Tucows Inc. Reports Financial Results for Third Quarter of 2011

News provided by

Nov 09, 2011, 04:00 ET

TORONTO, Nov. 9, 2011 /PRNewswire/ - Tucows Inc. (NYSEAMEX:TCX, TSX:TC), a global provider of domain names, email and other Internet services, today reported its financial results for the third quarter ended September 30, 2011. All figures are in U.S. dollars.

Summary Financial Results
(Numbers in Thousands of US Dollars, Except Per Share Data)

	3 Months Ended September 30, 2011 (unaudited)	3 Months Ended September 30, 2010 (unaudited)	9 Months Ended September 30, 2011 (unaudited)	9 Months Ended September 30, 2010 (unaudited)
Net revenue	25,094	21,209	70,695	62,501
Income before provision for income taxes and change in fair value of forward exchange contracts	1,423	966	3,350	2,784
Net income (loss) for the period	(1,152)	1,083	141	880
Net earnings (loss) per common share	(0.02)	0.02	0.00	0.01
Net cash provided by operating activities	1,628	1,876	3,215	4,428

Summary of Revenues and Cost of Revenues
(Numbers in Thousands of US Dollars)

	Revenue		Cost of Revenue
	3 Months Ended September 30, 2011 (unaudited)	3 Months Ended September 30, 2010 (unaudited)	3 Months Ended September 30, 2011 (unaudited)	3 Months Ended September 30, 2010 (unaudited)
OpenSRS:
Domain Service	19,698	16,517	16,470	13,818
Email Service	636	578	74	97
Other services	1,212	1,086	433	417
Total OpenSRS services	21,546	18,181	16,977	14,332

YummyNames	1,785	1,249	179	180
Hover	1,358	1,147	495	380
Butterscotch	405	632	8	12

Network, other costs	-	-	1,193	1,088
Network, depreciation and amortization costs	-	-	183	306
Total revenue/cost of revenue	25,094	21,209	19,035	16,298

"The momentum of the first half of 2011 continued into the third quarter, which was highlighted by strong growth and solid cash flow from operations, as well as the acquisition of EPAG Domainservices," said Elliot Noss, President and Chief Executive Officer, Tucows Inc. "Revenue was up more than 18% year-over-year to a record $25.1 million, with meaningful growth across all key areas of our business. The OpenSRS domain service had another solid quarter with 19% year-over-year growth in registrations and a third consecutive quarter of domain registrations in excess of 2 million. YummyNames and Hover also had strong quarters as we continue to see the positive results of initiatives we have undertaken to grow those businesses. Quarter after quarter, our financial performance underscores the consistency and reliability of our business, combined with our ability to achieve steady growth. We remain well positioned to consistently generate cash flow from operations while introducing new services with minimal impact on operating expenses."

Net revenue for the third quarter of 2011 increased 18.3% to $25.1 million from $21.2 million for the third quarter of 2010.

Income before provision for income taxes and change in fair value of forward exchange contracts for the third quarter of 2011 increased by $0.5 million, or 47%, to $1.4 million from $966,000 for the third quarter of 2010. Net loss for the third quarter of 2011 was $1.2 million, or $0.02 per share, primarily the result of the impact of the non-cash foreign exchange losses incurred on the fair value of forward exchange contracts. Net income for the third quarter of 2010 was $1.1 million, or $0.02 per share.

Deferred revenue at the end of the third quarter of 2011 was $68.9 million, an increase of 10.6% from $62.3 million at the end of the third quarter of 2010 and an increase of 3.1% from $66.8 million at the end of the second quarter of 2011.

Cash and cash equivalents at the end of the third quarter of 2011 were $4.7 million compared with $5.4 million at the end of the third quarter of 2010 and $4.3 million at the end of the second quarter of 2011. Operating cash flow for the third quarter of 2011 was $1.6 million and the Company borrowed $2.5 million under its amended credit facility with Bank of Montreal to fund the acquisition of EPAG Domainservices GMBH ("EPAG") in July 2011. In August 2011, the Company repaid $1.0 million of the EPAG loan and during the quarter repaid $320,000 of its previous outstanding balance on its credit facility. In addition, the company invested $139,000 in acquiring property and equipment. As of September 30, 2011, the Company had an amount payable of $1.6 million under its amended credit facility.

Conference Call

Tucows management will host a conference call today, Wednesday, November 9, 2011 at 5:00 p.m. (ET) to discuss the Company's third quarter 2011 results. Participants can access the conference call via the Internet at www.tucowsinc.com/investors.

For those unable to participate in the conference call at the scheduled time, it will be archived for replay both by telephone and via the Internet beginning approximately one hour following completion of the call. To access the archived conference call by telephone, dial 416-849-0833 or 1-855-859-2056 and enter the pass code 22092643 followed by the pound key. The telephone replay will be available until Wednesday, November 16, 2011 at midnight. To access the archived conference call as an MP3 via the Internet, go to http://tucowsinc.com/investors.

