Tucows Reports Financial Results for the Fourth Quarter of 2013

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Feb 12, 2014, 04:00 ET

- Ting Continues Strong Momentum in Customer Growth -

TORONTO, Feb. 12, 2014 /PRNewswire/ - Tucows Inc. (NASDAQ:TCX, TSX:TC), a global provider of domain names and other Internet services, today reported its financial results for the fourth quarter ended December 31, 2013. All figures are in U.S. dollars.

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

	3 Months Ended Dec. 31, 2013 (unaudited)	3 Months Ended Dec. 31, 2012 (unaudited)	12 Months Ended Dec. 31, 2013 (unaudited)	12 Months Ended Dec. 31, 2012 (unaudited)
Net revenue	33,139	29,791	129,935	114,727
Income before provision for income taxes and change in fair value of forward exchange contracts	1,532	789	6,476	5,745
Net income	923	429	4,180	4,424
Net earnings per common share⁽¹⁾	$0.08	$0.04	$0.40	$0.39
Net cash provided by operating activities	1,651	2,022	8,703	6,343

Net earnings per common share reflects the 1-for-4 reverse split of common shares that became effective December 31, 2013. As a result of the reverse split, 10,900,842 shares and 11,064,045 shares were used in computing net earnings per common share for the 3 months ended December 31, 2013 and 2012, respectively, and 10,468,250 shares and 11,458,216 shares were used in computing net earnings per common share for the 12 months ended December 31, 2013 and 2012, respectively.

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

	Revenue	Revenue	Cost of Revenue	Cost of Revenue
	3 Months Ended Dec. 31, 2013 (unaudited)	3 Months Ended Dec. 31, 2012 (unaudited)	3 Months Ended Dec. 31, 2013 (unaudited)	3 Months Ended Dec. 31, 2012 (unaudited)
Wholesale
Domain Services	21,595	22,391	17,949	18,893
Value-Added Services	2,417	2,705	548	456
Total Wholesale	24,012	25,096	18,497	19,349

Retail	8,027	3,628	4,966	2,454
Portfolio	1,100	1,067	143	201

Network, other costs	-	-	1,120	1,296
Network, depreciation and amortization costs	-	-	175	187
Total revenue/cost of revenue	33,139	29,791	24,901	23,487

"Our financial results for the fourth quarter once again underscore not only the consistency and reliability in our business but also our continued ability to generate sustainable growth," said Elliot Noss, President and Chief Executive Officer, Tucows Inc. "In the domains component of our business, we continue to see solid performance from both our Wholesale and Portfolio services, while our retail channel, Hover, delivered another quarter of 20%-plus year-over-year top-line growth."

"For the seventh straight quarter, Ting set new records for net adds, adding more than 12,000 accounts and 18,000 devices. We ended the year with over 48,000 accounts and 74,000 devices and, in January, surpassed the 50,000 accounts and 80,000 devices milestone. Ting continues to be on track to positively contribute to EBITDA for 2014, although our priority will continue to be aggressive investment in customer acquisition and customer satisfaction to ultimately drive even greater long-term value for shareholders."

Net revenue for the fourth quarter of 2013 increased 11% to $33.1 million from $29.8 million for the fourth quarter of 2012.

Net income for the fourth quarter of 2013 was $0.9 million, or $0.08 per share (based on the number of shares post-reverse split), compared with $0.4 million, or $0.04 per share (based on the number of shares post-reverse split), for the fourth quarter of 2012. Net income for the fourth quarter of 2013 included a loss on foreign exchange contracts of $0.3 million compared with a loss on foreign exchange contracts of $0.1 million in the fourth quarter of 2012. Net income for the fourth quarter of 2013 also included the incremental investment of approximately $1.3 million for the acquisition and support of Ting customers as compared to the fourth quarter of 2012.

Deferred revenue at the end of the fourth quarter of 2013 was $70.0 million, a decrease of 1% from $71.0 million at the end of the fourth quarter of 2012 and a decrease of 3% from $72.0 million at the end of the third quarter of 2013.

Cash and cash equivalents at the end of the fourth quarter of 2013 were $12.4 million compared with $11.5 million at the end of the third quarter of 2013 and $6.4 million at the end of the fourth quarter of 2012. The increase in cash and cash equivalents of $0.9 million when compared to the third quarter of 2013 resulted from the generation of $1.7 million in cash flow from operations, which was partially offset by the use of $0.6 million for principal repayments under the Company's credit facility and investment of $0.2 million in equipment purchases.

