On Thursday, May 7, Tucows issued a news release reporting its financial results for the first quarter ending March 31, 2020. That news release, and the Company’s financial statements, are available on the company’s website at tucows.com, under the Investors section.

Please note that the following discussion may include forward-looking statements, which, as such, are subject to risks and uncertainties that could cause actual results to differ materially. These risk factors are described in detail in the company’s documents filed with the SEC, specifically the most recent reports on the Forms 10-K and 10-Q.

The company urges you to read its security filings for a full description of the risk factors applicable for its business. I would now like to turn the call over to Tucows’ President and Chief Executive Officer, Mr. Elliot Noss..

SiFi Networks, deploying in Fullerton, California, and Netly Fiber, building in Solana Beach, California continue to push ahead with their builds, and expect to possibly see their networks lit with Ting customers sometime in Q2 of this year. We continue to monitor their progress in those markets closely to account for delays from COVID-19 impacts.

I’d now like to turn the call over to our CFO, Dave Singh, to review our financial results for the quarter in greater detail.

Dave?.

Excluding the impact from the acquisition of Ascio on March 18, 2019 and the Cedar acquisition on January 1 of this year, workforce and third-party workforce-related expenses, increased by $0.5 million, primarily from an increased workforce to support the Ting Internet build-out offset by a $0.3 million expense reduction from the capitalization of development costs associated with our domains platform work.

In the fourth quarter of 2019, we commenced capitalizing the work efforts associated with our new tools being built. Ascio and Cedar related expenses added $1.1 million to the quarter, primarily workforce related.

Marketing costs decreased by $0.5 million, primarily related to Ting mobile and Roam mobility driven by a reduction in marketing credits issued due to lower subscriber additions and to a lesser extent a reduction in business volumes at the onset of COVID-19 related restrictions in early March.

Amortization of intangible assets increased by $1.1 million, which related primarily to the set-up of intangible assets for the Ascio brand, customer relationships, and technology, totalling $15.1 million, and Cedar customer relationships and network rights totalling $5.6 million.

And lastly, there was a $0.8 million net increase in expenses related to foreign exchange impacts.

Specifically, we had a loss of $400,000 in Q1 2020 related to mark-to-market remeasurements for our forward currency contracts that do not qualify for hedge accounting, compared to a gain of $0.1 million in Q1 of last year, resulting in a year-over-year expense increase of just over $0.5 million.

In addition, we experienced a neutral impact on the revaluation of foreign denominated monetary assets and liabilities this quarter compared to a gain of $0.3 million in the first quarter of 2019, which had the impact of increasing our expenses $0.3 million on a year-over-year basis.

As a percentage of revenue, total operating expenses increased to 24% from 22%. Net income for the first quarter of 2020 increased 1% to just over $2.8 million, or $0.27 per share, from just under $2.8 million, or $0.26 per share.

Adjusted EBITDA increased 34% to $12.7 million from $9.4 million for Q1 last year due to the first full quarterly contributions from the Ascio and Cedar acquisitions noted previously, as well as organic growth across our three lines of business.

Turning to our balance sheet and cash flows, cash and cash equivalents at the end of the first quarter of 2020 was $12.4 million compared with $20.4 million at the end of the fourth quarter of 2019 and $11 million at the end of the first quarter of 2019.

During the quarter, we generated $14.1 million in cash from operations compared with $9 million in Q1 last year.

Cash from operations was offset by our investment of an additional $9.9 million in property and equipment, primarily related to the Ting Internet build-out, the net cash payment of $8.8 million for the acquisition of Cedar, and $3.1 million for the repurchase of shares under our open market buyback program.

During the quarter we purchased just under 67,000 shares at an average price of $46.69. Deferred revenue at the end of the first quarter was $153 million, up from $149 million at the end of the fourth quarter of last year, but down from $159 million at the end of the first quarter of last year.

That concludes my remarks and I’ll now turn it back to Elliot..

Thanks, Dave. In February, we renewed our open market buyback program, under which we can purchase up to $40 million of our stock until February of 2021. As Dave just mentioned in his remarks, we repurchased roughly 67,000 shares at an average of $46.69 a share, with a total spend of $3.1 million.

