Tucows reports financial results for the third quarter of fiscal 2007



    TORONTO, Nov. 6 /CNW/ - Tucows Inc. (AMEX:  TCX, TSX:TC), a leading
provider of Internet services to web hosting companies and ISPs worldwide,
today reported its financial results for the third quarter of fiscal 2007,
ended September 30, 2007. All figures are in U.S. dollars unless otherwise
stated.
    "Despite short-term challenges, we are optimistic about the significant
opportunities for long-term growth in our business," said Elliot Noss,
President and CEO, Tucows Inc. "We are confident that the price reduction on
wholesale domain names implemented in early August and affiliate channel
opportunities from the acquisition of IYD will re-energize our traditional
domain names business. Moreover, our emerging domain name revenue streams from
direct navigation, premium domain name sales from our own inventory, and
agency fees on sales of third-party premium domain name inventories provide
excellent future growth potential. In addition, our new hosted email service
will allow our customers to compete with the best of the free and hosted
services in the market. We have positioned Tucows to achieve sustainable
long-term growth.
    "Our financial results were affected by our decision to reduce the price
in our traditional domain names business and the declining yields from our
Google ads. In addition, we experienced unsatisfactory results from our
content libraries, which we are currently addressing. These factors combined
to have a muting effect on generation of cash flow from operations, which we
now expect to be in the range of $8.5 million to $9.0 million for fiscal
2007."

    
                          Summary Financial Results
         (Numbers in Thousands of US Dollars, Except Per Share Data)
    -------------------------------------------------------------------------
                      Three Months  Three Months   Nine Months   Nine Months
                             Ended         Ended         Ended         Ended
                         September     September     September     September
                         30, 2007       30, 2006      30, 2007      30, 2006
    -------------------------------------------------------------------------
    Net Revenue             17,812        16,864        56,398        47,830
    -------------------------------------------------------------------------
    EBITDA                   1,378         2,944         7,922         4,379
    -------------------------------------------------------------------------
    Adjusted Net Income      1,130         1,518         8,258         4,783
    -------------------------------------------------------------------------
    Net Income (loss)         (311)        1,935         3,610         2,004
    -------------------------------------------------------------------------
    Net Income/Share         $0.00         $0.03         $0.05         $0.03
    -------------------------------------------------------------------------
    Cash Flow from
     Operations              2,264          (133)        5,788         4,921
    -------------------------------------------------------------------------



                   Summary of Revenue and Cost of Revenue
                     (Numbers in Thousands of US Dollars)
    -------------------------------------------------------------------------
                                  Revenue               Cost of Revenue
    -------------------------------------------------------------------------
                      Three Months  Three Months  Three Months  Three Months
                             Ended         Ended         Ended         Ended
                         September     September     September     September
                          30, 2007      30, 2006      30, 2007      30, 2006
    -------------------------------------------------------------------------
    Domain Names,
     excluding Domain
     Direct                 12,301        11,272         9,158         8,069
    -------------------------------------------------------------------------
    Other Internet
     services, including
     Domain Direct           4,422         4,305         1,028         1,129
    -------------------------------------------------------------------------
    Sale of Domain Names        21             -             -             -
    -------------------------------------------------------------------------
    Advertising and
     other revenue           1,068         1,287           145             -
    -------------------------------------------------------------------------
    Total                   17,812        16,864        10,331         9,198
    -------------------------------------------------------------------------
    

    Third Quarter Fiscal 2007 Financial Summary

    Revenue - Net revenue for the third quarter of fiscal 2007 increased 6%
to $17.8 million from $16.9 million for the third quarter of fiscal 2006. The
increase was primarily the result of higher revenue from domain registrations,
which was partially offset by lower revenue from both email and advertising.

    Adjusted Net Income - Adjusted net income for the third quarter of fiscal
2007 was $1.1 million compared to $1.5 million for the corresponding quarter
of last year.

