Tucows Inc. reports financial results for second quarter 2010

TORONTO, Aug. 11 /CNW/ - Tucows Inc. (NYSE AMEX: 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, 2010. All figures are in U.S. dollars.

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

    -------------------------------------------------------------------------
                 3 Months Ended 3 Months Ended 6 Months Ended 6 Months Ended
                  June 30, 2010  June 30, 2009  June 30, 2010  June 30, 2009
                     (unaudited)    (unaudited)    (unaudited)    (unaudited)
    -------------------------------------------------------------------------
    Net revenue          20,847         20,022         41,292         40,114
    -------------------------------------------------------------------------
    Net (loss)
     income for
     the period            (772)         4,379           (203)         5,407
    -------------------------------------------------------------------------
    Net (loss)
     earnings per
     common share         (0.01)          0.06          (0.00)          0.08
    -------------------------------------------------------------------------
    Net cash
     provided by
     operating
     activities           1,173          2,591          2,552          3,504
    -------------------------------------------------------------------------


         Summary of Revenue and Cost of Revenue before Network Costs
                     (Numbers in Thousands of US Dollars)

    -------------------------------------------------------------------------
                               Revenue                  Cost of Revenue
    -------------------------------------------------------------------------
                 3 Months Ended 3 Months Ended 3 Months Ended 3 Months Ended
                  June 30, 2010  June 30, 2009  June 30, 2010  June 30, 2009
                     (unaudited)    (unaudited)    (unaudited)    (unaudited)
    -------------------------------------------------------------------------
    OpenSRS:
    -------------------------------------------------------------------------
    Domain
     Services            15,749         14,738         13,090         11,944
    -------------------------------------------------------------------------
    Email Services          581            874            117            153
    -------------------------------------------------------------------------
    Other Services        1,085          1,092            400            411
    -------------------------------------------------------------------------
    Total OpenSRS
     Services            17,415         16,704         13,607         12,508
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    YummyNames            1,632          1,455            254            251
    -------------------------------------------------------------------------
    Hover                 1,111          1,259            350            475
    -------------------------------------------------------------------------
    Butterscotch            689            604             25              1
    -------------------------------------------------------------------------
    Total                20,847         20,022         14,236         13,235
    -------------------------------------------------------------------------
    

"Our second quarter results continue to demonstrate the consistency of our business," said Elliot Noss, President and CEO of Tucows. "Revenue from our core revenue drivers, domain registrations through OpenSRS and domain sales through YummyNames, was up on a year-over-year basis. Meanwhile, two of our growth opportunities, Hover and Butterscotch, continued to trend favorably across key metrics. The reliable performance of our core offerings allowed us to invest in our emerging units, positioning us for solid performance in the future while supporting our goal of returning capital to shareholders."

Net revenue for the second quarter of 2010 increased 4.1% to $20.8 million from $20.0 million for the second quarter of 2009.

Net loss for the second quarter of 2010 was $0.8 million, or $0.01 per share, compared with net income of $4.4 million, or $0.06 per share, for the second quarter of 2009. Net loss and net loss from operations for the second quarter of 2010 were negatively impacted by a mark to market loss on foreign exchange of $1.9 million. Net income and net income from operations for the second quarter of 2009 were positively impacted by a mark to market gain on foreign exchange of $1.9 million. Additionally, net income for the second quarter of 2009 included other income of $2.0 million related to the sale of the Company's equity stake in Afilias and $0.6 million related to patents that the Company assigned to a third party.

Deferred revenue at the end of the second quarter of fiscal 2010 was $60.0 million, an increase of 5.5% from $56.9 million at the end of the second quarter of fiscal 2009 and 0.9% from $59.5 million in the first quarter of 2010.

Cash and cash equivalents at the end of the second quarter of 2010 were $4.1 million compared with $7.4 million at the end of the second quarter of 2009 and $5.2 million at the end of first quarter of 2010. The decrease in cash compared with the first quarter of 2010 is primarily the result of the use of $1.7 million for the repurchase of common stock under the Company's current open market share repurchase program that was initiated in February 2010, as well as the repayment of $0.5 million of the Company's bank loan. This use of funds was partially offset by cash flow from operating activities for the second quarter of 2010 of $1.2 million. Cash flow from operating activities, before changes in non-cash operating working capital, for the second quarter of 2010 was $2.0 million, which was partially offset by the use of $0.8 million for changes in non-cash operating working capital.

During the second quarter of 2010, the Company repurchased an additional 2,453,300 common shares under its open market stock repurchase plan, which commenced in February 2010. During the first half of 2010, the Company repurchased an aggregate of 9,750,770 common shares (including shares purchased in its modified Dutch auction tender offer earlier this year), representing 14.5% of the Company's outstanding common shares at the end of 2009. Since January 2009, the Company has repurchased a total of 15,825,006 shares representing 21.7% of the Company's total shares outstanding at the end of 2008.

Conference Call

Tucows management will host a conference call today, Wednesday, August 11, 2010, at 5:00 p.m. (ET) to discuss the second quarter fiscal 2010 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 1-800-642-1687 and enter the pass code 90444604 followed by the pound key. The telephone replay will be available until Wednesday, August 18, 2010 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 ten million domain names and millions of email boxes through a reseller network of over 10,000 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.com. More information can be found at http://tucowsinc.com.

