Tucows Reports Financial Results for Fourth Quarter 2023
- Consolidated net revenue increased by 10.2% to $87.0 million in Q4 2023.
- Gross profit rose by 4.8% to $17.8 million in Q4 2023.
- Net loss for Q4 2023 was $23.4 million, compared to $13.4 million in Q4 2022.
- Adjusted EBITDA decreased by 62% to $2.6 million in Q4 2023.
- Cash equivalents at the end of Q4 2023 were $92.7 million, down from $110.7 million in Q3 2023.
- Tucows continues to invest in Ting and Wavelo businesses while managing debt.
- Shareholders can submit questions to management until February 29, 2023, for a response on March 12, 2024.
- Net loss increased due to investments in Ting Fiber network and higher expenses.
- Adjusted EBITDA decreased by 62% in Q4 2023.
- Cash equivalents decreased to $92.7 million at the end of Q4 2023.
Insights
Financial Performance Assessment: Tucows Inc.'s reported financial results indicate a mixed performance with a 10% year-over-year increase in consolidated revenue, which is a positive indicator of top-line growth. However, the net loss widened significantly, from $13.4 million to $23.4 million, primarily due to higher costs associated with Ting Fiber network investments, increased network depreciation and higher interest expenses. This suggests that the company's expansion efforts are currently weighing on profitability. The substantial 62% decrease in adjusted EBITDA further underscores the financial strain from these investments.
The growth in Wavelo and consistent performance in Tucows Domains are noteworthy, as they could represent stable revenue streams. However, the decrease in cash equivalents from $110.7 million to $92.7 million quarter-over-quarter raises concerns about liquidity, especially in the face of continued investments and debt management efforts. The company's strategy of deleveraging through payments on syndicated debt using cash flow from its core businesses is prudent, yet it may limit financial flexibility in the short term.
Market Position and Competitive Landscape: The expansion of Tucows' Ting network footprint, despite its current impact on profitability, may position the company to capture a larger market share in the longer term. The growth of Wavelo, a platform service, is particularly promising, as it suggests that Tucows is effectively diversifying its revenue streams beyond traditional domain services. The competitive landscape in internet services is rapidly evolving, with customer demand for high-speed and reliable connectivity increasing. Tucows' investment in fiber infrastructure could eventually lead to a competitive edge, provided the company can achieve economies of scale and improve its cost structure over time.
It is also essential to analyze customer acquisition costs and long-term value in the context of the Ting Internet Services segment. While current expenses are high, the potential for recurring revenue from a growing customer base could justify the upfront investment. The company's ability to retain customers and upsell additional services will be critical in realizing the potential benefits of its expansion strategy.
Debt and Interest Expense Analysis: The increased net loss and higher interest expenses reported by Tucows are concerning from a debt management perspective. With interest rates rising, the cost of servicing debt becomes more expensive, which could further pressure the company's financials. The focus on deleveraging is a positive sign, indicating that management is cognizant of the risks associated with high leverage. However, investors should closely monitor the company's debt-to-equity ratio and interest coverage ratios in future quarters to assess the sustainability of its capital structure.
While the deleveraging efforts using cash flow from operations demonstrate a commitment to reducing financial risk, the impact of these payments on the company's liquidity profile must be considered. The reduction in cash and cash equivalents suggests that Tucows is using a significant portion of its liquid assets to manage debt, which could limit its ability to respond to unforeseen challenges or invest in new opportunities.
