Tucows Q3 report: revenue goes up, profit goes down

Tucows Inc. (NASDAQ:TCX, TSX:TC) reported its financial results for the third quarter ended September 30, 2019. All figures are in U.S. dollars.

Financial Results

Net revenue for the third quarter of 2019 increased 6% to $88.1 million from $83.5 million for the third quarter of 2018.

Net income for the third quarter of 2019 decreased 21% to $4.2 million, or $0.40 per share from $5.3 million, or $0.50 per share, for the third quarter of 2018.

Adjusted EBITDA¹ for the third quarter of 2019 increased 25% to $14.8 million from $11.8 million for the third quarter of 2018. Adjusted EBITDA for the third quarter of 2019 reflects the impact of the purchase price accounting adjustment related to the fair value write down of deferred revenue from the Ascio acquisition, which lowered Adjusted EBITDA by $0.9 million.

Cash and cash equivalents at the end of the third quarter of 2019 were $12.0 million compared with $12.0 million at the end of the second quarter of 2019 and $10.8 million at the end of the third quarter of 2018.

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

	3 Months Ended September 30				9 Months Ended September 30
	2019 (Unaudited)	2018 (Unaudited)	% Change		2019 (Unaudited)	2018 (Unaudited)	% Change
Net revenue	88,129	83,519	6%		251,199	260,401	-4%
Net income	4,205	5,346	-21%		9,620	12,699	-24%
Basic Net earnings per common share	0.40	0.50	-20%		0.90	1.20	-25%
Adjusted EBITDA1,2	14,832	11,858	25%		35,749	33,425	7%
Net cash provided by operating activities	11,215	11,214	0%		27,185	26,541	2%

1. This Non-GAAP financial measure is described below and reconciled to GAAP net income in the accompanying table.
2. Adjusted EBITDA for the three and first nine months of 2019 reflect the impact of the purchase price accounting adjustment related to the fair value write down of deferred revenue from the Ascio acquisition on March 18, 2019, which lowered Adjusted EBITDA by $0.9 million and $1.9 million, respectively.

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

	Revenue		Gross Profit
	3 Months ended September 30		3 Months ended September 30
	2019 (Unaudited)	2018 (Unaudited)	2019 (Unaudited)	2018 (Unaudited)
Network Access Services:
Mobile Services	21,722	22,546	10,551	11,147
Other Services	2,890	2,033	1,954	1,161
Total Network Access Services	24,612	24,579	12,505	12,308
Domain Services:
Wholesale
Domain Services	47,259	45,071	8,922	7,657
Value Added Services	5,154	4,540	4,381	3,733
Total Wholesale	52,413	49,611	13,303	11,390
Retail	8,713	8,731	4,354	4,266
Portfolio	2,391	598	2,211	450
Total Domain Services	63,517	58,940	19,868	16,106
Network Expenses:
Network, other costs	–	–	(2,254)	(2,315)
Network, depreciation and amortization costs	–	–	(2,545)	(1,838)
Total Network expenses	–	–	(4,799)	(4,153)
Total	88,129	83,519	27,574	24,261

“The third quarter was highlighted by solid financial performance, with year-over-year growth in revenue, gross margin and adjusted EBITDA, as we continued to execute on our strategic priorities in each component of the business,” said Elliot Noss, President and Chief Executive Officer, Tucows Inc. “Our Domains and Ting Mobile businesses continue to generate strong cash flows to support our outsized Ting Internet growth opportunity, where we saw another quarter of steady progress — further expanding both our projected potential serviceable addresses and serviceable addresses completed, while continuing to add new customers.”