Tucows(TCX) - 2025 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements This section presents Tucows Inc.'s unaudited condensed consolidated financial statements for Q1 2025, highlighting a net loss of $15.1 million on $94.6 million revenue Condensed Consolidated Balance Sheet Highlights (in thousands of U.S. dollars) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $38,076 | $56,903 | | Total current assets | $194,498 | $205,382 | | Total assets | $741,907 | $758,796 | | Total current liabilities | $192,974 | $199,851 | | Total liabilities | $850,166 (Calculated) | $854,096 (Calculated) | | Total stockholders' deficit | $(108,259) | $(95,300) | Condensed Consolidated Statements of Operations Highlights (in thousands of U.S. dollars, except per share amounts) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net revenues | $94,609 | $87,457 | | Gross profit | $23,531 | $18,316 | | Loss from operations | $(2,033) | $(16,519) | | Net loss for the period | $(15,133) | $(26,484) | | Basic and diluted loss per common share | $(1.37) | $(2.42) | Condensed Consolidated Statements of Cash Flows Highlights (in thousands of U.S. dollars) | Cash Flow Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(11,251) | $(5,678) | | Net cash used in investing activities | $(4,471) | $(14,416) | | Net cash used in financing activities | $(2,500) | $(5,500) | | Decrease in cash and cash equivalents | $(18,222) | $(25,594) | - The company updated the presentation format of its financial statements to condense certain line items for improved clarity, with these changes not impacting total assets, liabilities, stockholders' deficit, net income, or total cash flows from operating, investing, or financing activities[19][25] Notes to Condensed Consolidated Financial Statements (unaudited) This section details Tucows' segment structure, accounting policies, and financial items, highlighting segment revenues, key customer concentration, and significant debt obligations - The company is organized into three businesses: Ting (retail high-speed internet), Wavelo (platform services for Communication Service Providers), and Tucows Domains Services (domain name registration and related services)[16] Revenue by Segment (Q1 2025 vs Q1 2024, in thousands of U.S. dollars) | Segment | Q1 2025 Revenue | Q1 2024 Revenue | YoY Change | | :--- | :--- | :--- | :--- | | Ting | $16,315 | $14,102 | +15.7% | | Wavelo | $11,396 | $9,390 | +21.4% | | Tucows Domains | $65,255 | $61,882 | +5.5% | | Corporate and all other | $1,643 | $2,083 | -21.1% | | Total | $94,609 | $87,457 | +8.2% | - A single customer in the Wavelo segment (EchoStar) accounted for 12% ($10.9 million) of total revenue for Q1 2025 and represented 55% of total accounts receivable as of March 31, 2025[83][84] Segment Adjusted EBITDA (Q1 2025 vs Q1 2024, in thousands of U.S. dollars) | Segment | Q1 2025 Adj. EBITDA | Q1 2024 Adj. EBITDA | | :--- | :--- | :--- | | Ting | $(854) | $(9,537) | | Wavelo | $4,449 | $2,787 | | Tucows Domains | $11,540 | $10,011 | | Consolidated Totals | $15,135 | $3,261 | - As of March 31, 2025, the company had $192.1 million outstanding on its syndicated revolver and $288.6 million in notes payable related to its Ting securitized financing[45][54] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2025 financial results, highlighting an 8% revenue increase and 226% Adjusted EBITDA growth, while noting Ting's liquidity challenges and MNO purchase commitments Overview This overview outlines the company's mission and three operating segments, noting Ting's ongoing restructuring and workforce reductions aimed at expense reduction - The company is organized into three operating segments: Ting, Wavelo, and Tucows Domains[167] - Ting implemented significant workforce reductions in February 2024 (13% of Ting workforce) and a Capital Efficiency Plan in October 2024 (42% of Ting workforce) to reduce operating expenses and align with strategic priorities[172][173] - As of March 31, 2025, Ting Internet had 52,000 active subscribers, up from 46,000 a year prior[171] - Tucows Domains managed 24.3 million domain names as of March 31, 2025, a slight decrease from 24.7 million a year prior[180][186] Results of Operations Q1 2025 saw total net revenues increase by 8% to $94.6 million, with gross profit improving and Adjusted EBITDA surging 226% to $13.7 million due to cost-cutting and revenue growth Net Revenue Growth (Q1 2025 vs Q1 2024) | Segment | Q1 2025 Revenue (M) | Q1 2024 Revenue (M) | YoY Growth | | :--- | :--- | :--- | :--- | | Ting | $16.3 | $14.1 | +16% | | Wavelo | $11.4 | $9.4 | +22% | | Tucows Domains | $65.3 | $61.9 | +5.5% | | Total | $94.6 | $87.5 | +8% | - Sales and marketing expenses decreased by $7.6 million (41%) YoY, primarily due to reduced personnel costs and marketing spend at Ting following the 2024 Capital Efficiency Plan[250] - Cost of revenues for Mobile Services increased by $1.4 