"We finished 2023 at the high end of our range for Adjusted EBITDA guidance, a result driven by robust growth from Wavelo and consistent performance of Tucows Domains," said Elliot Noss, Tucows President and CEO. "Consolidated revenue grew
Financial Results
Consolidated net revenue for the fourth quarter of 2023 increased
Gross profit for the fourth quarter of 2023 increased
Net loss for the fourth quarter of 2023 was
Adjusted EBITDA1 for the fourth quarter of 2023 decreased
Summary Financial Results
(In Thousands of US Dollars, Except Per Share Data)
3 Months ended December 31 | 12 Months ended December 31 | |||||
2023 | 2022 | % Change | 2023 | 2022 | % Change | |
Net Revenues | 86,958 | 78,909 | 10.0 % | 339,337 | 321,142 | 5.7 % |
Gross Profit | 17,821 | 17,010 | 4.8 % | 66,667 | 78,248 | (15) % |
Income Earned on Sale of Transferred Assets, net | 4,062 | 4,498 | (9.7) % | 17,033 | 18,507 | (8.0) % |
Net Income (Loss) | (23,374) | (13,445) | (74) % | (96,197) | (27,571) | (249) % |
Basic earnings (Loss) per common share | (2.14) | (1.25) | (71) % | (8.85) | (2.56) | (246) % |
Adjusted EBITDA¹ | 2,554 | 6,700 | (62) % | 15,451 | 37,590 | (59) % |
Net cash by (used in) operating activities | 9,003 | 2,901 | 210 % | (4,771) | 19,876 | (124) % |
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 December 31 | 3 Months ended December 31 | 3 Months ended December 31 | ||||
2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |
Ting Internet Services: | ||||||
Fiber Internet Services | 13,821 | 11,470 | 7,881 | 7,211 | (12,366) | (6,011) |
Wavelo Platform Services: | ||||||
Platform Services | 9,545 | 4,479 | 9,214 | 3,807 | ||
Other Professional Services | 0 | 0 | 0 | 0 | ||
Total Wavelo Platform Services | 9,545 | 4,479 | 9,214 | 3,807 | 2,604 | (1,142) |
Tucows Domain Services: | ||||||
Wholesale | ||||||
Domain Services | 48,279 | 46,742 | 9,968 | 9,577 | ||
Value Added Services | 4,184 | 4,583 | 3,661 | 3,981 | ||
Total Wholesale | 52,463 | 51,325 | 13,629 | 13,558 | ||
Retail | 9,348 | 8,943 | 5,229 | 4,844 | ||
Total Tucows Domain Services | 61,811 | 60,268 | 18,858 | 18,402 | 10,794 | 10,568 |
Corporate: | ||||||
Mobile Services and Eliminations | 1,781 | 2,692 | (501) | 244 | 1,522 | 3,285 |
Network Expenses: | ||||||
Network, other costs | n/a | n/a | (7,584) | (4,245) | n/a | n/a |
Network, depreciation of property and equipment | n/a | n/a | (9,533) | (7,969) | n/a | n/a |
Network, amortization of intangible assets | n/a | n/a | (371) | (378) | n/a | n/a |
Network, impairment | n/a | n/a | (143) | (62) | n/a | n/a |
Total Network Expenses | n/a | n/a | (17,631) | (12,654) | n/a | n/a |
Total | 86,958 | 78,909 | 17,821 | 17,010 | 2,554 | 6,700 |
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
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
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-
The following table reconciles income before provision for income taxes to Adjusted EBITDA (dollars in thousands):
3 Months ended December 31 | 12 Months ended December 31 | |||
2023 | 2022 | 2023 | 2022 | |
Net income (Loss) for the period | (23,374) | (13,445) | (96,197) | (27,571) |
Less: | ||||
Provision (recovery) for income taxes | (1,316) | (1,006) | (6,873) | (217) |
Depreciation of property and equipment | 9,661 | 8,124 | 36,431 | 28,187 |
Impairment of property and equipment | 143 | 62 | 4,822 | 553 |
Amortization of intangible assets | 2,728 | 2,866 | 10,829 | 11,394 |
Interest expense, net | 12,651 | 5,901 | 41,771 | 14,456 |
Loss on debt extinguishment | - | - | 14,680 | - |
Accretion of contingent consideration | - | 50 | - | 248 |
Stock-based compensation | 1,528 | 3,203 | 8,134 | 7,599 |
Unrealized loss (gain) on foreign exchange revaluation of foreign denominated monetary assets and liabilities | (316) | (166) | (62) | 281 |
Acquisition and transition costs* | 849 | 1,111 | 1,916 | 2,660 |
Adjusted EBITDA | 2,554 | 6,700 | 15,451 | 37,590 |
* Acquisition and other costs represent transaction-related expenses, transitional expenses, such as redundant post-acquisition expenses, primarily related to our acquisitions, including Simply Bits in November 2021. 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, February 22, 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, February 29, 2023, 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, March 12, 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
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SOURCE Tucows Inc.
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