    Net Income/Loss - Net loss for the third quarter of fiscal 2007 was
$0.3 million, or $0.00 per share, compared to net income of $1.9 million, or
$0.03 per share, for the third quarter of fiscal 2006. Net income for the
third quarter of fiscal 2006 included other income of $1.9 million related to
contingent consideration associated with the sale in 2002 of patents acquired
through the reverse takeover of Infonautics in 2001. Included in net income
for the third quarter of fiscal 2007 is a dividend of $531,000 from
Afilias, Inc. a company in which Tucows has an investment. Tucows does not
expect to receive additional dividends from Afilias in 2007.

    Deferred Revenue - Deferred revenue at the end the third quarter of
fiscal 2007 was $49.8 million, an increase of 11% from $44.7 million at the
end of the third quarter of fiscal 2006 and an increase of 2% from
$49.0 million at the end of the second quarter of fiscal 2007.

    Cash - Cash, cash equivalents and restricted cash at the end of the third
quarter of fiscal 2007 was unchanged from the end of the second quarter of
fiscal 2007 at $6.2 million and up from $3.8 million at the end of the third
quarter of fiscal 2006. Compared to the end of the second quarter of fiscal
2007, cash, cash equivalents and restricted cash remained unchanged primarily
as a result of the generation of $2.3 million from cash flow from operations
during the third quarter being offset by our investing $1.1 million in cash in
partial payment of the acquisition of Innerwise Inc. (ItsYourDomain.com) at
closing and the transfer of an additional $1.1 million into an escrow account
to be held against certain performance contingencies being met by August 2008.

    EBITDA and Adjusted Net Income

    To assist financial statement users in their 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.

    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.

    Conference Call

    Tucows will host a conference call today, Tuesday, November 6, 2007, at
5:00 p.m. (ET) to discuss the Company's third quarter fiscal 2007 results. To
access the conference call via the Internet go to about.tucows.com, and click
on "Investors".

    For those unable to join 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 1-877-289-8525 or 416-640-1917 and
enter the pass code 21251093 followed by the pound key. The telephone replay
will be available until Tuesday, November 13, 2007, at midnight. To access the
archived conference call via the Internet, go to about.tucows.com and click on
"Investors."

    About Tucows

    Tucows is the largest Internet services provider for hosting companies
and ISPs. Through our network of over 9,000 service providers around the world
we provide billing solutions, millions of email boxes and manage over eight
million domains. Tucows is an accredited registrar with ICANN (the Internet
Corporation for Assigned Names and Numbers). Tucows remains one of the most
popular software download sites on the Internet. For more information please
visit: about.tucows.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)
                                 (unaudited)

                                                  September 30,  December 31,
                                                       2007          2006
                                                  ------------- -------------
    Assets

    Current assets:
      Cash and cash equivalents                   $  5,915,732  $  6,256,392
      Restricted cash                                  255,000     1,019,423
      Accounts receivable                            3,971,950     2,969,997
      Prepaid expenses and deposits                  3,474,477     2,394,627
      Prepaid domain name registry and other
       Internet services fees, current portion      24,669,326    22,168,558
      Cash held in escrow                            1,058,620             -
      Deferred tax asset, current portion            1,000,000     1,000,000
                                                  ------------- -------------
        Total current assets                        40,345,105    35,808,997

    Prepaid domain name registry and other
     Internet services fees, long-term portion      10,559,073     9,511,341
    Property and equipment                           5,680,675     5,647,532
    Deferred financing charges                         142,600             -
    Deferred tax asset, long-term portion            2,000,000     2,000,000
    Intangible assets                               22,363,906    18,554,436
    Goodwill                                        17,762,228    12,094,817
    Investment                                         353,737       353,737
    Cash held in escrow                                      -       694,579
                                                  ------------- -------------
        Total assets                              $ 99,207,324  $ 84,665,439
                                                  ------------- -------------
                                                  ------------- -------------


