Tucows(US:TCX)2020-05-07 21:07PART I FINANCIAL INFORMATION Item 1. Consolidated Financial Statements This section presents the unaudited consolidated financial statements for Q1 2020, detailing the company's financial position, performance, and cash flows Consolidated Balance Sheets Total assets grew to $437.8 million and liabilities to $342.5 million, driven by the Cedar acquisition and increased deferred revenue Consolidated Balance Sheet Highlights (in thousands of U.S. dollars) | Account | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Assets | $437,840 | $425,918 | | Cash and cash equivalents | $12,446 | $20,393 | | Property and equipment | $94,289 | $82,121 | | Goodwill | $115,837 | $109,818 | | Total Liabilities | $342,484 | $331,724 | | Deferred revenue, current portion | $126,152 | $123,101 | | Loan payable, long-term portion | $113,545 | $113,503 | | Total Stockholders' Equity | $95,356 | $94,194 | Consolidated Statements of Operations and Comprehensive Income Net revenues for Q1 2020 increased to $84.0 million, with stable net income of $2.8 million and diluted EPS of $0.26 Q1 2020 Statement of Operations Summary (in thousands of U.S. dollars, except per share data) | Metric | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Net revenues | $83,985 | $78,953 | | Gross profit | $25,150 | $22,651 | | Income from operations | $5,172 | $5,028 | | Net income | $2,834 | $2,799 | | Diluted earnings per common share | $0.26 | $0.26 | Consolidated Statements of Cash Flows Operating cash flow increased to $14.1 million, while investing and financing activities led to a net cash decrease of $7.9 million Q1 2020 Cash Flow Summary (in thousands of U.S. dollars) | Cash Flow Activity | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $14,073 | $8,991 | | Net cash used in investing activities | ($18,713) | ($38,459) | | Net cash (used in) provided by financing activities | ($3,307) | $27,866 | | Increase (decrease) in cash | ($7,947) | ($1,602) | Notes to Consolidated Financial Statements Key disclosures include the $13.9 million Cedar acquisition, hedging activities, segment performance, and the stock buyback program - On January 1, 2020, the company acquired Cedar Holdings Group, a fiber Internet provider, for a net purchase consideration of $13.9 million29 - The company uses foreign currency forward contracts to hedge against fluctuations in the Canadian dollar, with a notional amount of $61.8 million as of March 31, 20203840 Segment Gross Profit (in thousands of U.S. dollars) | Segment | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Network Access Services | $9,904 | $9,454 | | Domain Services | $15,246 | $13,197 | | Total Gross Profit | $25,150 | $22,651 | - In Q1 2020, the company repurchased 66,738 shares for $3.1 million under its $40 million stock buyback program101 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2020 results, including 6% revenue growth, a 35% increase in Adjusted EBITDA, and the impacts of COVID-19 Overview and Key Business Metrics Key metrics show growth in Ting Internet accounts, a decline in Ting Mobile subscribers, and a decrease in total domains under management Key Operating Metrics | Metric | March 31, 2020 | March 31, 2019 | | :--- | :--- | :--- | | Ting mobile accounts under management (in '000s) | 154 | 160 | | Ting mobile subscribers under management (in '000s) | 272 | 284 | | Ting Internet accounts under management (in '000s) | 12 | 8 | | Ting Internet serviceable addresses (in '000s) | 45 | 32 | | Total domain names under management (in '000s) | 23,895 | 25,207 | COVID-19 Response and Impact The company details its operational response to COVID-19 and the varied financial impacts across its business segments - The company transitioned to a remote work model and is providing uninterrupted services across its brands151153154 - Roam Mobility, which relies on global travel, saw revenues trend toward zero, accounting for the majority of the negative financial impact from COVID-19165 - Ting Fiber paused in-home installations, which slowed new customer acquisition, though existing recurring revenue remains stable166 - The Domain Services segment has not experienced any significant financial or operational impacts related to COVID-19167 Results of Operations Q1 2020 net revenues increased 6% to $84.0 million, driven by