About Tucows

Tucows is a global Internet services company. OpenSRS manages over eleven million domain names and millions of email boxes through a reseller network of over 12,000 web hosts and ISPs. Hover is the easiest way for individuals and small businesses to manage their domain names and email addresses. YummyNames owns premium domain names that generate revenue through advertising or resale. Butterscotch.com is an online video network building on the foundation of Tucows Downloads. More information can be found at http://tucowsinc.com.

This release includes forward-looking statements as that term is defined in the U.S. Private Securities Litigation Reform Act of 1995. In particular, this release includes forward looking statements regarding our expectations as to our financial results, our future growth and our ability to generate cash and return capital to shareholders. These statements are based on management's current expectations and are subject to a number of uncertainties and risks that could cause actual results to differ materially from those described in the forward-looking statements. Information about potential factors that could affect Tucows' business, results of operations and financial condition is included in the Risk Factors sections of Tucows' filings with the Securities and Exchange Commission. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. All forward-looking statements are based on information available to Tucows as of the date they are made. Tucows assumes no obligation to update any forward-looking statements, except as may be required by law.

TUCOWS is a registered trademark of Tucows Inc. or its subsidiaries. All other trademarks and service marks are the properties of their respective owners.

Tucows Inc.
Consolidated Balance Sheets
(Dollar amounts in U.S. dollars)

			September 30,		December 31,
			2011		2010
			(unaudited)		(unaudited)

Assets

Current assets:
	Cash and cash equivalents	$	4,653,765	$	4,205,729
	Accounts receivable		4,289,462		3,021,995
	Prepaid expenses and deposits		3,756,375		2,363,876
	Derivative instrument asset, current portion		1,090		833,960
	Prepaid domain name registry and ancillary services fees, current portion		43,005,543		37,016,871
	Income taxes recoverable		330,093		620,000
	Total current assets		56,036,328		48,062,431

Prepaid domain name registry and ancillary services fees, long-term portion			12,693,752		12,820,479
Property and equipment			1,313,611		1,552,349
Deferred financing charges			4,500		15,600
Deferred tax asset, long-term portion			3,569,000		4,155,600
Intangible assets			17,741,695		16,883,401
Goodwill			18,873,127		17,990,807
	Total assets	$	110,232,013	$	101,480,667


Liabilities and Stockholders' Equity

Current liabilities:
	Accounts payable	$	$ 1,301,612	$	$ 1,664,006
	Accrued liabilities		1,720,279		1,346,436
	Customer deposits		3,903,564		3,960,312
	Derivative instrument liability current portion		1,193,751		-
	Loan payable, current portion		1,559,722		1,305,883
	Deferred revenue, current portion		52,372,852		45,832,374
	Accreditation fees payable, current portion		562,374		547,810
	Deferred tax liability, current portion		569,000		1,155,600
	Income taxes payable		200,940		-
	Total current liabilities		63,384,094		55,812,421

Derivative instrument liability long-term portion			431,483		-
Deferred revenue, long-term portion			16,564,604		16,738,429
Accreditation fees payable, long-term portion			159,614		168,580
Deferred rent, long-term portion			19,274		-
Deferred tax liability, long-term portion			5,373,600		4,840,000

Stockholders' equity:
	Preferred stock - no par value, 1,250,000 shares authorized; none issued and outstanding		-		-
	Common stock - no par value, 250,000,000 shares authorized; 53,477,874 shares issued and outstanding as of September 30, 2011 and 53,448,591 shares issued and outstanding as of December 31, 2010		11,349,613		11,324,866
	Additional paid-in capital		40,938,602		40,700,587
	Accumulated other comprehensive income		(26,121)		-
	Deficit		(27,962,750)		(28,104,216)
	Total stockholders' equity		24,299,344		23,921,237
Total liabilities and stockholders' equity		$	$ 110,232,013	$	$ 101,480,667

		Tucows Inc.					Tucows Inc.
		Consolidated Statements of Operations					Consolidated Statements of Operations
		(Dollar amounts in U.S. dollars)					(Dollar amounts in U.S. dollars)

		Three months ended September 30,					Nine months ended September 30,
			2011		2010		2011		2010
		(unaudited)				(unaudited)

Net revenues		$	25,094,056	$	21,209,468	$	70,695,186	$	62,501,219

Cost of revenues:
	Cost of revenues (*)		17,658,648		14,903,525		49,578,724		42,871,489
	Network expenses		1,193,669		1,087,930		3,691,995		3,500,826
	Depreciation of property and equipment		159,191		231,253		608,961		794,368
	Amortization of intangible assets		23,960		74,802		49,680		224,406
	Total cost of revenues		19,035,468		16,297,510		53,929,360		47,391,089

Gross profit			6,058,588		4,911,958		16,765,826		15,110,130

Expenses:
	Sales and marketing (*)		1,867,085		1,830,999		5,663,759		5,480,228
	Technical operations and development (*)		1,220,953		1,053,768		3,651,782		3,486,718
	General and administrative (*)		1,279,082		633,457		3,509,395		2,049,813
	Depreciation of property and equipment		48,874		40,239		140,556		127,559
	Amortization of intangible assets		201,180		360,540		785,920		1,081,620
	Loss (gain) on change in fair value of forward exchange contracts		2,152,243		(141,981)		2,458,104		1,669,031
	Total expenses		6,769,417		3,777,022		16,209,516		13,894,969