    Liabilities and Stockholders' Equity

    Current liabilities:
      Accounts payable                            $  1,870,124  $  2,867,814
      Accrued liabilities                            3,038,887     2,567,012
      Customer deposits                              2,978,559     3,144,119
      Promissory note payable, current portion       6,000,000             -
      Loan payable, current portion                  1,914,242             -
      Deferred revenue, current portion             34,853,150    31,658,081
      Accreditation fees payable, current portion      479,546       847,325
                                                  ------------- -------------
        Total current liabilities                   51,134,508    41,084,351

    Deferred revenue, long-term portion             14,994,772    13,478,525
    Accreditation fees payable, long-term portion      181,484       163,988
    Promissory note payable, long-term portion               -     6,000,000
    Loan payable, long-term portion                  7,337,927             -
    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; 73,772,502
       shares issued and outstanding at
       September 30, 2007 and 75,978,502 shares
       issued and outstanding at
       December 31, 2006                            15,250,235    15,395,381
      Additional paid-in capital                    48,514,852    50,359,906
      Deficit                                      (43,602,454)  (47,212,712)
                                                  ------------- -------------
        Total stockholders' equity                  20,162,633    18,542,575
                                                  ------------- -------------
    Total liabilities and stockholders' equity    $ 99,207,324  $ 84,665,439
                                                  ------------- -------------
                                                  ------------- -------------


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

                           Three months ended          Nine months ended
                              September 30,               September 30,
                           2007          2006          2007          2006
                      ------------- ------------- ------------- -------------

    Net revenues      $ 17,811,914  $ 16,864,320  $ 56,398,012  $ 47,830,296

    Cost of revenues:
      Cost of
       revenues (*)     12,271,047    10,464,829    35,702,644    30,458,945
      Depreciation of
       property and
       equipment           995,954       695,624     2,791,050     1,889,799
      Amortization of
       intangible
       assets               83,060        66,550       210,132       143,628
                      ------------- ------------- ------------- -------------
        Total cost of
         revenues       13,350,061    11,227,003    38,703,826    32,492,372
                      ------------- ------------- ------------- -------------

    Gross profit         4,461,853     5,637,317    17,694,186    15,337,924

    Expenses:
      Sales and
       marketing (*)     1,712,676     1,706,951     4,537,198     4,738,397
      Technical
       operations and
       development (*)   1,723,857     1,924,435     5,288,829     6,335,874
      General and ad-
       ministrative (*)  1,257,206     1,698,012     3,566,847     4,265,529
      Depreciation of
       property and
       equipment            68,316        43,025       198,107       125,116
      Amortization of
       intangible
       assets              322,781       230,291       778,823       436,175
                      ------------- ------------- ------------- -------------
        Total expenses   5,084,836     5,602,714    14,369,804    15,901,091
                      ------------- ------------- ------------- -------------

    Income (loss)
     from operations      (622,983)       34,603     3,324,382      (563,167)

    Other income
     (expenses):
      Interest income
       (expense), net     (203,376)      (70,297)     (294,322)      135,256
      Other income,
       net                 530,583     1,873,420       619,014     2,347,026
                      ------------- ------------- ------------- -------------
        Total other
         income
         (expense)         327,207     1,803,123       324,692     2,482,282
                      ------------- ------------- ------------- -------------

    Income before
     provision for
     income taxes         (295,776)    1,837,726     3,649,074     1,919,115

    Provision for
     income taxes           14,816       (96,895)       38,816       (84,895)
                      ------------- ------------- ------------- -------------
    Net income (loss)
     for the period   $   (310,592) $  1,934,621  $  3,610,258  $  2,004,010
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    Basic earnings
     per common share $      (0.00) $       0.03  $       0.05  $       0.03
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    Shares used in
     computing basic
     earnings per
     common share       74,100,911    75,706,078    74,548,903    73,418,358
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    Diluted earnings
     per common share $      (0.00) $       0.02  $       0.05  $       0.03
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    Shares used in
     computing diluted
     earnings per
     common share       77,525,973    78,214,560    77,413,998    75,852,576
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    (*) Stock-based
     compensation has
     been included in
     expenses as
     follows:
        Cost of
         revenues     $      4,100  $      2,200  $     11,000  $      7,700
        Sales and
         marketing    $     21,400  $     23,200  $     61,100  $     79,200
        Technical
         operations
         and
         development  $     18,900  $     14,800  $     62,300  $     50,800
        General and
         administ-
         rative       $     33,900  $     21,300  $    118,100  $     72,300



