Tucows Inc CAPEX surged on 116% and Revenue increased on 5.0%
02/13/2019 • About Tucows Inc (
$TCX) • By InTwits
Tucows Inc reported 2018 financial results today. Here are the key drivers of the company's long term financial model:
- Tucows Inc is a growth stock: 2018 revenue growth was 5.0%, 5 year revenue CAGR was 21.6% at 2018 ROIC 18.0%
- Tucows Inc has low CAPEX intensity: 5 year average CAPEX/Revenue was 3.7%. At the same time it's in pair with industry average of 3.4%
- CAPEX is quite volatile: $28m in 2018, $13m in 2017, $8m in 2016, $3m in 2015, $1m in 2014
- The company has highly profitable business model: ROIC is 18.0%
Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.
Revenue and profitability
Tucows Inc's Revenue increased on 5.0%. Revenue growth showed slowdown in 18Q4 - it was -5.5% YoY. Having declining revenue the company managed to increase EBITDA margin. EBITDA Margin increased slightly on 0.63 pp from 3.1% to 3.7% in 2018.
Gross Margin increased on 2.3 pp from 25.7% to 28.0% in 2018. SG&A as a % of Revenue increased slightly on 1.6 pp from 13.1% to 14.7% in 2018.
Net Income margin decreased slightly on 1.8 pp from 6.8% to 5.0% in 2018. During 2014-2018 Net Income margin topped in 2016 at 8.5% and was declining since that time.
Investments (CAPEX, working capital and M&A)
Tucows Inc's CAPEX/Revenue was 8.1% in 2018. CAPEX/Revenue increased on 6.3 pp from 1.7% in 2015 to 8.1% in 2018. It's average CAPEX/Revenue for the last three years was 5.4%. The company maintained rich investment policy and has spent a big chunk of EBITDA (63.0%) to CAPEX. CAPEX as a % of Revenue grew at 1.7 pp per annum in the last 5 years.
Return on investment
The company operates at high and attractive ROE (24.5%) while ROIC is a bit lower (18.0%). ROIC decreased on 7.6 pp from 25.6% to 18.0% in 2018. ROE dropped on 21.1 pp from 45.6% to 24.5% in 2018. During the last 5 years ROIC topped in 2016 at 58.3% and was declining since that time. During 2014-2018 ROE topped in 2016 at 50.1% and was declining since that time.
Leverage (Debt)
Debt level is 1.2x Net Debt / EBITDA and 1.5x Debt / EBITDA. Net Debt / EBITDA dropped on 0.3x from 1.5x to 1.2x in 2018. Debt dropped on 16.0% while cash dropped on 30.0%. Net Debt/EBITDA followed a growing trend at 0.6x per annum in 2014-2018.
Tucows Inc has short term refinancing risk: cash is only 68.7% of short term debt.
Valuation and dividends
The company's trades at EV/EBITDA 17.8x and P/E 43.0x.
Management team
The company's CEO Elliot Noss is a founder and has spent 17 years with the company. Davinder Singh "Dave" is a Tucows Inc's CFO. Davinder Singh "Dave" has spent 2 years at the company.
Financial and operational results
FY ended 12/31/2018
Tucows Inc ($TCX) key annual financial indicatorsmln. $ | 2014 | 2015 | 2016 | 2017 | 2018 | 2018/2017 |
---|
P&L
|
---|
Revenue | 147.7 | 171.7 | 189.8 | 329.4 | 346.0 | 5.0% |
Gross Profit | 40.6 | 52.1 | 63.1 | 84.5 | 96.8 | 14.5% |
SG&A | 23.9 | 28.1 | 32.2 | 43.0 | 50.8 | 18.0% |
EBITDA | 11.2 | 19.7 | 27.8 | 39.2 | 44.3 | 13.0% |
EBIT | 9.6 | 18.0 | 25.0 | | | |
Tax | 3.1 | 6.6 | 9.0 | | | |
Net Income | 6.4 | 11.4 | 16.1 | 22.3 | 17.1 | -23.3% |
Stock Based Compensation | 0.5 | 4.0 | 1.7 | | | |
Balance Sheet
|
---|
Cash | 8.3 | 7.7 | 15.1 | 18.0 | 12.6 | -30.0% |
Accounts Receivable | 6.8 | 7.2 | 10.9 | | | |
Inventory | 0.4 | 0.9 | 1.2 | | | |
Accounts Payable | 3.6 | 4.2 | 4.8 | | | |
Short Term Debt | 0.0 | 3.5 | 2.2 | 18.3 | 18.4 | 0.6% |
Long Term Debt | 0.0 | 0.0 | 8.0 | 58.6 | 46.2 | -21.2% |
Cash flow
|
---|
Capex | 0.7 | 3.0 | 7.9 | 12.9 | 27.9 | 115.8% |
Acquisitions | 8.2 | 0.4 | | | | |
Ratios
|
---|
Revenue growth | 13.6% | 16.3% | 10.6% | 73.5% | 5.0% | |
