Trending stocks
$HEAR  
$CHGG  
$IMXI  
$TCX  

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 indicators

mln. $201420152016201720182018/2017
P&L
Revenue147.7171.7189.8329.4346.05.0%
Gross Profit40.652.163.184.596.814.5%
SG&A23.928.132.243.050.818.0%
EBITDA11.219.727.839.244.313.0%
EBIT9.618.025.0
Tax3.16.69.0
Net Income6.411.416.122.317.1-23.3%
Stock Based Compensation0.54.01.7
Balance Sheet
Cash8.37.715.118.012.6-30.0%
Accounts Receivable6.87.210.9
Inventory0.40.91.2
Accounts Payable3.64.24.8
Short Term Debt0.03.52.218.318.40.6%
Long Term Debt0.00.08.058.646.2-21.2%
Cash flow
Capex0.73.07.912.927.9115.8%
Acquisitions8.20.4
Ratios
Revenue growth13.6%16.3%10.6%73.5%5.0%
EBITDA growth40.2%76.4%41.4%40.9%13.0%

Gross Margin27.5%30.3%33.2%25.7%28.0%2.3%
EBITDA Margin7.6%11.5%14.7%11.9%12.8%0.9%
EBIT Margin6.5%10.5%13.2%
SG&A, % of revenue16.2%16.3%16.9%13.1%14.7%1.6%
SBC, % of revenue0.4%2.3%0.9%
Net Income Margin4.3%6.6%8.5%6.8%5.0%-1.8%
CAPEX, % of revenue0.5%1.7%4.2%3.9%8.1%4.1%

ROIC27.4%51.4%58.3%25.6%18.0%-7.6%
ROE20.4%36.7%50.1%45.6%24.5%-21.1%
Net Debt/EBITDA-0.7x-0.2x-0.2x1.5x1.2x-0.3x
People
Insider ownership8.4%8.4%8.4%
Employees225325375
Revenue/Employee, th. $656528506

Tucows Inc ($TCX) key quoterly financial indicators

mln. $18Q118Q218Q318Q4 YoY change
P&L
Revenue96818486 37.7%-3.7%-1.8%-5.5%
EBITDA991114 66.0%-6.4%23.9%-1.1%
Net Income4454 53.0%-31.2%55.4%-60.4%
Balance Sheet
Cash17111113 10.3%-26.3%-14.1%-30.0%
Short Term Debt18181818 0.0%-3.1%-2.6%0.6%
Long Term Debt54514746 -25.0%-24.6%-26.2%-21.2%
Ratios
Gross Margin23.6%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%
 
Median (1 company)-3.0%8.4%7.4%17.8%-11.0%
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%
 
Median (1 company)41.2%33.7%33.5%35.9%46.1%
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%
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%
 
Median (1 company)0.3%0.3%1.1%0.0%0.1%
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%
Tucows Inc ($TCX)27.4%51.4%58.3%25.6%18.0%