Tucows Reports Strong Financial Results for the Second Quarter of 2014

- Quarter Highlighted by Doubling of Net Earnings Per Share, Continued Steady Customer Growth at Ting -

TORONTO, Aug. 12, 2014 /CNW/ - Tucows Inc. (NASDAQ:TCX, TSX:TC), a provider of network access, domain name and other Internet services, today reported its financial results for the second quarter ended June 30, 2014. All figures are in U.S. dollars.

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

  3 Months Ended
Jun. 30, 2014 (unaudited)
3 Months Ended
Jun. 30, 2013 (unaudited)
6 Months
Ended
Jun. 30, 2014 (unaudited)
6 Months
Ended
Jun. 30, 2013 (unaudited)
Net revenue 35,588 31,173 69,990 61,158
Income before provision for income taxes and change in fair value of forward exchange contracts 2,110 948 3,389 1,379
Net income 1,347 588 1,824 664
Net earnings per common share1 $0.12 $0.06 $0.16 $0.07
Net cash provided by (used in) operating activities 1,135 2,971 1,096 2,388
  1. Net earnings per common share reflects the 1-for-4 reverse split of common shares that became effective December 31, 2013.

Summary of Revenues and Cost of Revenues
(In Thousands of US Dollars)

  Revenue Revenue Cost of Revenue Cost of Revenue

 
3 Months Ended
Jun. 30, 2014
(unaudited)
3 Months Ended
Jun. 30, 2013
(unaudited)
3 Months Ended
Jun. 30, 2014
(unaudited)
3 Months Ended
Jun. 30, 2013
(unaudited)
Domain Services        
  Wholesale        
     OpenSRS
     Domain
     Service
21,503 21,800 17,809 18,485
     Value-Added
     Services
2,396 2,560 563 520
  Total Wholesale 23,899 24,360 18,372 19,005
  Retail 2,540 2,001 1,111 833
  Portfolio 889 1,078 213 230
Total Domain
Services
27,328 27,439 19,696 20,068
Network Access
Services (Ting)
8,260 3,734 5,040 2,940
         
Network, other
costs
- - 1,145 1,270
Network,
depreciation and
amortization
costs
- - 174 187
Total
revenue/cost of
revenue
35,588 31,173 26,055 24,465

NOTE: To better reflect the manner in which these revenue streams are generated and assessed by management, beginning in the first quarter of 2014, Tucows reclassified its revenue streams into Domain Services and Network Access Services.  Domain Services includes Wholesale OpenSRS (Domain Service and Value Added Services), Retail (Hover) and Portfolio.  Network Access Services includes Ting.

"The strong momentum in our business, driven by the growing contribution of Ting, is evident in our bottom line as net earnings for the second quarter doubled year-over-year to $0.12 per share," said Elliot Noss, President and Chief Executive Officer, Tucows Inc.  "Ting saw another solid quarter of customer growth, adding more than 12,000 accounts and 18,000 devices to end the quarter at 73,000 accounts and 113,000 devices.  Gross margin per account remains strong, customer acquisition costs remain low.  Importantly, Ting's contribution is really starting to show through in our overall results and was the primary reason for second quarter consolidated gross margin increasing by 5% to 27% from 22% a year earlier."

Mr. Noss added, "We continue to see steady performance from our Domains Services business.  Notably, Wholesale Domains gross margin for the second quarter was up 11% from a year ago on similar volumes due to our shifting sales mix to higher margin services. Retail delivered yet another quarter of year-over-year revenue growth in excess of 20%."

Net revenue for the second quarter of 2014 increased 14% to $35.6 million from $31.2 million for the second quarter of 2013.

Net income for the second quarter of 2014 was $1.3 million, or $0.12 per share, compared with $0.6 million, or $0.06 per share, for the second quarter of 2013. Included in net income for the second quarter of 2014 was a write-off of $0.3 million related to indefinite life intangible assets, the result of the Company's assessment, under its normal portfolio review process, that certain domains acquired in June 2006 not be renewed. In addition, net income for the second quarter of the prior year included the benefit of a $0.5 million Interactive Digital Media Tax Credit from the Ontario government.

Conference Call
Tucows management will host a conference call today, Tuesday, August 12, 2014 at 5:00 p.m. (ET) to discuss the Company's second quarter 2014 results. Participants can access the conference call by dialing 1-888-231-8191 or 647-427-7450 or via the Internet at http://www.tucows.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 74220945 followed by the pound key.  The telephone replay will be available until Tuesday, August 19, 2014 at midnight. To access the archived conference call as an MP3 via the Internet, go to http://www.tucows.com/investors.

About Tucows
Tucows is a provider of network access, domain name and other Internet services. Ting (https://ting.com) is a mobile phone service provider dedicated to bringing clarity and control to US mobile phone users.  OpenSRS (http://opensrs.com) manages over fourteen million domain names and millions of value-added services through a global reseller network of over 13,000 web hosts and ISPs. Hover (http://hover.com) is the easiest way for individuals and small businesses to manage their domain names and email addresses. YummyNames (http://yummynames.com) owns and operates premium domain names that generate revenue through advertising or resale. More information can be found on Tucows' corporate website (http://tucows.com).

