Tucows Reports Continuing Strong Financial Results for Third Quarter of 2012

- Company Achieves Tenth Consecutive Quarter of Record Revenue and Generates Strong Cash Flow From Operations -

TORONTO, Nov. 13, 2012 /CNW/ - Tucows Inc. (NYSE AMEX:TCX,TSX:TC), a global provider of domain names and other Internet services, today reported its financial results for the third quarter ended September 30, 2012. All figures are in U.S. dollars. 

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

	3 Months Ended Sept. 30, 2012 (unaudited)	3 Months Ended Sept. 30, 2011 (unaudited)	9 Months Ended Sept. 30, 2012 (unaudited)	9 Months Ended Sept. 30, 2011 (unaudited)
Net revenue	29,246	25,094	84,936	70,695
Income before provision for income taxes and change in fair value of forward exchange contracts	1,597	1,090	4,956	2,240
Net income for the period	1,635	(1,178)	3,995	115
Net earnings per common share	0.04	(0.02)	$0.09	-
Net cash provided by operating activities	2,237	1,615	4,321	3,202

Summary of Revenues and Cost of Revenues
(In Thousands of US Dollars)

		Revenue		Cost of Revenue
		3 Months Ended Sept. 30, 2012 (unaudited)	3 Months Ended Sept. 30, 2011 (unaudited)	3 Months Ended Sept. 30, 2012 (unaudited)	3 Months Ended Sept. 30, 2011 (unaudited)
Wholesale
Domain Services		22,268	19,698	18,645	16,470
Value-Added Services		2,603	2,609	532	515
Total Wholesale		24,871	22,307	19,177	16,985
Retail		2,965	1,358	2,064	495
Portfolio		1,410	1,429	205	179
Network, other costs		-	-	1,159	1,193
Network, depreciation and amortization costs		-	-	193	183
Total revenue/cost of revenue		29,246	25,094	22,798	19,035

NOTE: Beginning in the first quarter of 2012, Tucows reclassified its revenue streams into three distinct service offerings: Wholesale, Retail and Portfolio¹. The realignment is intended to better reflect the manner in which these revenue streams are generated and assessed by management.

"Our third quarter results once again reflect the consistency and reliability of our business, the leverage inherent in our model, and our ability to deliver growth," said Elliot Noss, President and Chief Executive Officer, Tucows Inc.  "Revenue for the quarter grew 17% year-over-year to another record and we generated $2.2 million in cash flow from operations, a portion of which we used to repurchase an additional 1.3 million shares under our normal course issuer bid. In 2012, we have bought back 9.9 million shares and since we began buying back stock, we have now repurchased a total of 33.2 million shares, or almost 45% of outstanding shares. Our core businesses continue to perform well, allowing us to efficiently invest in new opportunities such as Ting.  As a result, we remain well positioned to continue to deliver growth while returning capital to shareholders over the long term."

Net revenue for the third quarter of 2012 increased 17% to a record $29.3 million from $25.1 million for the third quarter of 2011.

Net income for the third quarter of 2012 was $1.6 million, or $0.04 per share, compared with a net loss for the third quarter of 2011 of $1.2 million, or $0.02 per share.

Deferred revenue at the end of the third quarter of 2012 was $73.3 million, an increase of 6% from $68.9 million at the end of the third quarter of 2011 and a decrease of 2% from $74.5 million at the end of the second quarter of 2012.

Cash and cash equivalents at the end of the third quarter of 2012 were $5.0 million compared with $4.5 million at the end of the second quarter of 2012 and $4.7 million from the end of the third quarter of 2011.  During the third quarter of 2012, the Company generated cash flow from operations of $2.2 million compared with $1.6 million for the same quarter of 2011. During the quarter, the Company used $1.6 million for the repurchase of stock under its ongoing normal course issuer bid and invested $0.2 million in equipment purchases.

¹Service Offerings:  Wholesale, primarily branded as OpenSRS, is composed of revenue generated by the OpenSRS Domain Service and Other Value-Added Services, including hosted email, SSL and other trust certificates, bulk sale of domain names and advertising from the OpenSRS Domain Expiry Stream, web publishing tools, mobile phone services, third-party marketing funds, and billing software for ISPs.  Retail is primarily composed of services to individuals and small businesses, including Hover, which generates revenue from the sale of domain name registration and email, and Ting, which generates revenue from mobile phone services. Portfolio includes revenue generated by the resale of names from the domain name portfolio and advertising revenue from the Company's domain name portfolio and two large advertising-supported websites.

Conference Call

Tucows management will host a conference call today, Tuesday, November 13, 2012 at 5:00 p.m. (ET) to discuss the Company's third quarter 2012 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 54761695 followed by the pound key.  The telephone replay will be available until Tuesday, November 20, 2012 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 (http://opensrs.com) manages over fourteen million domain names and millions of value-added services through a reseller network of over 13,000 web hosts and ISPs. Hover (http://hover.com) is the easiest way for individuals and small businesses to manage their domain names and email addresses. Ting.com (https://ting.com) is a mobile phone service provider dedicated to bringing clarity and control to US mobile phone users. YummyNames (http://yummynames.com) owns and operates premium domain names that generate revenue through advertising or resale. More information can be found on Tucows' corporate website (http://tucows.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 and the impact of our consistent growth and leverage. 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, OpenSRS, Hover, Ting, and YummyNames are registered trademarks of Tucows Inc. or its subsidiaries.

