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Tucows Reports Financial Results for the Second Quarter of 2013

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- Company Achieves Thirteenth Consecutive Quarter of Record Revenue/Ting Continues Strong Momentum -

TORONTO, Aug. 8, 2013 /PRNewswire/ - Tucows Inc. (NYSE AMEX: TCX, TSX:TC), a global provider of domain names and other Internet services, today reported its financial results for the second quarter ended June 30, 2013. All figures are in U.S. dollars.

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

   3 Months Ended 
June 30, 2013
(unaudited)
 3 Months Ended 
June 30, 2012
(unaudited)
 6 Months Ended 
June 30, 2013
(unaudited)
 6 Months Ended 
June 30, 2012
(unaudited)
Net revenue 31,173 28,153 61,158 55,690
Income before provision for income taxes 
and change in fair value of forward
exchange contracts 
948 1,409 1,379 3,359
Net income 588 696 664 2,360
Net earnings per common share $0.01 $0.02 $0.02 $0.05
Net cash provided by operating activities 2,971 4 3,388 2,084

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

  Revenue Cost of Revenue
   3 Months Ended 
June 30, 2013
(unaudited)
 3 Months Ended 
June 30, 2012
(unaudited)
 3 Months Ended 
June 30, 2013
(unaudited)
 3 Months Ended 
June 30, 2012
(unaudited)
Wholesale        
   Domain Services 21,800 21,668 18,485 18,011
   Value-Added Services 2,559 2,589 520 537
Total Wholesale 24,359 24,257 19,005 18,548
         
Retail 5,735 2,298 3,773 1,356
Portfolio 1,079 1,598 230 216
         
Network, other costs - - 1,270 1,214
Network, depreciation and amortization costs  - - 187 192
Total revenue/cost of revenue 31,173 28,153 24,465 21,526

"The second quarter was once again demonstrative of the consistency and reliability in our business as we achieved our thirteenth consecutive quarter of year-over-year revenue growth, achieving another record," said Elliot Noss, President and Chief Executive Officer, Tucows Inc. "Our Wholesale and Portfolio businesses continue to perform well, while Hover delivered another quarter of outstanding growth."

"The strong momentum at Ting continues with another record quarter for customer additions - more than 9,000 - propelling our total customer count past the 25,000 mark, and the number of devices to nearly 40,000 as of the end of June.  Gross margin per account remains strong and our customer acquisition costs remain low.  As we get more customers and more experience, we are improving our service and our processes, further strengthening Ting's unique value proposition.  While our investment to support the success of Ting is dampening our results in the short term, as previously reported, we expect Ting to cross over the breakeven threshold in the fourth quarter this year."

Net revenue for the second quarter of 2013 increased 11% to a record $31.2 million from $28.2 million for the second quarter of 2012.

Net income for the second quarter of 2013 was $0.6 million, or $0.01 per share, compared with $0.7 million, or $0.02 per share, for the second quarter of 2012.  Net income for the second quarter of 2013 benefitted from recognition of a $0.5 million Interactive Digital Media Tax Credit $460,000 from the Ontario government.  Net income for the second quarter of 2013 also included the incremental investment of approximately $1.3 million made during the quarter for the acquisition and support of Ting customers, as well as the loss on foreign exchange contracts of $0.1 million.  This compares with a loss on foreign exchange contracts of $0.4 million in the second quarter of 2012.

Deferred revenue at the end of the second quarter of 2013 was $73.0 million, a decrease of 2% from $74.5 million at the end of the second quarter of 2012 and an increase of 1% from $72.4 million at the end of the first quarter of 2013.

Cash and cash equivalents at the end of the second quarter of 2013 were $6.5 million compared with $4.3 million at the end of the first quarter of 2013 and $4.5 million from the end of the second quarter of 2012.  The increase in cash and cash equivalents compared to the first quarter of 2013 is the result of generation of $3.0 million in cash flow from operations and $0.3 million from the exercise of stock options, which were partially offset by the use of $0.6 million for principal repayments under the Company's credit facility and investment of $0.5 million in equipment purchases.  Cash flow from operations for the second quarter of 2013 was positively impacted by changes in working capital resulting from the timing of payments in the normal course of business.

