Tucows Inc. Reports Continuing Strong Financial Results for Fourth Quarter of 2011

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Feb 15, 2012, 04:00 ET

- Company Reports 7th Consecutive Quarter of Record Revenue -

TORONTO, Feb. 15, 2012 /PRNewswire/ - Tucows Inc. (NYSEAMEX:TCX, TSX:TC), a global provider of domain names, email and other Internet services, today reported its financial results for the fourth quarter ended December 31, 2011. All figures are in U.S. dollars.

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

	3 Months Ended December 31, 2011 (unaudited)	3 Months Ended December 31, 2010 (unaudited)	12 Months Ended December 31, 2011 (unaudited)	12 Months Ended December 31, 2010 (unaudited)
Net revenue	26,370	22,077	97,065	84,579
Income before provision for income taxes and change in fair value of forward exchange contracts	1,745	611	3,986	1,455
Net income (loss) for the period	6,055	1,237	6,170	2,117
Net earnings (loss) per common share*	0.11	0.02	0.12	0.04
Net cash provided by operating activities	2,683	2,341	5,885	6,769

* 2011 results include a tax benefit of $0.06 per share related to the release of deferred tax asset valuation allowances.

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

	Revenue		Cost of Revenue
	3 Months Ended December 31, 2011 (unaudited)	3 Months Ended December 31, 2010 (unaudited)	3 Months Ended December 31, 2011 (unaudited)	3 Months Ended December 31, 2010 (unaudited)
OpenSRS:
Domain Service	20,743	17,308	17,347	14,565
Email Service	653	529	41	104
Other services	1,136	1,104	385	366
Total OpenSRS services	22,532	18,941	17,773	15,035

YummyNames	1,648	1,531	182	181
Hover	1,432	1,172	548	398
Butterscotch	759	433	6	9

Network, other costs	-	-	1,146	1,148
Network, depreciation and amortization costs	-	-	177	313
Total revenue/cost of revenue	26,370	22,077	19,833	17,084

"Our strong performance in the fourth quarter, highlighted by 19% year-over-year revenue growth to a record $26.4 million - our seventh consecutive quarter of record revenue - and solid cash flow from operations, concluded a year that was indicative of the consistency and reliability of our business, as well as our ability to efficiently deliver growth," said Elliot Noss, President and Chief Executive Officer, Tucows Inc. "As a result, we also delivered our best year ever in terms of revenue at just over $97 million. Looking ahead, this efficiency, combined with what we believe is the best distribution channel in the Internet economy, firmly positions us to continue to consistently generate cash flow, while introducing new services with minimal capital investment or impact on operating expenses. Ting, our recently launched US mobile phone service, is a testament to our capabilities in this regard."

Net revenue for the fourth quarter of 2011 increased 19% to a record $26.4 million from $22.1 million for the fourth quarter of 2010 and was driven by growth in each of the Company's business groups.

Net income for the fourth quarter of 2011 was $6.1 million, or $0.11 per share, compared with net income for the fourth quarter of 2010 of $1.2 million, or $0.02 per share. Net income per share for the fourth quarter of 2011 includes a tax benefit of $0.06 per share related to the release of deferred tax asset valuation allowances during that quarter.

Deferred revenue at the end of the fourth quarter of 2011 was $69.2 million, an increase of 11% from $62.6 million at the end of the fourth quarter of 2010 and relatively unchanged from the end of the third quarter of 2011.

Cash and cash equivalents at the end of the fourth quarter of 2011 were $6.4 million compared with $4.2 million at the end of the fourth quarter of 2010 and $4.7 million at the end of the third quarter of 2011. The increase from the end of third quarter of 2011 is primarily the result of cash flow from operations for the fourth quarter of 2011 of $2.7 million, which was partially offset by the use of $0.7 million for repayment of the Company's credit facility and $0.2 million for investment in equipment.

As previously announced, subsequent to the end of the fourth quarter the Company completed the repurchase of 7.6 million of its shares at a purchase price of $0.77 per share for a total of $5.8 million under its modified "Dutch auction" tender announced on December 15, 2011. Since initiating its first share buyback program in February 2007, the Company has repurchased a total of 30.8 million shares through its buyback programs, representing 40.5% of the Company's total shares outstanding at the end of January 2007.

Conference Call

Tucows management will host a conference call today, Wednesday, February 15, 2012 at 5:00 p.m. (ET) to discuss the Company's fourth quarter 2011 results. Participants can access the conference call via the Internet at www.tucowsinc.com/investors.

