Tucows Reports Continued Strong Results for the Second Quarter of Fiscal 2007



    - Quarter Highlighted by Record Revenue, Record Adjusted Net Income and
    Continued Strong Cash Flow Generation -

    TORONTO, Aug. 7 /CNW/ - Tucows Inc. (AMEX:  TCX, TSX:TC), a leading
provider of Internet services to web hosting companies, ISPs and other service
providers worldwide, today reported its financial results for the second
quarter of fiscal 2007, ended June 30, 2007. All figures are in U.S. dollars
unless otherwise stated.
    "We delivered solid financial performance in the second quarter, which
benefited from the sale of a block of 2,500 domain names from our portfolio,"
said Elliot Noss, President and CEO of Tucows. "Consolidation in the domain
name industry, the ramp-up in the sales cycle for our new email service and
disappointing Google ad revenues resulted in weaker year-over-year revenue
growth than we would have liked. Our overriding objective is to drive strong
long-term growth and we have recently taken several steps in this regard,
including the recent launch of our new email platform, the launch of our
Premium Domains service and subsequent to quarter end, the acquisition of
ItsYourDomain.
    "Most importantly, this morning we announced our decision to make a
significant investment in our business. We introduced a new cost-plus domain
pricing structure and a reduction in our domain name pricing.
    "Given the above, our expectation is that cash flow from operations will
be in excess of $10 million for 2007. We are confident that these steps
strengthen our position to capitalize on the significant long-term
opportunities in the domain name and email markets."

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

    -------------------------------------------------------------------------
                          Three Months  Three Months  Six Months  Six Months
                                 Ended         Ended       Ended       Ended
                               June 30,      June 30,    June 30,    June 30,
                                  2007          2006        2007        2006
    -------------------------------------------------------------------------
    Net Revenue                 20,815        15,679     38,586       30,966
    -------------------------------------------------------------------------
    EBITDA                       4,572         1,001      6,544        1,435
    -------------------------------------------------------------------------
    Adjusted Net Income          4,686         1,759      7,128        3,265
    -------------------------------------------------------------------------
    Net Income                   3,171           226      3,921           69
    -------------------------------------------------------------------------
    Net Income/Share              0.04          0.00       0.05         0.00
    -------------------------------------------------------------------------
    Cash Flow from Operations    2,359         3,220      3,524        5,054
    -------------------------------------------------------------------------



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

    -------------------------------------------------------------------------
                                    Revenue              Cost of Revenue
    -------------------------------------------------------------------------
                          Three Months  Three Months  Six Months  Six Months
                                 Ended         Ended       Ended       Ended
                               June 30,      June 30,    June 30,    June 30,
                                  2007          2006        2007        2006
    -------------------------------------------------------------------------
    Domain Names, excluding
     Domain Direct              12,274        10,559       9,146       7,509
    -------------------------------------------------------------------------
    Other Internet services,
     including Domain Direct     4,229         4,045       1,038       1,011
    -------------------------------------------------------------------------
    Sale of Domain Names         3,068             -          11           -
    -------------------------------------------------------------------------
    Advertising and other
     revenue                     1,244         1,075         112           -
    -------------------------------------------------------------------------
    Total                       20,815        15,679      10,307       8,520
    -------------------------------------------------------------------------
    

    Second Quarter Fiscal 2007 Financial Summary

    Revenue - Net revenue for the second quarter of fiscal 2007 increased 33%
to $20.8 million from $15.7 million for the second quarter of fiscal 2006. The
increase was primarily the result of an atypically large sale of approximately
2,500 domain names from the Company's portfolio of domain names for
$3.0 million and revenue growth across all areas of the business.

    Adjusted Net Income - Adjusted net income for the second quarter of
fiscal 2007 increased to $4.7 million from $1.8 million for the corresponding
quarter of last year.

    Net Income - Net income for the second quarter of fiscal 2007 increased
to $3.2 million, or $0.04 per share from $0.2 million, or $0.00 per share, for
the second quarter of fiscal 2006. Included in net income for the second
quarter of fiscal 2007 is an unrealized gain in the change in the fair value
of forward contracts of $0.9 million compared with a gain on foreign exchange
of $0.4 million for the corresponding quarter of fiscal 2006.

    Deferred Revenue - Deferred revenue at the end the second quarter of
fiscal 2007 was $49.0 million, an increase of 13% from $43.2 million at the
end of the second quarter of fiscal 2006 and an increase of 2% from $48.0
million at the end of the first quarter of fiscal 2007.