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,
                                                       2010          2009
                                                  ------------- -------------
                                                   (unaudited)   (unaudited)

    Assets

    Current assets:
      Cash and cash equivalents                   $  4,067,668  $  9,632,394
      Accounts receivable                            3,385,650     2,822,045
      Prepaid expenses and deposits                  2,927,409     2,498,922
      Derivative instrument asset,
       current portion                                 664,765     2,107,825
      Prepaid domain name registry and
       ancillary services fees, current portion     34,476,972    31,596,236
      Income taxes recoverable                         382,000       674,000
                                                  ------------- -------------
        Total current assets                        45,904,464    49,331,422

    Derivative instrument asset, long-term
     portion                                                 -       112,553
    Prepaid domain name registry and ancillary
     services fees, long-term portion               12,676,451    12,126,515
    Property and equipment                           1,509,105     1,986,768
    Deferred financing charges                          26,900        41,000
    Deferred tax asset, long-term portion            3,664,728     3,907,476
    Intangible assets                               17,773,663    18,656,353
    Goodwill                                        17,990,807    17,990,807
                                                  ------------- -------------
        Total assets                              $ 99,546,118  $104,152,894
                                                  ------------- -------------
                                                  ------------- -------------

    Liabilities and Stockholders' Equity

    Current liabilities:
      Accounts payable                            $  1,261,526  $  1,547,863
      Accrued liabilities                            1,857,296     1,889,980
      Customer deposits                              3,461,557     3,624,317
      Derivative instrument liability,
       current portion                                 111,875             -
      Loan payable, current portion                  2,263,004     3,220,125
      Deferred revenue, current portion             43,330,579    40,211,766
      Accreditation fees payable, current
       portion                                         560,369       530,656
      Deferred tax liability, current portion          664,728       907,476
                                                  ------------- -------------
        Total current liabilities                   53,510,934    51,932,183

    Derivative instrument liability,
     long-term portion                                 159,232        15,708
    Deferred revenue, long-term portion             16,716,150    16,098,812
    Accreditation fees payable, long-term portion      168,224       169,620
    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; 57,362,611 shares
       issued and outstanding as of June 30,
       2010 and 67,080,353 shares issued and
       outstanding as of December 31, 2009          12,107,580    14,030,384
      Additional paid-in capital                    42,468,074    47,287,351
      Deficit                                      (30,424,076)  (30,221,164)
                                                  ------------- -------------
        Total stockholders' equity                  24,151,578    31,096,571
                                                  ------------- -------------
    Total liabilities and stockholders' equity    $ 99,546,118  $104,152,894
                                                  ------------- -------------
                                                  ------------- -------------



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

                      Three months ended June 30,   Six months ended June 30,
                           2010          2009          2010         2009
                      ------------- ------------- ------------- -------------
                              (unaudited)                  (unaudited)

    Net revenues      $ 20,846,598  $ 20,022,119  $ 41,291,751  $ 40,113,543
                      ------------- ------------- ------------- -------------
    Cost of revenues:
      Cost of
       revenues(*)    15,455,986    14,386,048    30,380,860    28,171,446
      Depreciation of
       property and
       equipment           253,057       576,419       563,115       969,367
      Amortization of
       intangible
       assets               74,802        29,199       149,604        58,398
                      ------------- ------------- ------------- -------------
        Total cost
         of revenues    15,783,845    14,991,666    31,093,579    29,199,211
                      ------------- ------------- ------------- -------------

    Gross profit         5,062,753     5,030,453    10,198,172    10,914,332

    Expenses:
      Sales and
       marketing(*)    1,786,893     1,339,167     3,649,229     2,692,343
      Technical
       operations and
       development(*)  1,189,937     1,175,355     2,432,950     2,279,494
      General and
       administra-
       tive(*)           600,776     1,592,325     1,416,356     3,462,221
      Depreciation of
       property and
       equipment            43,431        92,363        87,320       174,816
      Amortization
       of intangible
       assets              360,540       360,540       721,080       721,080
      Loss (gain) on
       change in fair
       value of forward
       exchange
       contracts         1,924,985    (1,938,821)    1,811,012    (2,024,164)
                      ------------- ------------- ------------- -------------
    Total expenses       5,906,562     2,620,929    10,117,947     7,305,790
                      ------------- ------------- ------------- -------------

    (Loss) income
      from operations     (843,809)    2,409,524        80,225     3,608,542

    Other (expenses)
     income:
      Interest (expense)
       income, net         (33,727)    2,550,870       (72,895)    2,487,408
                      ------------- ------------- ------------- -------------
        Total other
         (expenses)
         income            (33,727)    2,550,870       (72,895)    2,487,408
                      ------------- ------------- ------------- -------------

    (Loss) income
     before provision
     for income taxes     (877,536)    4,960,394         7,330     6,095,950

