Tucows Inc. reports financial results for the second quarter of 2008



    TORONTO, Aug. 12 /CNW/ - Tucows Inc., (AMEX:  TCX, TSX:TC) a leading
provider of Internet services to web hosting companies, ISPs and consumers
worldwide, today reported its financial results for its second quarter ended
June 30, 2008. All figures are in U.S. dollars.
    "A number of positive trends this quarter keep us on track to grow
revenue, profitability and cash flow in 2008," said Elliot Noss, President and
CEO of Tucows. "We experienced increased domain name transaction volumes and
we finalized our email platform migration, which will result in significantly
decreased operating costs starting next quarter. In addition, our portfolio of
high value domain names continued to make an impressive contribution. We note
that the second quarter of 2007 included a large $3 million bulk sale of
domain names."
    Noss continued, "We continued to generate strong cash flow from
operations during the quarter, assisting us to comfortably pay down debt by
$7 million. We are confident that our continued ability to deliver strong cash
flow from operations, as well as opportunities to divest non-core assets, will
enable us to create additional value for shareholders and execute on our
previously announced stock buyback program."
    "We see growth opportunities in our wholesale channel with new services
such as personal domain names and our upgraded email offering. We also plan to
more aggressively target customers directly through our retail offering, which
we will soon re-launch as Hover.com," concluded Noss.

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

    -------------------------------------------------------------------------
                                3 Months    3 Months    6 Months    6 Months
                                   Ended       Ended       Ended       Ended
                                 June 30,    June 30,    June 30,    June 30,
                                    2008        2007        2008        2007
    -------------------------------------------------------------------------
    Net Revenue                  $20,450     $20,815     $39,162     $38,586
    -------------------------------------------------------------------------
    EBITDA                         3,689       4,572       4,194       6,544
    -------------------------------------------------------------------------
    Adjusted Net Income            1,779       4,686       2,732       7,128
    -------------------------------------------------------------------------
    Net (Loss)/Income              2,209       3,171       1,127       3,921
    -------------------------------------------------------------------------
    Net (Loss) Income/Share         0.03        0.04        0.02        0.05
    -------------------------------------------------------------------------
    Cash Flow from Operations      2,580       2,359       2,697       3,524
    -------------------------------------------------------------------------



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

    -------------------------------------------------------------------------
                                      Revenue            Cost of Revenue
    -------------------------------------------------------------------------
                                   Three       Three       Three       Three
                                  Months      Months      Months      Months
                                   Ended       Ended       Ended       Ended
                                 June 30,    June 30,    June 30,    June 30,
                                    2008        2007        2008        2007
    -------------------------------------------------------------------------
    Traditional Domain
     Registration Services       $13,269     $12,274     $10,505      $9,110
    -------------------------------------------------------------------------
    Domain Portfolio               1,873       3,606         181         158
    -------------------------------------------------------------------------
    Email Services                 1,552       1,881         (24)        209
    -------------------------------------------------------------------------
    Retail Services                2,046       1,208         577         417
    -------------------------------------------------------------------------
    Other Services                 1,711       1,845         421         413
    -------------------------------------------------------------------------
    Total                        $20,450     $20,815     $11,660     $10,307
    -------------------------------------------------------------------------
    


    Net revenue for the second quarter of fiscal 2008 was $20.5 million
compared with $20.8 million for the second quarter of fiscal 2007. Revenue for
the second quarter of fiscal 2007 included the atypically large sale of a
block of domain names from the Company's portfolio of high value domain names
in the amount of $3.0 million.
    Adjusted net income for the second quarter of 2008 was $1.8 million,
compared with $4.7 million for the corresponding quarter of last year. Net
income was $2.2 million, or $0.03 per share, compared with $3.2 million, or
$0.04 per share, for the second quarter of fiscal 2007.
    Deferred revenue at the end of the second quarter of fiscal 2008 was
$54.4 million, an increase of 11% from $49.0 million at the end of the second
quarter of 2007 and an increase of 2% from $53.6 million at the end of the
first quarter of fiscal 2008.
    Cash and restricted cash at the end of the second quarter of fiscal 2008
was $2.9 million compared with $6.2 million at the end of the second quarter
of fiscal 2007 and $7.5 million at the end of the first quarter of fiscal
2008. This decrease compared to the first quarter of this year is primarily
the result of the repayment of the $6 million promissory note payable to the
former shareholders of mailbank.com Inc., as well as payment of $1.4 million
on the Company's bank loan. These uses of funds were partially offset by the
$2.6 million of cash flow generated from operations, as well as $1.4 million
generated through the sale of 14,000 hosting accounts to Hostopia.