    Cash - Cash, cash equivalents and restricted cash at the end of the
second quarter of fiscal 2007 were $6.2 million compared to $6.6 million at
the end of the first quarter of fiscal 2007 and $7.0 million at the end of the
second quarter of fiscal 2006. The decrease compared to the end of the first
quarter of fiscal 2007 resulted primarily from the repurchase of 1.1 million
of the Company's shares at a cost of $1.1 million during the second quarter
under its previously announced stock buyback program and our investing $1.7
million in property and equipment related to our hosted email environment.
This decrease was partially offset by the generation of cash flow from
operations of $2.4 million during the second quarter of fiscal 2007.

    Subsequent Events - On July 25, 2007, Tucows acquired Innerwise Inc.
(ItsYourDomain.com), a privately held, ICANN-accredited registrar with more
than 700,000 domains under management and offering domain services through a
worldwide wholesale network of over 2,500 affiliates. Tucows paid $10.8
million in cash for IYD with the opportunity for IYD to realize an additional
$1.1 million based on specific targets. The acquisition was funded from
working capital and a bank loan for $9.6 million.

    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, August 7, 2007, at
8:30 a.m. (ET) to discuss the Company's second quarter fiscal 2007 results. To
access the conference call via the Internet go to http://about.tucows.com, and
click on "Investor Relations."
    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 21228036 followed by the pound key. The telephone replay
will be available until Tuesday, August 14, 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 7,000 service providers around the world
we provide millions of email boxes, billing solutions and manage over
seven 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)

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

    Current assets:
      Cash and cash equivalents                   $  5,717,412  $  6,256,392
      Restricted cash                                  510,000     1,019,423
      Accounts receivable                            4,033,648     2,969,997
      Prepaid expenses and deposits                  4,037,325     2,394,627
      Prepaid domain name registry and other
       Internet services fees, current portion      24,321,679    22,168,558
      Deferred tax asset, current portion            1,000,000     1,000,000
                                                  ------------- -------------
        Total current assets                        39,620,064    35,808,997

    Prepaid domain name registry and other
     Internet services fees, long-term portion      10,110,771     9,511,341
    Property and equipment                           6,394,697     5,647,532
    Deferred tax asset, long-term portion            2,000,000     2,000,000
    Intangible assets                               17,989,747    18,554,436
    Goodwill                                        12,189,767    12,094,817
    Investment                                         353,737       353,737
    Cash held in escrow                                      -       694,579
                                                  ------------- -------------
      Total assets                                $ 88,658,783  $ 84,665,439
                                                  ------------- -------------
                                                  ------------- -------------


    Liabilities and Stockholders' Equity

    Current liabilities:
      Accounts payable                            $  1,901,126  $  2,867,814
      Accrued liabilities                            2,502,580     2,567,012
      Customer deposits                              2,773,653     3,144,119
      Deferred revenue, current portion             34,527,977    31,658,081
      Accreditation fees payable, current portion      521,844       847,325
      Promissory note payable, current portion       6,000,000             -
                                                  ------------- -------------
        Total current liabilities                   48,227,180    41,084,351

    Deferred revenue, long-term portion             14,485,149    13,478,525
    Accreditation fees payable, long-term portion      173,441       163,988
    Promissory note payable, long-term portion               -     6,000,000
    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; 73,735,782 shares issued
       and outstanding at June 30, 2007 and
       75,978,502 shares issued and outstanding
       at December 31, 2006                         14,321,144    15,395,381
      Additional paid-in capital                    49,347,731    50,359,906
      Deficit                                      (43,291,862)  (47,212,712)
                                                  ------------- -------------
    Total stockholders' equity                      20,377,013    18,542,575
                                                  ------------- -------------
    Total liabilities and stockholders' equity    $ 88,658,783  $ 84,665,439
                                                  ------------- -------------
                                                  ------------- -------------



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

                      Three months ended June 30,  Six months ended June 30,
                          2007           2006           2007         2006
                      ------------- ------------- ------------- -------------

    Net revenues      $ 20,814,881  $ 15,678,856  $ 38,586,098  $ 30,965,976

    Cost of revenues:
      Cost of
       revenues(*)      12,198,808    10,066,262    23,431,597    19,994,116
      Depreciation of
       property and
       equipment           985,430       669,256     1,795,096     1,194,175
      Amortization of
       intangible
       assets               63,540        38,538       127,072        77,078
                      ------------- ------------- ------------- -------------
        Total cost of
         revenues       13,247,778    10,774,056    25,353,765    21,265,369
                      ------------- ------------- ------------- -------------