This release includes forward-looking statements as that term is defined in the U.S. Private Securities Litigation Reform Act of 1995 including statements regarding our expectations regarding our future financial results and, in particular, our expectations for Ting and its impact on our financial performance. 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, including the acceptance of Ting in the market.  Information about other 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,     December 31,
    2014     2013
    (unaudited)      
           
Assets          
           
Current assets:          
  Cash and cash equivalents  $ 14,164,518    $ 12,418,888
  Accounts receivable   6,919,130     5,305,403
  Inventory   481,140     309,686
  Prepaid expenses and deposits   4,935,573     4,309,039
  Prepaid domain name registry and ancillary services fees, current portion   46,379,230     44,209,591
  Deferred tax asset, current portion   1,250,468     1,081,526
  Income taxes recoverable   631,632     475,889
       Total current assets   74,761,691     68,110,022
           
Prepaid domain name registry and ancillary services fees, long-term portion   12,090,838     11,838,579
Property and equipment   1,693,720     1,757,836
Deferred tax asset, long-term portion   5,814,675     5,370,037
Intangible assets   14,379,154     15,403,228
Goodwill   18,873,127     18,873,127
       Total assets $ 127,613,205   $ 121,352,829
           
           
Liabilities and Stockholders' Equity          
           
Current liabilities:          
  Accounts payable $   3,185,060   $ 2,361,481
  Accrued liabilities   3,743,663     3,913,034
  Customer deposits   4,487,871     4,500,946
  Derivative instrument liability   59,077     491,098
  Loan payable, current portion   5,358,333     6,300,000
  Deferred revenue, current portion   57,609,511     54,379,719
  Accreditation fees payable, current portion   505,645     473,811
  Income taxes payable   194,303     1,024,004
       Total current liabilities   75,143,463     73,444,093
           
Deferred revenue, long-term portion   16,025,103     15,638,517
Accreditation fees payable, long-term portion   132,020     135,522
Deferred rent, long-term portion   88,359     75,979
Deferred tax liability, long-term portion   5,108,500     5,141,500
           
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; 11,240,992  shares
issued and outstanding as of June 30, 2014 and 10,907,063 shares issued and
outstanding as of December 31, 2013 (1)
  13,513,124     11,859,267
  Additional paid-in capital   29,138,165     28,632,311
  Deficit   (11,505,358)     (13,329,379)
  Accumulated other comprehensive income (loss)   (30,171)     (244,981)
       Total stockholders' equity   31,115,760     26,917,218
Total liabilities and stockholders' equity $ 127,613,205   $ 121,352,829
           

 

(1) Shares issued and outstanding at both June 30, 2014 and December 31, 2013 reflects the 1-for-4 reverse split of common shares that became effective on December 31, 2013.




      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,
    2014   2013     2014   2013
  (unaudited)   (unaudited)
                   
Net revenues $ 35,588,001 $ 31,173,357   $ 69,990,395 $ 61,158,379
                   
Cost of revenues:                  
  Cost of revenues   24,736,004   23,007,506     49,052,643   45,085,405
  Network expenses (*)   1,144,697   1,269,808     2,288,341   2,524,021
  Depreciation of property and equipment   173,963   151,356     356,937   288,428
  Amortization of intangible assets   -   35,910     -   71,820
       Total cost of revenues   26,054,664   24,464,580     51,697,921   47,969,674
                   
Gross profit   9,533,337   6,708,777     18,292,474   13,188,705
                   
Expenses:                  
  Sales and marketing (*)   3,762,441   2,946,586     7,784,215   5,793,672
  Technical operations and development (*)   1,107,532   748,137     2,197,430   1,881,967
  General and administrative (*) (note 1)   1,886,319   1,698,697     3,654,119   3,397,329
  Depreciation of property and equipment   52,538   54,922     108,842   105,861
  Amortization of intangible assets   219,030   219,030     438,060   438,060
  Impairment of indefinite life intangible assets   326,457   -     577,145   -
  Loss on currency forward contracts   96,545   146,639     647,916   381,277
       Total expenses   7,450,862   5,814,011     15,407,727   11,998,166
                   
Income from operations   2,082,475   894,766     2,884,747   1,190,539
                   
Other income (expenses):                  
  Interest expense, net   (69,348)   (93,428)     (143,181)   (192,790)
       Total other income (expenses)   (69,348)   (93,428)     (143,181)   (192,790)
                   
Income before provision for income taxes   2,013,127   801,338     2,741,566   997,749
                   
Provision for income taxes   665,945   213,708     917,545   333,540
Net income   1,347,182   587,630     1,824,021   664,209
                   