    (Recovery of)
     provision for
     income taxes         (105,758)      581,651       210,242       689,076
                      ------------- ------------- ------------- -------------
    Net (loss) income
     for the period   $   (771,778) $  4,378,743  $   (202,912) $  5,406,874
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    Basic (loss)
     earnings per
     common share     $      (0.01) $       0.06  $      (0.00) $       0.08
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    Shares used in
     computing basic
     (loss) earnings
     per common share   59,193,180    68,923,313    60,223,815    70,778,950
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    Diluted (loss)
     earnings per
     common share     $      (0.01) $       0.06  $      (0.00) $       0.08
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    Shares used in
     computing diluted
     (loss) earnings
     per common share   59,193,180    69,092,946    60,223,815    70,785,712
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    (*)Stock-based
     compensation has
     been included in
     expenses as
     follows:
      Cost of revenues $     5,574  $      3,367  $      9,202  $      8,367
      Sales and
       marketing       $    25,545  $     15,057  $     41,231  $     29,957
      Technical
       operations and
       development     $    18,264  $     11,121  $     32,845  $     21,721
      General and
       administrative  $    51,890  $     53,193  $     74,624  $     71,893



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

                      Three months ended June 30,   Six months ended June 30,
                           2010          2009          2010         2009
                      ------------- ------------- ------------- -------------
                              (unaudited)                  (unaudited)
    Cash provided by
     (used in):
    Operating
     activities:

      Net (loss)
       income for
       the period     $   (771,778) $  4,378,743  $   (202,912) $  5,406,874
      Items not
       involving cash:
        Depreciation
         of property
         and equipment     296,488       668,782       650,435     1,144,183
        Amortization
         of deferred
         financing
         charges             6,700         9,700        14,100        20,100
        Amortization
         of intangible
         assets            435,342       389,739       870,684       779,478
        Gain on
         disposal of
         investment
         in Afilias              -    (2,010,395)            -    (2,010,395)
        Disposal of
         domain names        4,434           974        12,006         1,947
        Unrealized
         loss (gain)
         in the fair
         value of
         forward
         contracts       1,924,985    (1,938,821)    1,811,012    (2,024,164)
        Stock-based
         compensation      101,273        82,738       157,902       131,938
      Changes in
       non-cash
       operating
       working capital:
        Accounts
         receivable        311,895       252,927      (563,605)     (264,066)
        Prepaid
         expenses and
         deposits          (66,785)     (310,655)     (428,487)     (889,223)
        Prepaid fees
         for domain
         name registry
         and ancillary
         services fees    (815,103)     (496,502)   (3,430,672)   (2,621,901)
        Income taxes
         recoverable/
         payable           (24,000)      750,216       292,000       835,398
        Accounts payable  (385,999)      561,228      (199,430)      380,407
        Accrued
         liabilities        94,120      (125,130)      (32,684)        3,643
        Customer
         deposits         (433,559)      161,969      (162,760)     (147,533)
        Deferred
         revenue           531,558       249,615     3,736,151     2,712,991
        Accreditation
         fees payable      (36,080)      (34,302)       28,317        44,305
                      ------------- ------------- ------------- -------------
      Net cash provided
       by operating
       activities        1,173,491     2,590,826     2,552,057     3,503,982
                      ------------- ------------- ------------- -------------

    Financing
     activities:
      Proceeds
       received on
       exercise of
       stock options        10,308        25,422        14,809        25,422
      Repurchase of
       common stock     (1,702,520)            -    (6,914,792)   (1,811,179)
      Repayment of
       loan payable       (478,560)   (1,203,560)     (957,121)   (1,682,121)
                      ------------- ------------- ------------- -------------
      Net cash used
       in financing
       activities       (2,170,772)   (1,178,138)   (7,857,104)   (3,467,878)
                      ------------- ------------- ------------- -------------

    Investing
     activities:
      Cost of domain
       names acquired            -             -             -        (5,900)
      Additions to
       property and
       equipment          (116,947)     (102,770)     (259,679)     (145,010)
      Proceeds on
       disposal of
       investment
       in Afilias                -     2,110,395             -     2,110,395
                      ------------- ------------- ------------- -------------
      Net cash (used
       in) provided
       by investing
       activities         (116,947)    2,007,625      (259,679)    1,959,485
                      ------------- ------------- ------------- -------------

    (Decrease)
     increase in
     cash and cash
     equivalents        (1,114,228)    3,420,313    (5,564,726)    1,995,589

    Cash and cash
     equivalents,
     beginning of
     period              5,181,896     4,002,743     9,632,394     5,427,467
                      ------------- ------------- ------------- -------------
    Cash and cash
     equivalents,
     end of period    $  4,067,668  $  7,423,056  $  4,067,668  $  7,423,056
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    Supplemental
     cash flow
     information:
      Interest paid   $     33,521  $     62,508  $     72,797  $    128,029

    Supplementary
     disclosure of
     non-cash
     investing
     activity:
      Property and
       equipment
       acquired
       during the
       period not
       yet paid for   $      6,687  $    250,734  $      6,687  $    250,734
    

SOURCE Tucows Inc.

For further information: For further information: Lawrence Chamberlain, The Equicom Group for Tucows Inc., (416) 815-0700 ext. 257, lchamberlain@equicomgroup.com

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