Tucows Inc. reports financial results for second quarter of 2011

News provided by

Aug 10, 2011, 04:00 ET

TORONTO, Aug. 10, 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 second quarter ended June 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 June 30, 2011 (unaudited)	3 Months Ended June 30, 2010 (unaudited)	6 Months Ended June 30, 2011 (unaudited)	6 Months Ended June 30, 2010 (unaudited)
Net revenue	23,046	20,847	45,601	41,292
Net income (loss) for the period	566	(772)	1,294	(203)
Net earnings (loss) per common share	0.01	(0.01)	0.02	0.00
Net cash provided by operating activities	825	1,173	1,587	2,552

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

	Revenue		Cost of Revenue
	3 Months Ended June 30, 2011 (unaudited)	3 Months Ended June 30, 2010 (unaudited)	3 Months Ended June 30, 2011 (unaudited)	3 Months Ended June 30, 2010 (unaudited)
OpenSRS:
Domain Service	18,220	15,749	15,101	13,090
Email Service	629	581	94	117
Other services	1,238	1,085	400	400
Total OpenSRS services	20,087	17,415	15,595	13,607

YummyNames	1,295	1,632	207	254
Hover	1,278	1,111	419	350
Butterscotch	386	689	4	25

Network, other costs	-	-	1,235	1,220
Network, depreciation and amortization costs	-	-	220	328
Total revenue/cost of revenue	23,046	20,847	17,680	15,784

"Our financial results are once again demonstrative of the consistency and reliability in our business, within the context of growth," said Elliot Noss, President and CEO of Tucows. "Revenue grew by almost 11% year-over-year to a record $23 million and we again generated solid cash flow from operations. The OpenSRS Domain Service was especially strong with year-over-year growth in transaction volumes of 15% to more than 2 million registrations, the second consecutive quarter we have exceeded this threshold. At the same time, our ability to improve operating efficiencies has enabled us to mitigate the unfavorable impact of the stronger Canadian dollar. With what we believe is the best distribution channel in the Internet economy, we remain well positioned to consistently generate cash flow from operations while launching new services with minimal impact on operating expenses."

Net revenue for the second quarter of 2011 increased 10.6% to $23.0 million from $20.8 million for the second quarter of 2010.

Net income for the second quarter of 2011 was $0.6 million, or $0.01 per share, compared with a loss of $0.8 million, or $0.01 per share, for the second quarter of 2010. As a result of a significant proportion of the Company's expenses being incurred in Canadian dollars, net income was dampened by the strength of the Canadian dollar, which was on average 6% higher relative to U.S. dollar in the second quarter of 2011 compared with the second quarter of 2010. The Company has been able to mitigate some of the impact of the stronger Canadian dollar through its currency hedging strategy, as well as improved operating efficiencies.

Deferred revenue at the end of the second quarter of 2011 was $66.8 million, an increase of 11.3% from $60.0 million at the end of the second quarter of 2010 and an increase of 3.0% from $64.9 million at the end of the first quarter of 2011.

Cash and cash equivalents at the end of the second quarter of 2011 were $4.3 million compared with $4.1 million at the end of the second quarter of 2010 and $4.2 million at the end of first quarter of 2011. Cash flow from operating activities of $0.8 million in the second quarter of 2011 was partially offset by the use of $0.5 million for repayment of the Company's bank loan and $0.2 million for investment in equipment.

Subsequent to the end of the quarter, Tucows announced that it had acquired all the shares of EPAG Domainservices GmbH from QSC AG for approximately US$2.5 Million (€1.5 Million to purchase the shares and the settlement of a working capital adjustment of €0.25 Million) through an all-cash transaction. EPAG, based in Bonn, Germany, is an ICANN-accredited registrar with over 400,000 domains under management and is notable for offering over 200 Top Level Domains (TLDs). Tucows plans to continue serving EPAG customers and resellers via existing EPAG tools and will also integrate EPAG's domain services into its own OpenSRS wholesale domain registration service. This acquisition further strengthens OpenSRS' position as a leader in wholesale domain registration and extends its commitment to providing broad TLD coverage to its resellers. With this acquisition OpenSRS will now manage over 11.5 million domain names and by the end of the year OpenSRS resellers will have access to over 200 TLDs.