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

                           Three months ended          Nine months ended
                              September 30,               September 30,
                           2007          2006          2007          2006
                      ------------- ------------- ------------- -------------

    Net income (loss)
     for the period   $   (310,592) $  1,934,621  $  3,610,258  $  2,004,010
      Depreciation of
       property and
       equipment         1,064,270       738,649     2,989,157     2,014,915
      Amortization of
       intangible
       assets              405,841       296,841       988,955       579,803
      Interest income
       (expense), net      203,376        70,297       294,322      (135,256)
      Provision for
       income taxes         14,816       (96,895)       38,816       (84,895)
                      ------------- ------------- ------------- -------------
    EBITDA               1,377,711     2,943,513     7,921,508     4,378,577
                      ------------- ------------- ------------- -------------

    Adjustments to
     EBITDA (1)
      Change in
       prepaid domain
       name registry
       and other
       Internet
       services fees      (795,949)   (1,058,139)   (3,548,500)   (5,229,809)
      Change in
       deferred
       revenue             834,795     1,506,423     4,711,315     6,702,773
      Dividend income     (530,583)            -      (619,014)            -
      Transitional
       costs               244,336             -       244,336     1,278,842
      Other income               -    (1,873,420)            -    (2,347,026)
      Reversal of
       contingencies             -             -      (451,249)            -
                      ------------- ------------- ------------- -------------
    Subtotal
     Adjustments to
     EBITDA               (247,401)   (1,425,136)      336,888       404,780
                      ------------- ------------- ------------- -------------
    Adjusted Net
     Income           $  1,130,310  $  1,518,377  $  8,258,396  $  4,783,357
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    (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.

    The net amount of cash we collected for domain registrations and other
    Internet services paid for the full term at the time of activation and
    deferred amounted to $1,162,815 for the nine months ended September 30,
    2007 compared to $1,472,964 for the nine months ended September 30, 2006.

    For the three and nine months ended September 30, 2007, we incurred
    $244,336 of transitional costs in connection with our acquisition of
    Innersie Inc.

    For the nine months ended September 30, 2006, we incurred $1.3 million of
    transitional costs in connection with our acquisition of the Hosted
    Messaging assets of Critical Path. In addition, during the nine months
    ended September 30, 2006, we received $2.3 million in connection with
    settlements related to patents we acquired in the merger with Infonautics
    in 2001.



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

                           Three months ended          Nine months ended
                              September 30,               September 30,
                           2007          2006          2007          2006
                      ------------- ------------- ------------- -------------
    Cash provided
     by (used in):
      Operating
       activities:
        Net income
         (loss) for
         the period   $   (310,592) $  1,934,621  $  3,610,258  $  2,004,010
      Items not
       involving
       cash:
        Depreciation
         of property
         and equipment   1,064,270       738,649     2,989,157     2,014,915
        Amortization
         of intangible
         assets            405,841       296,841       988,955       579,803
        Unrealized
         change in the
         fair value of
         forward
         exchange
         contracts         (61,673)      145,177    (1,164,114)      (50,725)
        Stock-based
         compensation       78,300        61,500       252,500       210,000
      Change in
       non-cash
       operating
       working
       capital:
        Interest
         receivable              -         5,027             -        39,574
        Accounts
         receivable         87,922    (2,100,231)     (975,729)   (4,262,944)
        Prepaid
         expenses and
         deposits          875,841       388,487      (161,669)      367,608
        Prepaid fees
         for domain
         name registry
         and other
         Internet
         services fees    (795,949)   (1,058,139)   (3,548,500)   (5,229,809)
        Deferred
         financing
         charges          (142,600)            -      (142,600)            -
        Accounts
         payable          (161,037)   (2,213,494)     (906,624)      857,048
        Accrued
         liabilities       218,368       135,838       651,189     1,202,952
        Customer
         deposits          204,906         6,534      (165,560)      574,791
        Deferred
         revenue           834,795     1,506,423     4,711,315     6,702,773
        Accreditation
         fees payable      (34,255)       19,402      (350,283)      (89,434)
                      ------------- ------------- ------------- -------------
    Cash provided by
     (used in)
     operating
     activities          2,264,137      (133,365)    5,788,295     4,920,562
                      ------------- ------------- ------------- -------------