    EBITDA and Adjusted Net Income

    To assist financial statement users in an assessment of the Company's
historical performance and to project its future earnings and cash flows, the
Company has included earnings before interest, taxes, depreciation and
amortization (EBITDA). EBITDA is presented because it is an important
supplemental measure of performance frequently used by securities analysts,
investors and other interested parties in the evaluation of companies. Other
companies may calculate EBITDA differently. EBITDA is not a measurement of
financial performance under generally accepted accounting principles (GAAP)
and should not be considered as an alternative to cash flow from operating
activities or as a measure of liquidity or an alternative to Net Income as
indicators of operating performance or any other measures of performance
derived in accordance with (GAAP). Because EBITDA is calculated before
recurring cash charges, including interest expense and taxes, and is not
adjusted for capital expenditures or other recurring cash requirements of the
business, it should not be considered as a measure of discretionary cash
available to invest in the growth of the business. See the Consolidated
Statements of Cash Flows included in the attached financial statements. As a
non-GAAP performance measure, EBITDA, has certain material limitations as
follows:

    
    -   It does not include interest expense. Because the Company has
        borrowed money to finance some of its operations, interest is a
        necessary part of the Company's costs and ability to generate
        revenue. Therefore, any measure that excludes interest has material
        limitations;
    -   It does not include depreciation and amortization expense. Because
        the Company must utilize capital assets in order to generate
        revenues, depreciation and amortization expense is a necessary and
        ongoing part of the Company's costs. Therefore, any measure that
        excludes depreciation and amortization expense has material
        limitations; and,
    -   It does not include taxes. Because the payment of taxes is a
        necessary and ongoing part of the Company's operations, any measure
        that excludes taxes has material limitations.
    

    Management compensates for these limitations by considering the economic
effect of the excluded expense items independently as well as in connection
with its analysis of net earnings.
    Adjusted Net Income represents EBITDA plus the additional adjustments
described in the table below. The adjustments reflect the material amount of
cash collected by the Company for domain registrations and other Internet
services paid for the full term at the time of activation, with the revenue
deferred, net of prepaid fees. In addition, adjusted Net Income reflects
earnings and expenses considered as non-representative of ongoing business for
the reasons specified below. Each of the items being adjusted for may create
certain material limitations in the use of Adjusted Net Income as a non-GAAP
financial measure. Adjusted Net Income is one of the primary measures the
Company uses for planning and budgeting purposes, incentive compensation and
to monitor and evaluate Tucows' financial and operating results. Adjusted Net
Income is not a measurement of financial performance under GAAP and should not
be considered as an alternative to cash flow from operating activities or as a
measure of liquidity or an alternative to net income as indicators of
operating performance or any other measures of performance derived in
accordance with generally accepted accounting principles. See the Consolidated
Statements of Cash Flows included in the attached financial statements.

    Conference Call

    Tucows will host a conference call today, Tuesday, August 12, at
5:00 p.m. ET to discuss the Company's second quarter results. To access the
conference call via the Internet go to http://tucowsinc.com/investors and
click on "Financials."
    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 416-640-1917 or 1-877-289-8525
and enter the pass code 21278773 followed by the pound key. The telephone
replay will be available until Tuesday, August 19, 2008 at midnight. To access
the archived conference call as an MP3 via the Internet, go to
http://tucowsinc.com/investors.

    About Tucows

    Tucows provides Internet services for web hosting companies and ISPs.
Through our global network of over 9,000 service providers our OpenSRS group
provides millions of email boxes and manages over eight million domains.
Tucows is an accredited registrar with ICANN (the Internet Corporation for
Assigned Names and Numbers). We hold a domain name portfolio of approximately
150,000 domain names that are available for sale, monetized through
advertising and support our wholesale Personal Names Service. Our Retail
division sells Tucows services to consumers and small business owners through
Domain Direct, IYD (It's Your Domain) and NetIdentity. Tucows.com remains one
of the most popular software download sites on the Internet. For more
information please visit: http://tucowsinc.com.

