Tucows Q2 report: revenue drops because of bulk transfer of 2.65 million Namecheap domains

Tucows Inc. (NASDAQ:TCX, TSX:TC) reported its financial results for the second quarter ended June 30, 2018. All figures are in U.S. dollars.

“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.

Summary Financial Results

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

	3 Months Ended June 30			6 Months Ended June 30
	2018 (Unaudited)	2017 (Unaudited)	% Change	2018 (Unaudited)	2017 (Unaudited)	% Change
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 June 30		3 Months ended June 30
	2018 (Unaudited)	2017 (Unaudited)	2018 (Unaudited)	2017 (Unaudited)
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