Conference Call

Tucows management will host a conference call today, Wednesday, August 10, 2011, at 5:00 p.m. (ET) to discuss it's the Company's second quarter 2011 results. Participants can access the conference call via the Internet at http://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 87493993 followed by the pound key. The telephone replay will be available until Wednesday, August 17, 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)

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

Assets

Current assets:
	Cash and cash equivalents	$ 4,348,256	$ 4,205,729
	Accounts receivable	4,150,559	3,021,995
	Prepaid expenses and deposits	3,587,525	2,363,876
	Derivative instrument asset, current portion	533,852	833,960
	Prepaid domain name registry and ancillary services fees, current portion	40,818,212	37,016,871
	Income taxes recoverable	460,000	620,000
	Total current assets	53,898,404	48,062,431

Prepaid domain name registry and ancillary services fees, long-term portion		12,768,720	12,820,479
Property and equipment		1,295,658	1,552,349
Deferred financing charges		7,500	15,600
Deferred tax asset, long-term portion		4,245,000	4,155,600
Intangible assets		16,251,850	16,883,401
Goodwill		17,990,807	17,990,807
	Total assets	$ 106,457,939	$ 101,480,667


Liabilities and Stockholders' Equity

Current liabilities:
	Accounts payable	$ 1,689,950	$ 1,664,006
	Accrued liabilities	1,699,617	1,346,436
	Customer deposits	3,702,609	3,960,312
	Derivative instrument liability current portion	5,753	-
	Loan payable, current portion	348,762	1,305,883
	Deferred revenue, current portion	50,121,286	45,832,374
	Accreditation fees payable, current portion	574,637	547,810
	Deferred tax liability, current portion	1,245,000	1,155,600
	Total current liabilities	59,387,614	55,812,421

Deferred revenue, long-term portion		16,706,784	16,738,429
Accreditation fees payable, long-term portion		163,545	168,580
Deferred rent, long-term portion		13,964	-
Deferred tax liability, long-term portion		4,840,000	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; 53,455,391 shares issued and outstanding as of June 30, 2011 and 53,448,591 shares issued and outstanding as of December 31, 2010	11,331,134	11,324,866
	Additional paid-in capital	40,825,509	40,700,587
	Deficit	(26,810,611)	(28,104,216)
	Total stockholders' equity	25,346,032	23,921,237
Total liabilities and stockholders' equity		$ 106,457,939	$ 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 June 30,				Six months ended June 30,
			2011		2010		2011		2010
			(unaudited)				(unaudited)

Net revenues		$	23,045,923	$	20,846,598	$	45,601,130	$	41,291,751

Cost of revenues:
	Cost of revenues (*)		16,224,936		14,236,414		31,920,076		27,967,964
	Network expenses		1,235,498		1,219,572		2,498,326		2,412,896
	Depreciation of property and equipment		213,089		253,057		449,770		563,115
	Amortization of intangible assets		6,430		74,802		25,720		149,604
	Total cost of revenues		17,679,953		15,783,845		34,893,892		31,093,579

Gross profit			5,365,970		5,062,753		10,707,238		10,198,172

Expenses:
	Sales and marketing (*)		1,771,971		1,786,893		3,796,674		3,649,229
	Technical operations and development (*)		1,231,593		1,189,937		2,430,829		2,432,950
	General and administrative (*)		1,133,387		600,776		2,230,313		1,416,356
	Depreciation of property and equipment		45,495		43,431		91,682		87,320
	Amortization of intangible assets		277,750		360,540		584,740		721,080
	Loss on change in fair value of forward exchange contracts		193,157		1,924,985		305,861		1,811,012
	Total expenses		4,653,353		5,906,562		9,440,099		10,117,947