    Gross profit         7,567,103     4,904,800    13,232,333     9,700,607

    Expenses:

      Sales and
       marketing(*)      1,480,078     1,572,290     2,824,522     3,031,446
      Technical
       operations and
       development(*)    1,752,693     2,090,723     3,564,972     4,411,439
      General and
       administrative(*)   810,872       948,464     2,309,641     2,567,517
      Depreciation of
       property and
       equipment            68,267        45,041       129,791        82,091
      Amortization of
       intangible
       assets              222,741       112,591       456,042       205,884
                      ------------- ------------- ------------- -------------
        Total expenses   4,334,651     4,769,109     9,284,968    10,298,377
                      ------------- ------------- ------------- -------------

    Income (loss) from
     operations          3,232,452       135,691     3,947,365      (597,770)

    Other income
     (expenses):
      Interest income
       (expense), net      (49,297)      102,662       (90,946)      205,553
      Other income, net          -             -        88,431       473,606
                      ------------- ------------- ------------- -------------
        Total other
         income
         (expense)         (49,297)      102,662        (2,515)      679,159
                      ------------- ------------- ------------- -------------

    Income before
     provision for
     income taxes        3,183,155       238,353     3,944,850        81,389

    Provision for
     income taxes           12,000        12,000        24,000        12,000
                      ------------- ------------- ------------- -------------
      Net income for
       the period     $  3,171,155  $    226,353  $  3,920,850  $     69,389
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------


    Basic earnings
     per common share $       0.04  $       0.00  $       0.05  $       0.00
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    Shares used in
     computing basic
     earnings per
     common share       74,447,018    72,527,662    74,950,621    72,255,539
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    Diluted earnings
     per common share $       0.04  $       0.00  $       0.05  $       0.00
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    Shares used in
     computing diluted
     earnings per
     common share       77,375,096    74,704,791    77,633,136    74,540,626
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------


    (*) Stock-based
        compensation
        has been
        included in
        expenses as
        follows:
          Cost of
           revenues   $      4,400  $      3,200  $      6,900  $      5,500
          Sales and
           marketing  $     25,500  $     18,900  $     39,700  $     36,000
          Technical
           operations
           and
           develop-
           ment       $     23,300  $     27,500  $     43,400  $     51,000
          General and
           adminis-
           trative    $     58,300  $     29,500  $     84,200  $     56,000


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

                      Three months ended June 30,  Six months ended June 30,
                          2007           2006           2007         2006
                      ------------- ------------- ------------- -------------

    Cash provided by
     (used in):
    Operating activities:
      Net income for
       the period     $  3,171,155  $    226,353  $  3,920,850  $     69,389
      Items not
       involving cash:
        Depreciation of
         property and
         equipment       1,053,697       714,297     1,924,887     1,276,266
        Amortization
         of intangible
         assets            286,281       151,129       583,114       282,962
        Unrealized
         change in the
         fair value of
         forward exchange
         contracts        (885,652)     (378,846)   (1,102,441)     (195,902)
        Stock-based
         compensation      111,500        78,300       174,200       148,500
      Change in non-cash
       operating working
       capital:
        Interest
         receivable              -        (3,047)            -        34,547
        Accounts
         receivable       (211,028)     (335,071)   (1,063,651)   (2,162,713)
        Prepaid expenses
         and deposits     (310,274)      (24,292)   (1,037,510)      (20,879)
        Prepaid fees for
         domain name
         registry and other
         Internet services
         fees             (771,898)   (1,858,622)   (2,752,551)   (4,171,670)
        Accounts payable  (337,450)    2,577,875      (745,587)    3,070,542
        Accrued
         liabilities      (216,318)     (259,966)      432,821     1,067,114
        Customer deposits (195,342)      420,423      (370,466)      568,257
        Deferred revenue   979,595     2,151,830     3,876,520     5,196,350
        Accreditation
         fees payable     (315,320)     (240,100)     (316,028)     (108,836)
                      ------------- ------------- ------------- -------------
      Cash provided by
       operating
       activities        2,358,946     3,220,263     3,524,158     5,053,927
                      ------------- ------------- ------------- -------------

