Tucows Inc. Reports Financial Results for Third Quarter of 2011

TORONTO, Nov. 9, 2011 /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 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

 

 

 

SOURCE Tucows Inc.

For further information:

Lawrence Chamberlain
TMX Equicom for Tucows Inc.
(416) 815-0700 ext. 257
lchamberlain@equicomgroup.com

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