Income (loss) from operations			(710,829)		1,134,936		556,310		1,215,161

Other income (expenses):
	Interest (expense) income, net		(18,718)		(26,917)		(38,915)		(99,812)
	Other income		-		-		374,977		-
	Total other income (expenses)		(18,718)		(26,917)		336,062		(99,812)

Income (loss) before provision for income taxes			(729,547)		1,108,019		892,372		1,115,349

Provision for income taxes			422,592		24,863		750,906		235,105
Net income (loss) for the period		$	(1,152,139)	$	1,083,156	$	141,466	$	880,244

Basic earnings (loss) per common share		$	(0.02)	$	0.02	$	-	$	0.01

Shares used in computing basic earnings (loss) per common share			53,452,205		57,351,161		53,444,959		59,255,739

Diluted earnings (loss) per common share		$	(0.02)	$	0.02	$	-	$	0.01

Shares used in computing diluted earnings (loss) per common share			53,452,205		59,185,793		55,748,777		61,223,369

(*) Stock-based compensation has been included in expenses as follows:
	Network expenses	$	5,808	$	6,557	$	17,170	$	15,759
	Sales and marketing	$	22,695	$	30,358	$	67,155	$	71,589
	Technical operations and development	$	13,020	$	19,058	$	40,122	$	51,903
	General and administrative	$	79,364	$	99,813	$	124,170	$	174,437

		Tucows Inc.					Tucows Inc.
		Consolidated Statements of Cash Flows					Consolidated Statements of Cash Flows
		(Dollar amounts in U.S. dollars)					(Dollar amounts in U.S. dollars)

		Three months ended September 30,					Nine months ended September 30,
			2011		2010		2011		2010
		(unaudited)					(unaudited)
Cash provided by (used in):
Operating activities:

	Net income (loss) for the period	$	(1,152,139)	$	1,083,156	$	141,466	$	880,244
	Items not involving cash:
	Depreciation of property and equipment		208,065		271,492		749,517		921,927
	Amortization of deferred financing charges		3,000		6,000		11,100		20,100
	Amortization of intangible assets		225,140		435,342		835,600		1,306,026
	Decrease in deferred tax liability		(18,400)		-		(18,400)		-
	Deferred rent		5,310		-		19,274		-
	Disposal of domain names		8,816		5,084		29,907		17,090
	Unrealized loss (gain) in the fair value of forward contracts		2,152,243		(141,981)		2,458,104		1,669,031
	Stock-based compensation		120,887		155,786		248,617		313,688
	Changes in non-cash operating working capital:
	Accounts receivable		412,735		53,373		(715,829)		(510,232)
	Prepaid expenses and deposits		264,660		489,843		(958,989)		61,356
	Prepaid fees for domain name registry and ancillary services fees		(1,074,068)		(2,355,886)		(4,823,650)		(5,786,558)
	Income taxes recoverable		173,008		(165,000)		333,008		127,000
	Accounts payable		(531,095)		(244,194)		(327,272)		(443,624)
	Accrued liabilities		(113,972)		(231,633)		267,595		(264,317)
	Customer deposits		170,762		240,907		(86,941)		78,147
	Deferred revenue		788,835		(14,435)		5,046,102		6,023,890
	Accreditation fees payable		(15,607)		2,287,739		6,185		13,882
Net cash provided by operating activities			1,628,180		1,875,593		3,215,394		4,427,650

Financing activities:
	Proceeds received on exercise of stock options		10,685		-		14,145		14,809
	Repurchase of common stock		-		-		-		(6,914,792)
	Proceeds received on loan payable		2,530,000		(478,561)		2,530,000		(1,435,682)
	Repayment of loan payable		(1,319,040)		-		(2,276,161)		-
	Net cash provided by (used in) financing activities		1,221,645		(478,561)		267,984		(8,335,665)

Investing activities:
	Additions to property and equipment		(138,909)		(33,111)		(629,935)		(292,790)
	Acquisition of EPAG Domainservices GMBH, net of cash acquired		(2,392,461)		-		(2,392,461)		-
	Net cash used in investing activities		(2,531,370)		(33,111)		(3,022,396)		(292,790)

Foreign exchange loss on cash held in foreign currencies			(12,946)		-		(12,946)		-

Increase (decrease) in cash and cash equivalents			305,509		1,363,921		448,036		(4,200,805)

Cash and cash equivalents, beginning of period			4,348,256		4,067,668		4,205,729		9,632,394
Cash and cash equivalents, end of period		$	4,653,765	$	5,431,589	$	4,653,765	$	5,431,589

Supplemental cash flow information:
	Interest paid	$	18,890	$	27,001	$	39,197	$	99,798

Supplementary disclosure of non-cash investing activity:
	Property and equipment acquired during the period not yet paid for	$	124,979	$	146,158	$	124,979	$	146,158