    Financing activities:
      Proceeds received
       on exercise of
       stock options        85,272        27,401       186,343        55,410
      Repurchase of
       shares           (1,119,455)            -    (2,446,955)            -
                      ------------- ------------- ------------- -------------
      Cash (used in)
       provided by
       financing
       activities       (1,034,183)       27,401    (2,260,612)       55,410
                      ------------- ------------- ------------- -------------

    Investing activities:
      Cost of domain
       names acquired       10,303             -       (18,425)            -
      Additions to
       property and
       equipment        (1,690,523)   (2,405,146)   (2,893,153)   (3,291,425)
      Decrease in
       investment in
       short-term
       investments               -        72,000             -     1,771,569
      Decrease (increase)
       in restricted cash
       - being margin
       security against
       forward exchange
       contracts           257,785       190,042       509,423      (362,458)
      Acquisition of
       Mailbank.com Inc.,
       net of cash
       acquired                  -    (5,830,902)            -    (5,830,902)
      Acquisition of Hosted
       Messaging Assets,
       net of cash acquired      -       163,969       (90,050)   (6,419,485)
      Acquisition of
       Boardtown
       Corporation, net
       of cash acquired     (4,900)            -        (4,900)            -
      (Increase) decrease
       in cash held in
       escrow                    -       (18,507)      694,579    (1,785,011)
                      ------------- ------------- ------------- -------------
      Cash used in
       investing
       activities       (1,427,335)   (7,828,544)   (1,802,526)  (15,917,712)
                      ------------- ------------- ------------- -------------

    Decrease in cash and
     cash equivalents     (102,572)   (4,580,880)     (538,980)  (10,808,375)
    Cash and cash
     equivalents,
     beginning of
     period              5,819,984    11,120,593     6,256,392    17,348,088
                      ------------- ------------- ------------- -------------
    Cash and cash
     equivalents,
     end of period    $  5,717,412  $  6,539,713  $  5,717,412  $  6,539,713
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    Supplemental cash
     flow information:
      Interest paid   $    105,000  $          -  $    210,000  $          -

    Supplementary
     disclosure of
     non-cash investing
     activity:
      Capital assets
       acquired during
       the period not
       yet paid for   $    163,169  $          -  $    163,169  $          -
      Common stock
       issued on the
       acquisition of
       Mailbank.com
       Inc.           $          -  $  2,877,070  $          -  $  2,877,070
      Promissory notes
       issued on the
       acquisition of
       Mailbank.com
       Inc.           $          -  $  8,122,930  $          -  $  8,122,930



                                 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,
                          2007           2006           2007         2006
                      ------------- ------------- ------------- -------------

    Net income for the
     period           $  3,171,155  $    226,353  $  3,920,850  $     69,389
      Depreciation of
       property and
       equipment         1,053,697       714,297     1,924,887     1,276,266
      Amortization of
       intangible
       assets              286,281       151,129       583,114       282,962
      Interest income
       (expense), net       49,297      (102,662)       90,946      (205,553)
      Provision for
       income taxes         12,000        12,000        24,000        12,000
                      ------------- ------------- ------------- -------------
    EBITDA               4,572,430     1,001,117     6,543,797     1,435,064
                      ------------- ------------- ------------- -------------

    Adjustments to EBITDA(1)
      Change in prepaid
       domain name
       registry and
       other Internet
       services fees      (771,898)   (1,858,622)   (2,752,551)   (4,171,670)
      Change in deferred
       revenue             979,595     2,151,830     3,876,520     5,196,350
      Dividend income            -             -       (88,431)            -
      Transitional costs         -       464,579             -     1,278,842
      Other income               -             -             -      (473,606)
      Reversal of
       contingencies       (93,749)            -      (451,249)            -
                      ------------- ------------- ------------- -------------
    Subtotal Adjustments
     to EBITDA             113,948       757,787       584,289     1,829,916
                      ------------- ------------- ------------- -------------

    Adjusted Net
     Income           $  4,686,378  $  1,758,904  $  7,128,086  $  3,264,980
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    (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 $207,697 for the three months ended June 30, 2007
compared to $293,208 for the three months ended June 30, 2006.
    For the six months ended June 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 six months ended June 30,
2006, we received $473,606 in connection with settlements related to patents
we acquired in the merger with Infonautics in 2001. 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 $1.1 million for
the six months ended June 30, 2007 compared to $1.0 million for the six months
ended June 30, 2006.
    

    %SEDAR: 00022325E




For further information:

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

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