    This release may contain forward-looking statements, relating to the
Company's operations or to the environment in which it operates, which are
based on Tucows Inc.'s operations, estimates, forecasts and projections. These
statements are not guarantees of future performance and are subject to
important risks, uncertainties and assumptions concerning future conditions
that may ultimately prove to be inaccurate or differ materially from actual
future events or results. A number of important factors could cause actual
outcomes and results to differ materially from those expressed in these
forward-looking statements. Consequently, investors should not place undue
reliance on these forward-looking statements, which are based on Tucows Inc.'s
current expectations, estimates, projections, beliefs and assumptions. These
forward-looking statements speak only as of the date of this presentation and
are based upon the information available to Tucows Inc. at this time. Tucows
Inc. disclaims any intention or obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.


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

                                                     June 30     December 31,
                                                       2008          2007
                                                  ------------- -------------
    Assets

    Current assets:
      Cash and cash equivalents                   $  2,947,069  $  8,093,476
      Accounts receivable                            3,138,257     3,422,180
      Prepaid expenses and deposits                  3,237,366     3,132,129
      Prepaid domain name registry and other
       Internet services fees, current portion      28,479,571    25,473,465
      Cash held in escrow                            1,083,397     1,070,632
      Deferred tax asset, current portion              500,000       500,000
                                                  ------------- -------------
        Total current assets                        39,385,660    41,691,882

    Prepaid domain name registry and other
     Internet services fees, long-term portion      11,466,553    10,765,862
    Property and equipment                           4,887,720     4,963,311
    Deferred financing charges                         102,000       128,200
    Deferred tax asset, long-term portion            2,500,000     2,500,000
    Intangible assets                               20,991,504    22,150,738
    Goodwill                                        17,490,807    17,490,807
    Investment                                         353,737       353,737
                                                  ------------- -------------
      Total assets                                $ 97,177,981  $100,044,537
                                                  ------------- -------------
                                                  ------------- -------------

    Liabilities and Stockholders' Equity

    Current liabilities:
      Accounts payable                            $  3,329,112  $  2,689,346
      Accrued liabilities                            2,627,816     3,289,087
      Customer deposits                              3,286,783     3,267,784
      Promissory note payable                                -     6,000,000
      Loan payable, current portion                  1,914,242     1,914,242
      Deferred revenue, current portion             38,354,640    35,465,584
      Accreditation fees payable, current portion      510,900       483,090
                                                  ------------- -------------
        Total current liabilities                   50,023,493    53,109,133

    Deferred revenue, long-term portion             16,036,242    15,147,644
    Accreditation fees payable, long-term portion      187,655       181,345
    Loan payable, long-term portion                  4,902,246     6,859,366
    Deferred tax liability                           5,396,000     5,396,000

    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; 73,923,542 shares issued
       and outstanding at June 30, 2008 and
       73,888,542 shares issued and outstanding at
       December 31, 2007                            15,368,310    15,350,915
      Additional paid-in capital                    48,674,568    48,537,313
      Deficit                                      (43,410,533)  (44,537,179)
                                                  ------------- -------------
        Total stockholders' equity                  20,632,345    19,351,049
                                                  ------------- -------------
    Total liabilities and stockholders' equity    $ 97,177,981  $100,044,537
                                                  ------------- -------------
                                                  ------------- -------------



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

                      Three months ended June 30,  Six months ended June 30,
                          2008           2007           2008         2007
                      ------------- ------------- ------------- -------------

    Net revenues      $ 20,450,329  $ 20,814,881  $ 39,161,536  $ 38,586,098

    Cost of revenues:
      Cost of
       revenues(*)      13,663,097    12,198,808    26,813,029    23,431,597
      Depreciation of
       property and
       equipment           816,260       985,430     1,642,097     1,795,096
      Amortization of
       intangible assets    31,941        63,540       105,398       127,072
                      ------------- ------------- ------------- -------------
        Total cost of
         revenues       14,511,298    13,247,778    28,560,524    25,353,765
                      ------------- ------------- ------------- -------------