million (52%) YoY, largely due to accruing $1.3 million in penalties related to an MNO minimum commitment shortfall, compared to $0.2 million in penalties in Q1 2024[246] Reconciliation of Net Loss to Adjusted EBITDA (in thousands of U.S. dollars) | Line Item | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Loss for the period | $(15,133) | $(26,484) | | Add back: Taxes, D&A, Interest, etc. | $29,804 | $28,735 | | Adjusted EBITDA | $13,671 | $4,202 | Liquidity and Capital Resources As of March 31, 2025, the company held $55.0 million in cash, with the Ting segment facing significant liquidity challenges and potentially requiring additional financing to meet obligations - As of March 31, 2025, cash and cash equivalents decreased by $18.2 million from year-end 2024, driven by cash used in operations ($11.3 million), capex ($5.4 million), and debt repayment ($2.5 million)[266] - The Ting segment incurred a net loss of $20.2 million and an operating cash flow deficit of $17.0 million in Q1 2025, with scheduled interest payments of $38.7 million in the next twelve months[284] - Management warns that Ting may not be able to meet its financial obligations over the next twelve months without additional financing and could be required to seek bankruptcy protection or other alternatives if capital cannot be raised[285] - Tucows businesses excluding Ting had an outstanding balance of $192.9 million on their 2023 Credit Facility and plan to fund cash requirements through operating income[286][287] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from foreign currency fluctuations, variable interest rates on its $192.9 million credit facility, and concentrated credit risk with major financial institutions and a key Wavelo customer - A hypothetical 10% adverse movement in the USD/CAD exchange rate would decrease net income by approximately $1.4 million for Q1 2025, before hedging[294] - As of March 31, 2025, the company held $11.2 million in foreign exchange forward contracts to mitigate Canadian dollar exposure[292] - A one percent adverse change in interest rates would increase annual interest payments on the $192.9 million 2023 Credit Facility by approximately $1.9 million[297] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting during Q1 2025 - Management concluded that disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2025[298] - There were no changes in internal control over financial reporting during Q1 2025 that materially affected, or are reasonably likely to materially affect, internal controls[299] PART II OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal proceedings arising from normal business operations, none of which are expected to be materially harmful - The company is involved in various legal proceedings from the normal course of business, none of which are expected to be materially harmful[302] Item 1A. Risk Factors This section updates key risk factors, including Ting's liquidity challenges, risks from workforce reductions, and potential penalties from an MNO minimum purchase commitment - The bankruptcy-remote subsidiary Ting incurred a $20.2 million net loss in Q1 2025 and may require additional financing to meet its future financial obligations, facing a risk of bankruptcy if funding is not secured[305][306] - The 2024 workforce reductions in the Ting segment pose ongoing risks, including operational disruptions, knowledge gaps, declining employee morale, and potential harm to the company's brand and growth prospects[308][309] - The company has a remaining minimum purchase commitment of $13.9 million with its MNO supplier through February 2026, with failure to grow its legacy Ting Mobile subscriber base potentially leading to significant penalties and increased net loss[310] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Board approved a $40 million stock buyback program on February 13, 2025, though no shares were repurchased during Q1 2025 - A stock buyback program for up to $40 million was approved on February 13, 2025[311] - The company did not repurchase any shares during the three months ended March 31, 2025[311] Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported during the period - None[312] Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable[313] Item 5. Other Information No directors or officers adopted, modified, or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements in Q1 2025 - No directors or officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement in Q1 2025[314] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, material contracts, and certifications - A list of all exhibits filed with the report is provided, including certifications by the CEO and CFO[315] Signatures Signatures The report was duly signed and authorized on May 8, 2025, by the President and CEO, and the Chief Financial Officer - The report was signed on May 8, 2025, by CEO Elliot Noss and CFO Ivan Ivanov[318]