Income (loss) from operations			712,617		(843,809)		1,267,139		80,225

Other income (expenses):
	Interest (expense) income, net		(8,657)		(33,727)		(20,197)		(72,895)
	Other income		51,648		-		374,977		-
	Total other income (expenses)		42,991		(33,727)		354,780		(72,895)

Income before provision for income taxes			755,608		(877,536)		1,621,919		7,330

Provision for income taxes			189,949		(105,758)		328,314		210,242
Net income (loss) for the period		$	565,659	$	(771,778)	$	1,293,605	$	(202,912)


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

Shares used in computing basic earnings (loss) per common share			53,444,841		59,193,180		53,441,276		60,223,815

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

Shares used in computing diluted earnings (loss) per common share			55,796,435		59,193,180		55,784,998		60,223,815


(*) Stock-based compensation has been included in expenses as follows:
	Network expenses	$	5,349	$	5,574	$	11,362	$	9,202
	Sales and marketing	$	19,127	$	25,545	$	44,460	$	41,231
	Technical operations and development	$	11,394	$	18,264	$	27,102	$	32,845
	General and administrative	$	17,529	$	51,890	$	44,806	$	74,624

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

				Three months ended June 30,				Six months ended June 30,
				2011		2010		2011		2010
Cash provided by (used in):				(unaudited)				(unaudited)
Operating activities:
	Net income (loss) for the period		$	565,659	$	(771,778)	$	1,293,605	$	(202,912)
	Items not involving cash:
		Depreciation of property and equipment		258,584		296,488		541,452		650,435
		Amortization of deferred financing charges		3,700		6,700		8,100		14,100
		Amortization of intangible assets		284,180		435,342		610,460		870,684
		Deferred rent		7,019		-		13,964		-
		Disposal of domain names		7,896		4,434		21,091		12,006
		Unrealized loss in the fair value of forward contracts		193,157		1,924,985		305,861		1,811,012
		Stock-based compensation		53,399		101,273		127,730		157,902
	Changes in non-cash operating working capital:
		Accounts receivable		104,241		311,895		(1,128,564)		(563,605)
		Prepaid expenses and deposits		(702,002)		(66,785)		(1,223,649)		(428,487)
		Prepaid fees for domain name registry and ancillary services fees		(1,749,343)		(815,103)		(3,749,582)		(3,430,672)
		Income taxes recoverable		25,000		(24,000)		160,000		292,000
		Accounts payable		(50,074)		(385,999)		203,823		(199,430)
		Accrued liabilities		65,095		94,120		381,567		(32,684)
		Customer deposits		(166,270)		(433,559)		(257,703)		(162,760)
		Deferred revenue		1,938,868		531,558		4,257,267		3,736,151
		Accreditation fees payable		(14,391)		(36,080)		21,792		28,317
	Net cash provided by operating activities			824,718		1,173,491		1,587,214		2,552,057

Financing activities:
	Proceeds received on exercise of stock options			-		10,308		3,460		14,809
	Repurchase of common stock			-		(1,702,520)		-		(6,914,792)
	Repayment of loan payable			(478,560)		(478,560)		(957,121)		(957,121)
	Net cash used in financing activities			(478,560)		(2,170,772)		(953,661)		(7,857,104)

Investing activities:
	Additions to property and equipment			(162,068)		(116,947)		(491,026)		(259,679)
	Net cash used in investing activities			(162,068)		(116,947)		(491,026)		(259,679)

Increase (decrease) in cash and cash equivalents				184,090		(1,114,228)		142,527		(5,564,726)

Cash and cash equivalents, beginning of period				4,164,166		5,181,896		4,205,729		9,632,394
Cash and cash equivalents, end of period			$	4,348,256	$	4,067,668	$	4,348,256	$	4,067,668

Supplemental cash flow information:
	Interest paid		$	8,718	$	33,521	$	20,307	$	72,797

Supplementary disclosure of non-cash investing activity:
	Property and equipment acquired during the period not yet paid for		$	67,068	$	6,687	$	67,068	$	6,687