EBITDA growth | 40.2% | 76.4% | 41.4% | 40.9% | 13.0% | |
|
---|
Gross Margin | 27.5% | 30.3% | 33.2% | 25.7% | 28.0% | 2.3% |
EBITDA Margin | 7.6% | 11.5% | 14.7% | 11.9% | 12.8% | 0.9% |
EBIT Margin | 6.5% | 10.5% | 13.2% | | |
SG&A, % of revenue | 16.2% | 16.3% | 16.9% | 13.1% | 14.7% | 1.6% |
SBC, % of revenue | 0.4% | 2.3% | 0.9% | | |
Net Income Margin | 4.3% | 6.6% | 8.5% | 6.8% | 5.0% | -1.8% |
CAPEX, % of revenue | 0.5% | 1.7% | 4.2% | 3.9% | 8.1% | 4.1% |
|
---|
ROIC | 27.4% | 51.4% | 58.3% | 25.6% | 18.0% | -7.6% |
ROE | 20.4% | 36.7% | 50.1% | 45.6% | 24.5% | -21.1% |
Net Debt/EBITDA | -0.7x | -0.2x | -0.2x | 1.5x | 1.2x | -0.3x |
People
|
---|
Insider ownership | 8.4% | 8.4% | 8.4% | | | |
Employees | 225 | 325 | 375 | | | |
Revenue/Employee, th. $ | 656 | 528 | 506 | | | |
Tucows Inc ($TCX) key quoterly financial indicators
mln. $ | 18Q1 | 18Q2 | 18Q3 | 18Q4 | | YoY change |
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P&L
|
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Revenue | 96 | 81 | 84 | 86 | | 37.7% | -3.7% | -1.8% | -5.5% |
EBITDA | 9 | 9 | 11 | 14 | | 66.0% | -6.4% | 23.9% | -1.1% |
Net Income | 4 | 4 | 5 | 4 | | 53.0% | -31.2% | 55.4% | -60.4% |
Balance Sheet
|
---|
Cash | 17 | 11 | 11 | 13 | | 10.3% | -26.3% | -14.1% | -30.0% |
Short Term Debt | 18 | 18 | 18 | 18 | | 0.0% | -3.1% | -2.6% | 0.6% |
Long Term Debt | 54 | 51 | 47 | 46 | | -25.0% | -24.6% | -26.2% | -21.2% |
Ratios
|
---|
Gross Margin | 23.6% | 27.3% | 29.0% | 32.4% | | -0.7% | 2.0% | 5.3% | 4.0% |
EBITDA Margin | 9.7% | 11.6% | 13.6% | 16.7% | | 1.7% | -0.3% | 2.8% | 0.7% |
Net Income Margin | 3.9% | 4.4% | 6.4% | 5.2% | | 0.4% | -1.8% | 2.4% | -7.2% |
Peers in Communications
Below we provide Tucows Inc benchmarking against other companies in Communications industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.
Top companies by Revenue growth, %
Top | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
---|
IGEN Networks Corp ($IGEN) | | 42.9% | 10.4% | 17.8% | -11.0% |
|
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Median (1 company) | -3.0% | 8.4% | 7.4% | 17.8% | -11.0% |
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Tucows Inc ($TCX) | | 16.3% | 10.6% | 73.5% | 5.0% |
Top companies by Gross margin, %
Top | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
---|
IGEN Networks Corp ($IGEN) | 41.2% | 30.8% | 34.5% | 35.9% | 46.1% |
|
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Median (1 company) | 41.2% | 33.7% | 33.5% | 35.9% | 46.1% |
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Tucows Inc ($TCX) | 27.5% | 30.3% | 33.2% | 25.7% | 28.0% |
Top companies by EBITDA margin, %
Top | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
---|
IGEN Networks Corp ($IGEN) | -81.5% | -125.6% | -70.7% | -83.3% | -94.8% |
|
---|
Median (1 company) | -7.1% | -5.7% | -31.9% | -83.3% | -94.8% |
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Tucows Inc ($TCX) | 7.6% | 11.5% | 14.7% | 11.9% | 12.8% |
Top companies by CAPEX/Revenue, %
Top | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
---|
IGEN Networks Corp ($IGEN) | 0.3% | 0.3% | 0.0% | 0.0% | 0.1% |
|
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Median (1 company) | 0.3% | 0.3% | 1.1% | 0.0% | 0.1% |
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Tucows Inc ($TCX) | 0.5% | 1.7% | 4.2% | 3.9% | 8.1% |
Top companies by ROIC, %
Top | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
---|
IGEN Networks Corp ($IGEN) | -110.7% | -333.8% | | | |
|
---|
Median (1 company) | -97.8% | -73.7% | 10.1% | | |
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Tucows Inc ($TCX) | 27.4% | 51.4% | 58.3% | 25.6% | 18.0% |