acquisitions, leading to a 35% rise in Adjusted EBITDA to $12.7 million Net Revenues by Source (in thousands of U.S. dollars) | Revenue Source | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Total Network Access Services | $24,456 | $23,252 | | Mobile Services | $20,148 | $20,809 | | Other Services (Ting Internet) | $4,308 | $2,443 | | Total Domain Services | $59,529 | $55,701 | | Wholesale | $50,671 | $46,775 | | Retail | $8,449 | $8,642 | | Total Net Revenues | $83,985 | $78,953 | - The 6% increase in total net revenue was primarily driven by $4.6 million from the prior year acquisition of Ascio and a $1.9 million increase in fiber access revenues190 Reconciliation of Net Income to Adjusted EBITDA (in thousands of U.S. dollars) | Line Item | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Net income for the period | $2,834 | $2,799 | | Depreciation & Amortization | $6,291 | $3,965 | | Interest expense, net | $1,150 | $972 | | Provision for income taxes | $1,101 | $1,257 | | Stock-based compensation | $801 | $525 | | Other adjustments | $504 | $113 | | Adjusted EBITDA | $12,681 | $9,431 | Liquidity and Capital Resources Cash decreased by $8.0 million to $12.4 million due to acquisitions and capex, supported by a $240 million credit facility - Cash and cash equivalents decreased by $8.0 million during the quarter to $12.4 million249 - Key uses of cash included $9.9 million for property and equipment, $8.8 million for the Cedar acquisition, and $3.1 million for stock repurchases249260 - The company has an Amended 2019 Credit Facility of up to $240 million, with $114.4 million drawn as of March 31, 2020250272 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from foreign currency fluctuations, managed by forward contracts, and interest rate changes on its credit facility - The company's primary market risk is foreign currency exposure, as revenues are in USD and a major portion of expenses are in CAD, managed with forward contracts266267 Outstanding Foreign Exchange Forward Contracts (as of March 31, 2020) | Maturity Date | Notional Amount (USD thousands) | Weighted Avg. Exchange Rate | | :--- | :--- | :--- | | April - June 2020 | $9,653 | 1.3296 | | July - September 2020 | $10,656 | 1.3227 | | October - December 2020 | $9,658 | 1.3227 | | January - September 2021 | $31,784 | ~1.4318 | | Total | $61,751 | 1.3795 | - The company is exposed to interest rate risk on its $114.4 million outstanding balance; a 1% adverse change would increase annual interest payments by approximately $1.1 million271272 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2020, excluding the recently acquired Cedar business - The CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2020273 - The evaluation of controls excluded Cedar, which was acquired during the first quarter of 2020273 PART II OTHER INFORMATION Item 1. Legal Proceedings The company reports no pending legal proceedings expected to have a material adverse effect on the business - The company reports no legal proceedings that are expected to materially harm the business277 Item 1A. Risk Factors Risk factors are updated to include the adverse impacts of the COVID-19 pandemic on the company's operations and specific business lines - A new risk factor has been added concerning the adverse impact of health epidemics, such as the COVID-19 pandemic279 - Specific business impacts from COVID-19 are highlighted as risks, including Roam Mobility revenues trending to zero and a slowdown in Ting Fiber installations280 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 66,738 shares for $3.1 million under a new $40 million stock buyback program Share Repurchases in Q1 2020 | Period | Total Shares Repurchased | Average Price Paid per share | | :--- | :--- | :--- | | January 2020 | - | - | | February 2020 | - | - | | March 2020 | 66,738 | $46.71 | - A new $40 million stock buyback program was approved on February 12, 2020, set to terminate on February 12, 2021283 Item 3. Defaults Upon Senior Securities The company reported no defaults upon its senior securities - None284 Item 4. Mine Safety Disclosures This section is not applicable to the company's business - Not applicable285 Item 5. Other Information The company did not report any other material information - None286 Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q