    Financing
     activities:
      Proceeds
       received on
       exercise of
       stock options        17,912        43,550       204,255        98,960
      Repurchase of
       shares                    -             -    (2,446,955)            -
      Repayment of
       promissory note
       payable                   -    (2,122,930)            -    (2,122,930)
      Proceeds
       received on
       loan payable,
       net of
       repayments        9,252,169             -     9,252,169             -
                      ------------- ------------- ------------- -------------
      Cash provided by
       (used in)
       financing
       activities        9,270,081    (2,079,380)    7,009,469    (2,023,970)
                      ------------- ------------- ------------- -------------

    Investing
     activities:
      Cost of domain
       names acquired            -             -       (18,425)            -
      Additions to
       property and
       equipment          (200,213)     (787,824)   (3,093,366)   (4,079,249)
      Decrease in
       investment in
       short-term
       investments               -             -             -     1,771,569
      Decrease
       (increase) in
       restricted
       cash - being
       margin security
       against forward
       exchange
       contracts           255,000       159,623       764,423      (202,835)
      Acquisition of
       Mailbank.com Inc.,
       net of cash
       acquired                  -      (655,830)            -    (6,486,732)
      Acquisition of
       Hosted Messaging
       Assets from
       Critical Path Inc.,
       net of cash
       acquired                  -    (1,037,303)      (90,050)   (7,456,788)
      Acquisition of
       Boardtown
       Corporation, net
       of cash acquired          -       (22,700)       (4,900)      (22,700)
      Acquisition of
       Innerwise Inc.,
       net of cash
       acquired        (10,332,065)            -   (10,332,065)            -
      Increase in cash
       held in escrow   (1,058,620)    1,563,999      (364,041)     (221,012)
                      ------------- ------------- ------------- -------------
      Cash used in
       investing
       activities      (11,335,898)     (780,035)  (13,138,424)  (16,697,747)
                      ------------- ------------- ------------- -------------

    Increase (decrease)
     in cash and cash
     equivalents           198,320    (2,992,780)     (340,660)  (13,801,155)
    Cash and cash
     equivalents,
     beginning of
     period              5,717,412     6,539,713     6,256,392    17,348,088
                      ------------- ------------- ------------- -------------
    Cash and cash
     equivalents, end
     of period        $  5,915,732  $  3,546,933  $  5,915,732  $  3,546,933
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    Supplemental cash
     flow information:
      Interest paid   $    274,368  $          -  $    484,368  $          -

    Supplementary
     disclosure of
     non-cash investing
     activity:
      Capital assets
       acquired during
       the period not
       yet paid for   $    293,205  $          -  $    293,205  $          -
      Common stock
       issued on the
       acquisition of
       Mailbank.com
       Inc.           $          -  $          -  $          -  $  2,877,070
      Promissory notes
       issued on the
       acquisition of
       Mailbank.com
       Inc.           $          -  $          -  $          -  $  8,122,930
      Loan taken on
       the
       acquisition of
       Innerwise Inc. $  9,571,209  $          -  $  9,571,209  $          -
    





For further information:

For further information: Leona Hobbs, Director, Communications, Tucows
Inc., (416) 538-5450, ir@tucows.com

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