Tucows  Inc.
Consolidated Balance Sheets
(Dollar amounts in U.S. dollars)
			September 30,				December 31,
			2012				2011
			(unaudited)				(unaudited)
Assets
Current assets:
	Cash and cash equivalents		$	4,969,733			$	6,408,209
	Accounts receivable			4,826,776				3,880,184
	Prepaid expenses and deposits			5,216,617				3,961,905
	Derivative instrument asset, current portion			468,675				-
	Prepaid domain name registry and ancillary services fees, current portion			46,467,392				43,209,033
	Income taxes recoverable			434,666				867,093
	Total current assets			62,383,859				58,326,424
Derivative instrument asset, long-term portion				-				87,023
Prepaid domain name registry and ancillary services fees, long-term portion				12,734,182				12,600,154
Property and equipment				1,413,952				1,437,564
Deferred financing charges				-				2,300
Deferred tax asset, long-term portion				6,674,517				6,880,377
Intangible assets				16,683,253				17,482,590
Goodwill				18,873,127				18,873,127
	Total assets		$	118,762,890			$	115,689,559
Liabilities and Stockholders' Equity
Current liabilities:
	Accounts payable		$	1,716,725			$	1,051,115
	Accrued liabilities			2,219,377				2,081,968
	Customer deposits			4,265,716				4,202,899
	Derivative instrument liability, current portion			13,011				781,027
	Loan payable, current portion			4,000,000				850,000
	Deferred revenue, current portion			56,780,763				52,683,546
	Accreditation fees payable, current portion			536,377				555,869
	Deferred tax liability, current portion			1,090,959				880,008
	Income taxes payable			192,716				158,258
	Total current liabilities			70,815,644				63,244,690
Derivative instrument liability, long-term portion				-				5,479
Deferred revenue, long-term portion				16,534,807				16,492,155
Accreditation fees payable, long-term portion				148,893				156,061
Deferred rent, long-term portion				47,945				26,487
Deferred tax liability, long-term portion				5,262,000				5,345,700
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; 44,249,184 shares issued and outstanding as of September 30, 2012 and 53,497,584 shares issued and outstanding as of December 31, 2011			10,005,229				11,358,959
	Additional paid-in capital			33,887,740				40,994,013
	Deficit			(17,939,368)				(21,933,985)
	Total stockholders' equity			25,953,601				30,418,987
Total liabilities and stockholders' equity			$	118,762,890			$	115,689,559

Tucows  Inc.
Consolidated Statements of Operations
(Dollar amounts in U.S. dollars)
						Three months ended September 30,						Nine months ended September 30,
						2012		2011				2012		2011
						(unaudited)						(unaudited)
Net revenues					$	29,246,069		25,094,056			$	84,935,989	$	70,695,186
Cost of revenues:
	Cost of revenues					21,446,084		17,658,648				60,833,420		49,578,724
	Network expenses (*)					1,158,885		1,193,669				3,629,639		3,691,995
	Depreciation of property and equipment					157,203		159,191				460,259		608,961
	Amortization of intangible assets					35,910		23,960				107,730		49,680
	Total cost of revenues					22,798,082		19,035,468				65,031,048		53,929,360
Gross profit						6,447,987		6,058,588				19,904,941		16,765,826
Expenses:
	Sales and marketing (*)					2,037,338		1,867,085				6,287,702		5,663,759
	Technical operations and development (*)					1,010,949		1,220,953				3,229,669		3,651,782
	General and administrative (*) (note 1)					1,486,323		1,611,896				5,018,178		4,619,443
	Depreciation of property and equipment					46,981		48,874				139,918		140,556
	Amortization of intangible assets					219,030		201,180				657,090		785,920
	Loss (gain) on currency forward contracts (note 1)					(615,245)		1,845,550				(793,516)		1,374,177
	Total expenses					4,185,376		6,795,538				14,539,041		16,235,637
Income (loss) from operations						2,262,611		(736,950)				5,365,900		530,189
Other income (expenses):
	Interest (expense) income, net					(50,228)		(18,718)				(145,710)		(38,915)
	Other income					-		-				529,711		374,977
	Total other income (expenses)					(50,228)		(18,718)				384,001		336,062
Income (loss) before provision for income taxes						2,212,383		(755,668)				5,749,901		866,251
Provision for income taxes						577,383		422,592				1,755,284		750,906
Net income (loss)and comprehensive income for the period					$	1,635,000	$	(1,178,260)			$	3,994,617	$	115,345
Basic earnings (loss) per common share					$	0.04	$	(0.02)			$	0.09	$	-
Shares used in computing basic earnings (loss) per common share						45,094,678		53,452,205				46,362,261		53,444,959
Diluted earnings (loss) per common share					$	0.03	$	(0.02)			$	0.08	$	-
Shares used in computing diluted earnings (loss) per common share						48,411,429		53,452,205				49,603,870		55,748,777
(Note 1) The Company accounts for the fair value of currency forward contracts within the consolidated Balance Sheet as a derivative financial asset or liability and the corresponding change in fair value is recorded in the consolidated Statement of Operations.  In prior periods, the Company recorded the realized gain or loss upon settlement of the currency forward contracts in "General and administrative expenses" and recorded the unrealized gain or loss in "Loss (gain) on change in fair value of forward contracts".  The Company has determined that both of these amounts are more appropriately classified in expenses as "Loss (gain) on currency forward contracts" and as a result a gain of $0.3 million for the three months ended September 30, 2011 and a gain of $1.1 million for the nine months ended September 30, 2011, has been reclassified from "General and administrative expense" to "Loss (gain) on currency forward contracts" respectively. As a result of this reclassification, there was no change to previously reported net income (loss), income from operations, net revenues, gross profit, reported cash flows or the amounts recorded in the consolidated Balance Sheets.
(*) Stock-based compensation has been included in expenses as follows:
	Network expenses				$	5,979	$	5,808			$	18,354	$	17,170
	Sales and marketing				$	24,116	$	22,695			$	67,047	$	67,155
	Technical operations and development				$	15,600	$	13,020			$	43,490	$	40,122
	General and administrative				$	120,676	$	79,364			$	163,041	$	124,169