Conference Call

Tucows management will host a conference call today, Thursday, August 8, 2013 at 5:00 p.m. (ET) to discuss the Company's second quarter 2013 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 22224502 followed by the pound key.  The telephone replay will be available until Thursday, August 15, 2013 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 including statements regarding our expectations regarding our future financial results and, in particular, our expectations for Ting and its impact on our financial performance. 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, including the acceptance of Ting in the market.  Information about other 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)      
             
    June 30,   December 31,
    2013   2012
    (unaudited)   (unaudited)
             
Assets            
             
Current assets:            
  Cash and cash equivalents   $ 6,465,126   $ 6,415,679
  Accounts receivable     5,627,555     4,413,265
  Inventory     187,424     587,104
  Prepaid expenses and deposits     4,784,513     5,081,408
  Derivative instrument asset, current portion     -     412,944
  Prepaid domain name registry and ancillary services fees, current portion     46,629,631     45,170,167
  Income taxes recoverable     628,476     1,730,631
    Total current assets     64,322,725     63,811,198
             
Derivative instrument asset, long-term portion     -     31,838
Prepaid domain name registry and ancillary services fees, long-term portion     12,242,246     12,318,723
Property and equipment     1,784,875     1,352,144
Deferred tax asset, long-term portion     6,006,995     5,970,462
Intangible assets     15,870,402     16,415,651
Goodwill     18,873,127     18,873,127
    Total assets   $ 119,100,370   $ 118,773,143
             
             
Liabilities and Stockholders' Equity            
             
Current liabilities:            
  Accounts payable   $ 2,444,529   $ 1,928,459
  Accrued liabilities     3,023,913     2,522,229
  Customer deposits     4,668,101     4,955,671
  Derivative instrument liability, current portion     800,635     -
  Loan payable, current portion     7,500,000     3,700,000
  Deferred revenue, current portion     57,003,871     54,997,887
  Accreditation fees payable, current portion     535,311     512,847
  Deferred tax liability, current portion     795,741     914,429
  Income taxes payable     259,317     1,255,108
    Total current liabilities     77,031,418     70,786,630
             
Deferred revenue, long-term portion     15,973,216     16,002,464
Accreditation fees payable, long-term portion     139,045     145,592
Deferred rent, long-term portion     64,026     54,150
Deferred tax liability, long-term portion     5,178,300     5,234,100
             
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; 40,641,488
shares issued and outstanding as of June 30, 2013 and 44,322,159 shares
issued and outstanding as of December 31, 2012
    9,755,391     10,084,417
  Additional paid-in capital     28,207,230     33,931,529
  Deficit     (16,845,634)     (17,509,843)
  Accumulated other comprehensive income (loss)     (402,622)     44,104
    Total stockholders' equity     20,714,365     26,550,207
Total liabilities and stockholders' equity   $ 119,100,370   $ 118,773,143

 

    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 June 30,   Six months ended June 30,
    2013   2012   2013   2012
    (unaudited)   (unaudited)
                 
Net revenues $ 31,173,357 $ 28,152,614 $ 61,158,379 $ 55,689,920
                 
  Cost of revenues:                
  Cost of revenues   23,007,506   20,120,211   45,085,405   39,387,336
  Network expenses (*)   1,269,808   1,213,864   2,524,021   2,470,754
  Depreciation of property and equipment   151,356   155,638   288,428   303,056
  Amortization of intangible assets   35,910   35,910   71,820   71,820
    Total cost of revenues   24,464,580   21,525,623   47,969,674   42,232,966
                 
Gross profit   6,708,777   6,626,991   13,188,705   13,456,954
                 
Expenses:                
  Sales and marketing (*)   2,946,586   2,065,729   5,793,672   4,250,364
  Technical operations and development (*)   748,137   1,105,575   1,881,967   2,218,720
  General and administrative (*) (note 1)   1,698,697   1,748,402   3,397,329   3,531,855
  Depreciation of property and equipment   54,922   45,522   105,861   92,937
  Amortization of intangible assets   219,030   219,030   438,060   438,060
  Loss (gain) on currency forward contracts (note 1)   146,639   383,838   381,277   (178,271)
    Total expenses   5,814,011   5,568,096   11,998,166   10,353,665
                 
Income from operations   894,766   1,058,895   1,190,539   3,103,289
                 
Other income (expenses):                
  Interest expense, net   (93,428)   (54,513)   (192,790)   (95,482)
  Other income   -   20,911   -   529,711
    Total other income (expenses)   (93,428)   (33,602)   (192,790)   434,229
                 
Income before provision for income taxes   801,338   1,025,293   997,749   3,537,518
                 
Provision for income taxes   213,708   329,295   333,540   1,177,901
Net income   587,630   695,998   664,209   2,359,617
                 