We were quite pleased to be able to acquire shares at these levels. Last quarter we provided guidance for 2020 of $50 million in EBITDA. The first quarter was comfortably on plan, but this year contains both more challenges, and more opportunities than we have ever seen.

Accordingly, we will leave guidance where it is at this time, but will do what is best for the business as this all unfolds. We expect this call to be the first of a number of quarters, where we will be sharing results and changes in this current environment.

Accordingly, I will try and share the broad principles that are informing our thinking through the pandemic. The greatest certainty in the current situation is uncertainty. As a leader, I feel my greatest strategic responsibility right now is to distinguish between what I can know and what I cannot, and to act accordingly.

And there is so much that I, and we, cannot know. We cannot know when businesses and everyday life will return to normal. We cannot know what that new normal will look like. We do know that it will be very different from the world before the pandemic. With all of this, we take a very conservative view.

We are planning for the current circumstances, with minor variability, to persist for the foreseeable future. And we are planning accordingly.

We are rethinking our installation practices, our marketing practices, our human resources practices, our product offerings and more; and in almost every case, we believe the changes we are making and will continue to make, are more or less permanent. We believe this, because we believe that the changes wrought by this pandemic are not new.

Rather, they are significant accelerations of previously existing trends. So what are the changes that we believe we have some certainty about? It seems obvious that work from home, a trend we were fortunate to be in front of, will greatly accelerate.

This has implications not only for the amount of office space a company needs, but also the shape of that space. It also opens up the world as a source of talent. Thus a significant rethink in the way we approach technical talent, and in fact a rethink of all of our people practices. There will be less business travel, and in fact travel of all types.

I have travelled 10 to 12 weeks a year consistently for the last twenty years. I will never travel that much in a year again. The whole retail, travel and hospitality industries are reconfiguring before our eyes and will never be the same. We see equally significant and permanent changes in automotive and fashion.

And combining those with retail, travel and hospitality, and the whole world of marketing as we knew it changes. Now layer all of that on top of a massive acceleration of the trend towards cord cutting and away from linear video. And combine the uncertainty of the future of major sports leagues.

In this context, we are wide open to rethinking our marketing practices and the way we deliver services. Tucows has been around a long time. We have been through two other significant crises; the dotcom bust, and the 2008 financial crisis. But they were different. They were both economic crises.

This time, we are dealing with a health crisis that has a significant economic valence. Because of this, the societal remedies need to be focused on health, safety and security. But the economic impacts will be deeper and broader than either of the previous two crises. Both of those previous circumstances shaped Tucows and our company culture.

I have joked with many of you that living through the dotcom bust has made us behave like a child of the Depression. It has led to our focus on generating cash, on living within our means, on our general fiscal conservatism. Those experiences serve us well here. But in both those crises, the company was in a different place.

In 2000, and in 2008, we were working and struggling to survive. Not now. Now, all three of our businesses have the wind at their back through the pandemic. This makes applying the learning, and the nature of the challenges, different. There is no question that in these times, with this level of uncertainty, a baseline of conservatism is important.

And with us, it is also deeply ingrained. But this time, it is a bit different. This time, we have a much more powerful baseline business; in fact three of them. We have a deeper bench. We have much of our competition – particularly those with much broader business portfolios – on their heels. They are on their heels, perhaps we can be on our toes.

And any moves that are towards growth will be informed by our view that we are in a significant reshaping of our economy. And we believe an important element of that reshaping is recognizing that we now live in a growth and yield starved world. Like many of the above long-term trends, the pandemic has greatly accelerated this one.

Reliability and predictability of earnings become relatively more important. The significant amount of capital available, and shifts in demographics and consumption patterns were making returns harder to come by. This significantly informs our capital allocation and finance practices.

In conclusion, I hope that this provides you with the broad principles that we are basing our thinking on. We see changes across the business. People, technology, product, marketing, finance. We hope to be able to balance conservatism with opportunism. The world was awash with capital before the pandemic. It still is.

Right now, finding return with low beta is like finding a four leaf clover. Right now, we feel a bit like leprechauns. And with that, I look forward to your written questions and exploring areas that interest you in greater detail.

Again, please send your questions to ir@tucows.com by May 13, and look for our recorded Q&A audio response and transcript to be posted to the Tucows website on Wednesday, May 20 at approximately 4:00 p.m. Eastern Time. Thank you..

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