For those unable to participate in the conference call at the scheduled time, it will be archived for replay both by telephone and via the Internet beginning approximately one hour following completion of the call. To access the archived conference call by telephone, dial 416-849-0833 or 1-855-859-2056 and enter the pass code 48872391 followed by the pound key. The telephone replay will be available until Wednesday, February 22, 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 eleven million domain names and millions of email boxes through a reseller network of over 12,000 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 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, our future growth, the consistency of our business and our ability to generate cash. 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, and YummyNames are registered trademarks of Tucows Inc. or its subsidiaries.

Tucows Inc.
Consolidated Balance Sheets
(Dollar amounts in U.S. dollars)

				December 31,		December 31,
				2011		2010
				(unaudited)		(unaudited)

Assets

Current assets:
	Cash and cash equivalents		$	6,408,209	$	4,205,729
	Accounts receivable			3,880,184		3,021,995
	Inventory			205,597		-
	Prepaid expenses and deposits			3,756,308		2,363,876
	Derivative instrument asset, current portion			-		833,960
	Prepaid domain name registry and ancillary services fees, current portion			43,209,033		37,016,871
	Income taxes recoverable			867,093		620,000
		Total current assets		58,326,424		48,062,431

Derivative instrument asset, long-term portion				87,023		-
Prepaid domain name registry and ancillary services fees, long-term portion				12,600,154		12,820,479
Property and equipment				1,437,564		1,552,349
Deferred financing charges				2,300		15,600
Deferred tax asset, long-term portion				6,880,377		4,155,600
Intangible assets				17,482,590		16,883,401
Goodwill				18,873,127		17,990,807
		Total assets	$	115,689,559	$	101,480,667


Liabilities and Stockholders' Equity

Current liabilities:
	Accounts payable		$	1,051,115	$	1,664,006
	Accrued liabilities			2,081,968		1,346,436
	Customer deposits			4,202,899		3,960,312
	Derivative instrument liability, current portion			781,027		-
	Loan payable, current portion			850,000		1,305,883
	Deferred revenue, current portion			52,683,546		45,832,374
	Accreditation fees payable, current portion			555,869		547,810
	Deferred tax liability, current portion			880,008		1,155,600
	Income taxes payable			158,258		-
		Total current liabilities		63,244,690		55,812,421

Derivative instrument liability, long-term portion				5,479		-
Deferred revenue, long-term portion				16,492,155		16,738,429
Accreditation fees payable, long-term portion				156,061		168,580
Deferred rent, long-term portion				26,487		-
Deferred tax liability, long-term portion				5,345,700		4,840,000

Stockholders' equity:
	Preferred stock - no par value, 1,250,000 shares authorized; none issued and outstanding			-		-
	Common stock - no par value, 250,000,000 shares authorized; 53,497,584 shares issued and outstanding as of December 31, 2011 and 53,448,591 shares issued and outstanding as of December 31, 2010			11,358,959		11,324,866
	Additional paid-in capital			40,994,013		40,700,587
	Deficit			(21,933,985)		(28,104,216)
		Total stockholders' equity		30,418,987		23,921,237
Total liabilities and stockholders' equity			$	115,689,559	$	101,480,667


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

			Three months ended December 31,				Year ended December 31,
				2011		2010		2011		2010
			(unaudited)				(unaudited)

Net revenues			$	26,369,781	$	22,077,286	$	97,064,967	$	84,578,505

Cost of revenues:
	Cost of revenues (*)			18,509,663		15,623,360		68,088,387		58,494,849
	Network expenses			1,145,655		1,148,073		4,837,650		4,648,899
	Depreciation of property and equipment			141,494		238,000		750,455		1,032,368
	Amortization of intangible assets			35,910		74,802		85,590		299,208
		Total cost of revenues		19,832,722		17,084,235		73,762,082		64,475,324

Gross profit				6,537,059		4,993,051		23,302,885		20,103,181

Expenses:
	Sales and marketing (*)			1,778,922		1,737,526		7,442,681		7,217,754
	Technical operations and development (*)			1,216,446		1,091,180		4,868,228		4,577,898
	General and administrative (*) (note 1)			1,477,153		1,132,954		6,096,596		5,123,074
	Depreciation of property and equipment			46,449		43,285		187,005		170,844
	Loss on disposition of property and equipment			42,165		-		42,165		-
	Amortization of intangible assets			219,030		360,540		1,004,950		1,442,160
	Loss (gain) on currency forward contracts (note 1)			(838,954)		(601,263)		535,223		(872,539)
		Total expenses		3,941,211		3,764,222		20,176,848		17,659,191

