Tucows Inc. Is Scaling Up Quickly

By Anders Bylund Markets Fool.com

On May 9, Tucows (NASDAQ: TCX) reported results for the first quarter of fiscal 2017. Here's what investors need to know.

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Tucows' first-quarter results: The raw numbers

Metric

Q1 2017

Q1 2016

Year-Over-Year Change

Net revenues

$69.6 million

$44.7 million

56%

Net income

$2.45 million

$4.44 million

(45%)

GAAP earnings per share (diluted)

$0.23

$0.41

(44%)

Data source: Tucows.

What happened with Tucows this quarter?

The provider of high-speed internet access, domain name registration, other online services, and the Ting Mobile wireless phone service saw sales skyrocket but the bottom line did not follow suit.

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  • The recently closed acquisition of domain name registrar eNom provided an instant boost to Tucows' top line by more than doubling the number of domains under the company's management. Servicing more than 29 million domains, it is now the second largest such service in the world after GoDaddy and its 71 million managed domains.
  • With great revenue come great operating costs. Tucows scaled up its sales and marketing budget by 62% year over year, and operating expenses as a whole rose 72% to stop at $13.9 million.
  • Tucows consumed $2.4 million of free cash in the first quarter, down from generating positive free cash flow of $4.8 million a year ago.
  • Among other items, deferred revenue multiplied from $1.5 million to $10.2 million as the Ting brand of direct consumer services attracted subscribers with long-term contracts.

What management had to say

Tucows CEO Elliot Noss reported a smooth integration process of eNom and other recent acquisitions, noting that the stated goal of producing $50 million of full-year EBITDA profits remains on track.

"We also continued to deploy significant resources to develop our Ting Internet operations and to invest in building out our Ting Fiber network," Noss said in a prepared statement. "Domains took steps toward scale and efficiency, Ting Mobile grew and Ting Internet improved and invested in fiber network expansion, systems and people. With our sound financial position and our significant cash flows, we remain well positioned for sustainable growth and continued investment in our strategic priority, building fiber."

"Building fiber," you say? Image source: Getty Images.

Looking ahead

Ting Internet and Ting Mobile delivered 12% of organic year-over-year sales growth in the network access segment. Meanwhile, the company invested $83.5 million in the eNom acquisition, sending domain service revenues 82% higher. The company is investing heavily in high-growth opportunities, raising the balances on its credit facilities by $64 million to make it happen.

The company is rebuilding itself in a whole new image, and the change is coming quickly.

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Anders Bylund has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Tucows. The Motley Fool has a disclosure policy.