Other comprehensive loss, net of tax of $133,761 for the
three months ended June 30, 2013 and $230,538 for the
six months ended June 30, 2013
  260,941   -   446,726   -
Comprehensive income (loss) for the period  $  326,689  $  695,998  $  217,483  $ 2,359,617
                 
Basic earnings per common share $ 0.01 $ 0.02 $ 0.02 $ 0.05
                 
Shares used in computing basic earnings per common share   40,323,261   45,912,458   40,327,324   47,003,016
                 
Diluted earnings per common share $ 0.01 $ 0.01 $ 0.01 $ 0.05
                 
Shares used in computing diluted earnings per common share   44,278,852   49,449,430   44,294,015   50,203,163
                 
                 
                 
(*) Stock-based compensation has been included in expenses as follows:                
    Network expenses $ 7,932 $ 6,329 $ 14,058 $ 12,375
    Sales and marketing $ 33,909 $ 20,149 $ 60,319 $ 42,931
    Technical operations and development $ 20,370 $ 15,047 $ 35,617 $ 27,890
    General and administrative $ 29,044 $ 21,571 $ 56,103 $ 42,365

 

  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 June 30,   Six months ended June 30,
    2013   2012   2013   2012
Cash provided by: (unaudited)   (unaudited)
Operating activities:                
   Net income for the period  $ 587,630 $ 695,998 $ 664,209 $ 2,359,617
  Items not involving cash:                
    Depreciation of property and equipment   206,278   201,160   394,289   395,993
    Amortization of deferred financing charges   -   700   -   2,200
    Amortization of intangible assets   254,940   254,940   509,880   509,880
    Deferred income taxes (recovery)   113,748   (107,146)   21,683   104,942
    Deferred rent   4,372   5,931   9,876   13,200
    Acquisition of domain names   -   -   -   (3,664)
    Disposal of domain names   20,876   7,301   35,369   23,039
    Gain on disposition of intangible assets   -   -   -   (508,800)
    (Gain) loss on change in the fair value of forward contracts   114,846   245,477   565,987   (456,366)
    Stock-based compensation   91,255   63,096   166,097   125,561
  Changes in non-cash operating working capital:                
    Accounts receivable   (665,972)   (22,102)   (1,214,290)   (1,036,831)
    Inventory   121,380   -   399,680   -
    Prepaid expenses and deposits   635,193   (783,370)   296,895   (1,891,468)
    Prepaid fees for domain name registry and ancillary services fees   (341,273)   (1,378,771)   (1,382,987)   (4,298,194)
    Income taxes recoverable/payable   (2,789)   (378,492)   106,364   240,581
    Accounts payable   1,797   (308,892)   607,721   605,077
    Accrued liabilities   1,025,886   255,254   501,684   524,165
    Customer deposits   273,851   (191,402)   (287,570)   65,598
    Deferred revenue   557,152   1,460,816   1,976,736   5,284,648
    Accreditation fees payable   (28,082)   (16,775)   15,917   25,179
  Net cash provided by operating activities   2,971,088   3,723   3,387,540   2,084,357
                 
Financing activities:                
  Proceeds received on exercise of stock options   279,685   219,000   318,194   349,712
  Repurchase of common stock   -   (1,591,743)   (6,537,616)   (7,485,190)
  Proceeds received on loan payable   -   -   5,200,000   4,000,000
  Repayment of loan payable   (600,000)   (311,667)   (1,400,000)   (850,000)
  Net cash used in financing activities   (320,315)   (1,684,410)   (2,419,422)   (3,985,478)
                 
Investing activities:                
  Additions to property and equipment   (471,966)   (174,054)   (918,671)   (504,327)
  Proceeds on disposition of intangible assets   -   -   -   508,800
  Net cash provided by (used in) investing activities   (471,966)   (174,054)   (918,671)   4,473
                 
Increase (decrease) in cash and cash equivalents   2,178,807   (1,854,741)   49,447   (1,896,648)
                 
Cash and cash equivalents, beginning of period   4,286,319   6,366,302   6,415,679   6,408,209
Cash and cash equivalents, end of period $ 6,465,126 $ 4,511,561 $ 6,465,126 $ 4,511,561
                 
Supplemental cash flow information:                
  Interest paid $ 97,369 $ 54,655 $ 196,873 $ 95,831
                 
Supplementary disclosure of non-cash investing activity:                
  Property and equipment acquired during the period not yet paid for $ 4,864 $ 42,343 $ 4,864 $ 42,343

SOURCE Tucows Inc.



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