    Gross profit         5,939,031     7,567,103    10,601,012    13,232,333

    Expenses:
      Sales and
       marketing(*)      1,730,736     1,480,078     3,426,868     2,824,522
      Technical
       operations and
       development(*)    1,573,741     1,752,693     3,139,595     3,564,972
      General and
       administrative(*) 1,326,218       810,872     3,121,083     2,309,641
      Depreciation of
       property and
       equipment            58,861        68,267       119,931       129,791
      Amortization of
       intangible assets   376,954       222,741       762,115       456,042
                      ------------- ------------- ------------- -------------
        Total expenses   5,066,510     4,334,651    10,569,592     9,284,968
                      ------------- ------------- ------------- -------------

    Income (loss) from
     operations            872,521     3,232,452        31,420     3,947,365

    Other income
     (expenses):
      Interest income
       (expense), net     (166,421)      (49,297)     (376,405)      (90,946)
      Other income, net  1,532,765             -     1,532,765        88,431
                      ------------- ------------- ------------- -------------
        Total other
         income
         (expense)       1,366,344       (49,297)    1,156,360        (2,515)
                      ------------- ------------- ------------- -------------

    Income before
     provision for
     income taxes        2,238,865     3,183,155     1,187,780     3,944,850

    Provision for
     income taxes           30,000        12,000        61,134        24,000
                      ------------- ------------- ------------- -------------
    Net income for
     the period       $  2,208,865  $  3,171,155  $  1,126,646  $  3,920,850
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------


    Basic earnings per
     common share     $       0.03  $       0.04  $       0.02  $       0.05
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    Shares used in
     computing basic
     earnings per
     common share       73,899,695    74,447,018    73,894,119    74,950,621
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    Diluted earnings
     per common share $       0.03  $       0.04  $       0.01  $       0.05
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    Shares used in
     computing diluted
     earnings per
     common share       75,348,108    77,375,096    75,439,926    77,633,136
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    (*) Stock-based
        compensation
        has been
        included in
        expenses as
        follows:
          Cost of
           revenues   $      4,800  $      4,400  $      9,100  $      6,900
          Sales and
           marketing  $     13,000  $     25,500  $     31,300  $     39,700
          Technical
           operations
           and
           develop-
           ment       $      8,000  $     23,300  $     28,700  $     43,400
          General and
           adminis-
           trative    $     47,200  $     58,300  $     76,100  $     84,200



                                 Tucows Inc.
              Reconciliation of EBITDA and Adjusted Net Income
                      (Dollar amounts in U.S. dollars)
                                 (unaudited)

                      Three months ended June 30,  Six months ended June 30,
                          2008           2007           2008         2007
                      ------------- ------------- ------------- -------------

    Net income for
     the period       $  2,208,865  $  3,171,155  $  1,126,646  $  3,920,850
      Depreciation of
       property and
       equipment           875,121     1,053,697     1,762,028     1,924,887
      Amortization of
       intangible
       assets              408,895       286,281       867,513       583,114
      Interest income
       (expense), net      166,421        49,297       376,405        90,946
      Provision for
       income taxes         30,000        12,000        61,134        24,000
                      ------------- ------------- ------------- -------------
    EBITDA               3,689,302     4,572,430     4,193,726     6,543,797
                      ------------- ------------- ------------- -------------
    Adjustments to
     EBITDA(1)
      Change in
       prepaid domain
       name registry
       and other
       Internet
       services fees    (1,176,196)     (771,898)   (3,706,797)   (2,752,551)
      Change in deferred
       revenue             798,720       979,595     3,777,654     3,876,520
      Dividend income     (176,861)            -      (176,861)      (88,431)
      Reversal of
       contingencies             -       (93,749)            -      (451,249)
      Sale of customer
       relationships    (1,121,065)            -    (1,121,065)            -
      Other Income        (234,839)            -      (234,839)            -
                      ------------- ------------- ------------- -------------
    Subtotal Adjustments
     to EBITDA          (1,910,241)      113,948    (1,461,908)      584,289
                      ------------- ------------- ------------- -------------

    Adjusted Net
     Income           $  1,779,061  $  4,686,378  $  2,731,818  $  7,128,086
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    (1) Adjustments to EBITDA

        We define Adjusted EBITDA as net income adjusted for depreciation,
amortization, interest, taxes and further adjusted for certain cash and non-
cash charges.