Income from operations				2,595,848		1,228,829		3,126,037		2,443,990

Other income (expenses):
	Interest (expense) income, net			(11,489)		(16,385)		(50,404)		(116,197)
	Other income			-		-		374,977		-
		Total other income (expenses)		(11,489)		(16,385)		324,573		(116,197)

Income before provision for income taxes				2,584,359		1,212,444		3,450,610		2,327,793

Provision for (recovery of) income taxes				(3,470,527)		(24,260)		(2,719,621)		210,845
Net income for the year			$	6,054,886	$	1,236,704	$	6,170,231	$	2,116,948


Basic earnings per common share			$	0.11	$	0.02	$	0.12	$	0.04

Shares used in computing basic earnings per common share				53,483,508		54,203,289		53,454,675		57,982,248

Diluted earnings per common share			$	0.11	$	0.02	$	0.11	$	0.04

Shares used in computing diluted earnings per common share				55,780,131		56,294,238		55,749,433		59,955,788

(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 December 31, 2010 and a gain of $2.2 million for the year ended December 31, 2010 have been reclassified from "General and administrative expense" to "Loss (gain) on currency forward contracts". 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		$	5,802	$	6,647	$	22,972	$	22,406
	Sales and marketing		$	24,088	$	24,711	$	91,244	$	96,300
	Technical operations and development		$	11,862	$	19,109	$	51,984	$	71,012
	General and administrative		$	20,588	$	35,847	$	144,757	$	210,284

		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 December 31,				Year ended December 31,
			2011		2010		2011		2010
Cash provided by (used in):		(unaudited)				(unaudited)
Operating activities:

Net income for the period		$	6,054,886	$	1,236,704	$	6,170,231	$	2,116,948
Items not involving cash:
	Depreciation of property and equipment		187,943		281,285		937,460		1,203,212
	Loss on write off of property and equipment		42,165		-		42,165		-
	Amortization of deferred financing charges		2,200		5,300		13,300		25,400
	Amortization of intangible assets		254,940		435,342		1,090,540		1,741,368
	Deferred income taxes (recovery)		(3,028,269)		-		(3,046,669)		-
	Deferred rent		7,213		-		26,487		-
	Disposal of domain names		4,164		14,494		34,071		31,584
	(Gain) loss on change in fair value of forward exchange contracts		(924,661)		(298,321)		1,533,443		1,370,710
	Stock-based compensation		62,339		86,314		310,956		400,002
Changes in non-cash operating working capital:
	Accounts receivable		409,278		310,282		(270,594)		(199,950)
	Inventory		(205,597)		-		(205,597)		-
	Prepaid expenses and deposits		67		73,690		(923,909)		135,046
	Prepaid fees for domain name registry and ancillary services fees		(109,892)		(328,041)		(4,855,039)		(6,114,599)
	Income taxes recoverable		(579,682)		(73,000)		(261,215)		54,000
	Accounts payable		(276,156)		408,414		(611,532)		(35,210)
	Accrued liabilities		254,361		(307,613)		515,931		(571,930)
	Customer deposits		299,335		257,848		209,984		335,995
	Deferred revenue		238,245		236,335		5,179,716		6,260,225
	Accreditation fees payable		(10,058)		2,232		(4,460)		16,114
Net cash provided by operating activities			2,682,821		2,341,265		5,885,269		6,768,915

Financing activities:
	Proceeds received on exercise of stock options		17,201		-		31,346		14,809
	Repurchase of common stock		(18,442)		(2,792,301)		(18,442)		(9,707,093)
	Proceeds received on Short Swing Sale		3,659		-		3,659		-
	Repayment of loan payable		(709,722)		(478,560)		(455,883)		(1,914,242)
	Net cash used in financing activities		(707,304)		(3,270,861)		(439,320)		(11,606,526)

Investing activities:
	Additions to property and equipment		(221,073)		(296,264)		(851,008)		(589,054)
	Acquisition of EPAG Domainservices GMBH, net of cash acquired		-		-		(2,392,461)		-
	Net cash used in investing activities		(221,073)		(296,264)		(3,243,469)		(589,054)

Increase (decrease) in cash and cash equivalents			1,754,444		(1,225,860)		2,202,480		(5,426,665)

Cash and cash equivalents, beginning of year			4,653,765		5,431,589		4,205,729		9,632,394
Cash and cash equivalents, end of year		$	6,408,209	$	4,205,729	$	6,408,209	$	4,205,729

Supplemental cash flow information:
	Interest paid	$	13,969	$	16,444	$	53,166	$	116,242

Supplementary disclosure of non-cash investing activity:
	Property and equipment acquired during the period not yet paid for	$	257,967	$	273,333	$	257,967	$	273,333