	10,011	10,338
Corporate:
Mobile Services and Eliminations	2,083	2,035	(654)	(523)	941	1,630
Network Expenses:
Network, other costs	n/a	n/a	(7,064)	(6,323)	n/a	n/a
Network, depreciation of property and equipment	n/a	n/a	(9,865)	(8,436)	n/a	n/a
Network, amortization of intangible assets	n/a	n/a	(365)	(378)	n/a	n/a
Network, impairment	n/a	n/a	(53)	(1,942)	n/a	n/a
Total Network Expenses	n/a	n/a	(17,347)	(17,079)	n/a	n/a
Total	87,457	80,430	18,316	14,061	4,202	3,030

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

Notes: 

1. Adjusted EBITDA

Tucows reports all financial information required in accordance with United States generally accepted accounting principles (GAAP). Along with this information, to assist financial statement users in an assessment of our historical performance, the Company typically discloses and discusses a non-GAAP financial measure, adjusted EBITDA, in press releases and on investor conference calls and related events that exclude certain non-cash and other charges as the Company believes that the non-GAAP information enhances investors' overall understanding of our financial performance.

The Company believes that the provision of this supplemental non-GAAP measure allows investors to evaluate the operational and financial performance of the Company's core business using similar evaluation measures to those used by management. The Company uses adjusted EBITDA to measure its performance and prepare its budgets. Since adjusted EBITDA is a non-GAAP financial performance measure, the Company's calculation of adjusted EBITDA may not be comparable to other similarly titled measures of other companies; and should not be considered in isolation, as a substitute for, or superior to measures of financial performance prepared in accordance with GAAP. Because adjusted EBITDA is calculated before certain recurring cash charges, including interest expense and taxes, and is not adjusted for capital expenditures or other recurring cash requirements of the business, it should not be considered as a liquidity measure. Non-GAAP financial measures do not reflect a comprehensive system of accounting and may differ from non-GAAP financial measures with the same or similar captions that are used by other companies and/or analysts and may differ from period to period. The Company endeavors to compensate for these limitations by providing the relevant disclosure of the items excluded in the calculation of adjusted EBITDA to net income based on U.S. GAAP, which should be considered when evaluating the Company's results. Tucows strongly encourages investors to review its financial information in its entirety and not to rely on a single financial measure.

The Company's adjusted EBITDA definition excludes depreciation, impairment and loss on disposition of property and equipment, amortization of intangible assets, income tax provision, interest expense (net), accretion of contingent consideration, stock-based compensation, asset impairment, gains and losses from unrealized foreign currency transactions, loss on debt extinguishment and costs that are not indicative of on-going performance (profitability), including acquisition and transition costs. Gains and losses from unrealized foreign currency transactions removes the unrealized effect of the change in the mark-to-market values on outstanding unhedged foreign currency contracts, as well as the unrealized effect from the translation of monetary accounts denominated in non-U.S. dollars to U.S. dollars.

The following table reconciles income before provision for income taxes to Adjusted EBITDA (dollars in thousands):

	3 Months ended March 31
	2024 (unaudited)	2023 (unaudited)
Net income (Loss) for the period	(26,484)	(19,083)
Less:
Provision (recovery) for income taxes	1,774	(1,710)
Depreciation of property and equipment	9,987	8,588
Impairment of property and equipment	53	1,942
Amortization of intangible assets	1,679	2,872
Interest expense, net	11,879	7,880
Stock-based compensation	1,873	2,246
Unrealized loss (gain) on foreign exchange revaluation of foreign denominated monetary assets and liabilities	390	40
Acquisition and transition costs*	3,051	255
Adjusted EBITDA	4,202	3,030

* Acquisition and other costs represent transaction-related expenses and transitional expenses. Expenses include severance or transitional costs associated with department, operational or overall company restructuring efforts, including geographic alignments.

Management Commentary

Concurrent with the dissemination of its quarterly financial results news release at 5:05 p.m. ET on Thursday, May 9, 2024, management's pre-recorded audio commentary (and transcript), discussing the quarter and outlook for the Company will be posted to the Tucows website at http://www.tucows.com/investors/financials.

Following management's prepared commentary, for the subsequent seven days, until Thursday, May, 16, 2024, shareholders, analysts and prospective investors can submit questions to Tucows' management at ir@tucows.com. Management will post responses to questions in an audio recording and transcript to the Company's website at http://www.tucows.com/investors/financials, on Tuesday, May 28, 2024, at approximately 4 p.m. ET. All questions will receive a response, however, questions of a more specific nature may be responded to directly.

About Tucows

Tucows helps connect more people to the benefit of internet access through communications service technology, domain services, and fiber-optic internet infrastructure. Ting (https://ting.com) delivers fixed fiber Internet access with outstanding customer support. Wavelo (https://wavelo.com) is a telecommunications software suite for service providers that simplifies the management of mobile and internet network access; provisioning, billing and subscription; developer tools; and more. Tucows Domains (https://tucowsdomains.com) manages approximately 25 million domain names and millions of value-added services through a global reseller network of over 35,000 web hosts and ISPs. Hover (https://hover.com) makes it easy for individuals and small businesses to manage their domain names and email addresses. More information can be found on Tucows' corporate website (https://tucows.com).

Tucows, Ting, Wavelo, and Hover are registered trademarks of Tucows Inc. or its subsidiaries.

This release includes forward-looking statements as that term is defined in the U.S. Private Securities Litigation Reform Act of 1995, including statements regarding our expectations regarding our future financial results and, including, without limitation, our expectations regarding our ability to realize synergies from the Enom acquisition and our expectation for growth of Ting Internet. These statements are based on management's current expectations and are subject to a number of uncertainties and risks that could cause actual results to differ materially from those described in the forward-looking statements. Information about other potential factors that could affect Tucows' business, results of operations and financial condition is included in the Risk Factors sections of Tucows' filings with the Securities and Exchange Commission. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. All forward-looking statements are based on information available to Tucows as of the date they are made. Tucows assumes no obligation to update any forward-looking statements, except as may be required by law.

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SOURCE Tucows Inc.

FAQ

What was Tucows' net revenue for the first quarter of 2024?

Tucows reported a net revenue of $87.5 million for the first quarter of 2024.

What caused the increase in gross profit for Tucows in Q1 2024?

The increase in gross profit was primarily driven by gains from Wavelo, Ting, and Domains segments.

How did Tucows manage its debt in Q1 2024?

Tucows managed its debt by making payments using cash flow from Wavelo and Tucows Domains.

What led to the net loss of $26.5 million for Tucows in Q1 2024?

The net loss was primarily due to higher taxes, interest expenses, and network depreciation.

What was the percentage change in adjusted EBITDA for Tucows from Q1 2023 to Q1 2024?

Adjusted EBITDA for Tucows increased by 38.7% from Q1 2023 to Q1 2024.