Other comprehensive income (loss), net of tax                  
  Unrealized loss on hedging activities   370,868   (260,941)     7,687   (446,726)
  Net amount reclassified to earnings   59,409   -     207,123   -
Other comprehensive income (loss) net of tax of $111,897
and $133,761 for the three months ended June 30, 2014
and June 30, 2013, and $224,137 and $230,538 for the
six months ended June 30, 2014 and June 30, 2013
(2013 : $96,777)
  430,277   (260,941)     214,810   (446,726)
                   
Comprehensive income (loss), net of tax for the period  $  1,777,459  $  326,689    $  2,038,831  $  217,483
                   
Basic earnings per common share $ 0.12 $ 0.06   $ 0.16 $ 0.07
                   
Shares used in computing basic earnings per common share   11,219,101   10,080,815     11,124,357   10,081,831
                   
Diluted earnings per common share $ 0.11 $ 0.05   $ 0.16 $ 0.06
                   
Shares used in computing diluted earnings per common share   11,729,547   11,069,713     11,684,529   11,073,504
                   
                   
                   
(*) Stock-based compensation has been included
in expenses as follows:
                 
  Network expenses $ 6,916 $ 7,932   $ 15,797 $ 14,058
  Sales and marketing $ 30,804 $ 33,909   $ 66,803 $ 60,319
  Technical operations and development $ 18,447 $ 20,370   $ 36,652 $ 35,617
  General and administrative $ 29,190 $ 29,044   $ 67,082 $ 56,103
                   

 

(1) Shares used in computing earnings per share as well as earnings per common share reflects the 1-for-4 reverse split of common shares that became effective on December 31, 2013.





  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 June 30,       Six months ended June 30,
    2014   2013     2014   2013
Cash provided by: (unaudited)   (unaudited)
Operating activities:                  
   Net income for the period   $  1,347,182 $ 587,630    $  1,824,021 $ 664,209
   Items not involving cash:                  
      Depreciation of property and equipment   226,501   206,278     465,779   394,289
      Amortization of intangible assets   219,030   254,940     438,060   509,880
      Impairment of indefinite life intangible asset   326,457   -     577,145   -
      Deferred income taxes (recovery)   (415,246)   113,748     (758,477)   21,683
      Excess tax benefits from share-based compensation expense   594,899   -     (418,901)   -
      Amortization of deferred rent   9,168   4,372     12,380   9,876
      Disposal of domain names   7,247   20,876     8,869   35,369
      Loss (gain) on change in the fair value of forward contracts   (192,460)   114,846     (105,314)   565,987
      Stock-based compensation   85,357   91,255     186,334   166,097
   Change in non-cash operating working capital:                  
      Accounts receivable   (350,806)   (665,972)     (1,613,727)   (1,214,290)
      Inventory   28,293   121,380     (171,454)   399,680
      Prepaid expenses and deposits   (259,698)   635,193     (626,534)   296,895
      Prepaid domain name registry and ancillary services fees   (606,215)   (341,273)     (2,421,898)   (1,382,987)
      Income taxes recoverable   (133,242)   (2,789)     (566,543)   106,364
      Accounts payable   (866,473)   1,797     803,942   607,721
      Accrued liabilities   253,027   1,025,886     (169,371)   501,684
      Customer deposits   16,054   273,851     (13,075)   (287,570)
      Deferred revenue   867,445   557,152     3,616,378   1,976,736
      Accreditation fees payable   (21,755)   (28,082)     28,332   15,917
   Net cash (used in) provided by operating activities   1,134,765   2,971,088     1,095,946   3,387,540
                   
Financing activities:                  
   Proceeds received on exercise of stock options   130,782   279,685     1,041,863   318,194
   Excess tax benefits on share-based compensation expense   -   -     1,013,800   -
   Repurchase of common stock   -   -     (82,286)   (6,537,616)
   Proceeds received on loan payable   -   -     -   5,200,000
   Repayment of loan payable   (325,000)   (600,000)     (941,667)   (1,400,000)
   Net cash provided by (used in) financing activities   (194,218)   (320,315)     1,031,710   (2,419,422)
                   
Investing activities:                  
   Additions to property and equipment   (313,281)   (471,966)     (382,026)   (918,671)
   Net cash used in investing activities   (313,281)   (471,966)     (382,026)   (918,671)
                   
Increase (decrease) in cash and cash equivalents   627,266   2,178,807     1,745,630   49,447
                   
Cash and cash equivalents, beginning of period   13,537,252   4,286,319     12,418,888   6,415,679
Cash and cash equivalents, end of period $ 14,164,518 $ 6,465,126   $ 14,164,518 $ 6,465,126
                   
Supplemental cash flow information:                  
   Interest paid $ 69,437  $ 97,369   $ 143,386  $ 196,873
   Income taxes paid, net $ 588,916  $ 198,462   $ 1,258,540  $ 187,313
                   
Supplementary disclosure of non-cash investing activity:                  
   Property and equipment acquired during the period not yet paid for $ 19,637 $ 4,864   $ 19,637 $ 4,864

 

SOURCE Tucows Inc.

For further information:

Lawrence Chamberlain
TMX Equicom
(416) 815-0700 ext. 257
lchamberlain@tmxequicom.com