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

                      Three months ended June 30,  Six months ended June 30,
                          2008           2007           2008         2007
                      ------------- ------------- ------------- -------------

    Cash provided by
     (used in):
    Operating
     activities:
      Net income or
       the period     $  2,208,865  $  3,171,155  $  1,126,646  $  3,920,850
      Items not
       involving
       cash:
        Depreciation of
         property and
         equipment         875,121     1,053,697     1,762,028     1,924,887
        Amortization of
         deferred
         financing
         charges            12,700             -        26,200             -
        Amortization of
         intangible
         assets            408,895       286,281       867,513       583,114
        Gain on sale of
         customer
         relationships  (1,121,065)            -    (1,121,065)            -
        Unrealized
         change in the
         fair value of
         forward exchange
         contracts        (225,640)     (885,652)       29,793    (1,102,441)
        Stock-based
         compensation       73,000       111,500       145,200       174,200
      Change in non-cash
       operating working
       capital:
        Accounts
         receivable        350,043      (211,028)      283,923    (1,063,651)
        Prepaid expenses
         and deposits     (244,926)     (310,274)     (105,237)   (1,037,510)
        Prepaid fees for
         domain name
         registry and
         other Internet
         services fees  (1,176,196)     (771,898)   (3,706,797)   (2,752,551)
        Accounts payable   682,896      (337,450)      249,069      (745,587)
        Accrued
         liabilities      (159,226)     (216,318)     (691,064)      432,821
        Customer deposits  119,589      (195,342)       18,999      (370,466)
        Deferred revenue   798,720       979,595     3,777,654     3,876,520
        Accreditation
         fees payable      (22,696)     (315,320)       34,120      (316,028)
                      ------------- ------------- ------------- -------------
      Net cash provided
       by operating
       activities        2,580,080     2,358,946     2,696,982     3,524,158
                      ------------- ------------- ------------- -------------

    Financing activities:
      Proceeds received
       on exercise of
       stock options         9,450        85,272         9,450       186,343
      Repurchase of
       shares                    -    (1,119,455)            -    (2,446,955)
      Repayment of
       promissory note
       and loan
       payable          (7,478,560)            -    (7,957,120)            -
                      ------------- ------------- ------------- -------------
      Net cash used in
       financing
       activities       (7,469,110)   (1,034,183)   (7,947,670)   (2,260,612)
                      ------------- ------------- ------------- -------------

    Investing activities:
      Cost of domain
       names acquired       (2,524)       10,303        (8,944)      (18,425)
      Additions to
       property and
       equipment        (1,084,209)   (1,690,523)   (1,295,740)   (2,893,153)
      Decrease in
       restricted cash
       - being margin
       security against
       forward exchange
       contracts                 -       257,785             -       509,423
      Acquisition of
       Hosted Messaging
       Assets from
       Critical Path
       Inc., net of cash
       acquired                  -             -             -       (90,050)
      Acquisition of
       Boardtown
       Corporation, net
       of cash acquired          -        (4,900)            -        (4,900)
      Sale of customer
       relationships     1,421,730             -     1,421,730             -
      (Decrease) increase
       in cash held in
       escrow               (5,366)            -       (12,765)      694,579
                      ------------- ------------- ------------- -------------
      Net cash provided
       by (used in)
       investing
       activities          329,631    (1,427,335)      104,281    (1,802,526)
                      ------------- ------------- ------------- -------------

    Decrease in cash
     and cash
     equivalents        (4,559,399)     (102,572)   (5,146,407)     (538,980)
    Cash and cash
     equivalents,
     beginning of
     period              7,506,468     5,819,984     8,093,476     6,256,392
                      ------------- ------------- ------------- -------------
    Cash and cash
     equivalents, end
     of period        $  2,947,069  $  5,717,412  $  2,947,069  $  5,717,412
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    Supplemental cash
     flow information:
      Interest paid   $    192,900  $    105,000  $    452,237  $    210,000

    Supplementary
     disclosure of
     non-cash investing
     activity:
      Capital assets
       acquired during
       the period not
       yet paid for   $    663,767  $    163,169  $    663,767  $    163,169
    





For further information:

For further information: Company Contact: Leona Hobbs, Director,
Communications, Tucows Inc., (416) 538-5450, ir@tucows.com; Investor Contact:
Todd Kehrli or Mary Magnani, MKR Group, (323) 468-2300, tcx@mkr-group.com

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