Tucows Inc.
Consolidated Statements of Cash Flows
(Dollar amounts in U.S. dollars)
						Three months ended September 30,						Nine months ended September 30,
						2012		2011				2012		2011
Cash provided by:						(unaudited)						(unaudited)
Operating activities:
	Net income (loss) for the period				$	1,635,000	$	(1,178,260)			$	3,994,617	$	115,345
	Items not involving cash:
		Depreciation of property and equipment				204,184		208,065				600,177		749,517
		Amortization of deferred financing charges				100		3,000				2,300		11,100
		Amortization of intangible assets				254,940		225,140				764,820		835,600
		Deferred income taxes				228,169		(18,400)				333,111		(18,400)
		Deferred rent				8,258		5,310				21,458		19,274
		Acquisition of domain names				-		-				(3,664)		-
		Disposal of domain names				15,142		8,816				38,181		29,907
		Gain on disposition of intangible assets				-		-				(508,800)		-
		(Gain) loss on currency forward contracts				(698,781)		2,152,243				(1,155,147)		2,458,104
		Stock-based compensation				166,371		120,887				291,932		248,617
	Changes in non-cash operating working capital:
		Accounts receivable				90,239		448,692				(946,592)		(679,872)
		Prepaid expenses and deposits				636,756		299,673				(1,254,712)		(923,976)
		Prepaid fees for domain name registry and ancillary services fees				905,807		(995,565)				(3,392,387)		(4,745,147)
		Income taxes recoverable/payable				226,304		158,467				466,885		318,467
		Accounts payable				43,173		(539,199)				648,250		(335,376)
		Accrued liabilities				(279,427)		(119,997)				244,738		261,570
		Customer deposits				(2,781)		168,352				62,817		(89,351)
		Deferred revenue				(1,144,779)		684,204				4,139,869		4,941,471
		Accreditation fees payable				(51,839)		(16,194)				(26,660)		5,598
	Net cash provided by operating activities					2,236,836		1,615,234				4,321,193		3,202,448
Financing activities:
	Proceeds received on exercise of stock options					14,186		10,685				363,898		14,145
	Repurchase of common stock					(1,630,643)		-				(9,115,833)		-
	Proceeds received on loan payable					-		-				4,000,000		-
	Repayment of loan payable					-		1,210,960				(850,000)		253,839
	Net cash used in financing activities					(1,616,457)		1,221,645				(5,601,935)		267,984
Investing activities:
	Additions to property and equipment					(162,207)		(138,909)				(666,534)		(629,935)
	Acquisition of EPAG Domainservices Inc., net of cash acquired					-		(2,392,461)				-		(2,392,461)
	Proceeds on disposition of intangible assets with no book value					-		-				508,800		-
	Net cash provided by (used in) investing activities					(162,207)		(2,531,370)				(157,734)		(3,022,396)
(Decrease) increase in cash and cash equivalents						458,172		305,509				(1,438,476)		448,036
Cash and cash equivalents, beginning of period						4,511,561		4,348,256				6,408,209		4,205,729
Cash and cash equivalents, end of period					$	4,969,733	$	4,653,765			$	4,969,733	$	4,653,765
														-
Supplemental cash flow information:
	Interest paid				$	50,511	$	18,890			$	146,342	$	39,197
Supplementary disclosure of non-cash investing activity:
	Property and equipment acquired during the period not yet paid for				$	167,998	$	124,979			$	167,998	$	124,979

 

 

 

 

SOURCE: Tucows Inc.

For further information:

Lawrence Chamberlain
TMX Equicom for Tucows Inc.
[phone] ext. 257
[email protected]