Conference Call

Tucows management will host a conference call today, Wednesday, February 12, 2014 at 5:00 p.m. (ET) to discuss the Company's fourth 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 46588159 followed by the pound key. The telephone replay will be available until Wednesday, February 19, 2014 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 (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).

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

			December 31,		December 31,
			2013		2012
			(unaudited)		(unaudited)

Assets

Current assets:
	Cash and cash equivalents		$	12,418,888	$	6,415,679
	Accounts receivable			5,305,403		4,413,265
	Inventory			309,686		587,104
	Prepaid expenses and deposits			4,309,039		5,081,408
	Derivative instrument asset, current portion			-		412,944
	Prepaid domain name registry and ancillary services fees, current portion			44,209,591		45,170,167
	Deferred tax asset, current portion			1,081,526		-
	Income taxes recoverable			475,889		1,730,631
		Total current assets		68,110,022		63,811,198

Derivative instrument asset, long-term portion				-		31,838
Prepaid domain name registry and ancillary services fees, long-term portion				11,838,579		12,318,723
Property and equipment				1,757,836		1,352,144
Deferred tax asset, long-term portion				5,370,037		5,970,462
Intangible assets				15,403,228		16,415,651
Goodwill				18,873,127		18,873,127
		Total assets	$	121,352,829	$	118,773,143


Liabilities and Stockholders' Equity

Current liabilities:
	Accounts payable		$	2,361,481	$	1,928,459
	Accrued liabilities			3,913,034		2,522,229
	Customer deposits			4,500,946		4,955,671
	Derivative instrument liability, current portion			491,098		-
	Loan payable, current portion			6,300,000		3,700,000
	Deferred revenue, current portion			54,379,719		54,997,887
	Accreditation fees payable, current portion			473,811		512,847
	Deferred tax liability, current portion			-		914,429
	Income taxes payable			1,024,004		1,255,108
		Total current liabilities		73,444,093		70,786,630

Deferred revenue, long-term portion				15,638,517		16,002,464
Accreditation fees payable, long-term portion				135,522		145,592
Deferred rent, long-term portion				75,979		54,150
Deferred tax liability, long-term portion				5,141,500		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; 10,907,063 shares issued and outstanding as of December 31, 2013 and 11,080,034 shares issued and outstanding as of December 31, 2012 (1)			11,859,267		10,084,417
	Additional paid-in capital			28,632,311		33,931,529
	Deficit			(13,329,379)		(17,509,843)
	Accumulated other comprehensive income (loss)			(244,981)		44,104
		Total stockholders' equity		26,917,218		26,550,207
Total liabilities and stockholders' equity			$	121,352,829	$	118,773,143

(1) Common stock issued and outstanding reflects the 1-for-4 reverse split of common shares that became effective December 31, 2013.


				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,
				2013		2012		2013		2012
				(unaudited)				(unaudited)

Net revenues			$	33,139,440	$	29,790,912	$	129,934,904	$	114,726,901

Cost of revenues:
	Cost of revenues			23,605,955		22,003,975		92,960,321		82,837,395
	Network expenses (*)			1,119,468		1,295,419		4,835,939		4,925,058
	Depreciation of property and equipment			175,262		151,381		627,973		611,640
	Amortization of intangible assets			-		35,910		83,790		143,640
		Total cost of revenues		24,900,685		23,486,685		98,508,023		88,517,733

Gross profit				8,238,755		6,304,227		31,426,881		26,209,168

Expenses:
	Sales and marketing (*)			3,348,945		2,413,744		12,141,036		8,701,446
	Technical operations and development (*)			1,061,309		1,073,151		4,158,603		4,302,820
	General and administrative (*) (note 1)			1,937,898		1,592,641		7,204,895		6,610,819
	Depreciation of property and equipment			56,614		50,502		215,447		190,420
	Loss on disposition of property and equipment			-		118,944		-		118,944
	Amortization of intangible assets			219,030		219,030		876,120		876,120
	Loss (gain) on currency forward contracts (note 1)			322,911		110,665		676,120		(682,851)
		Total expenses		6,946,707		5,578,677		25,272,221		20,117,718

Income from operations				1,292,048		725,550		6,154,660		6,091,450

Other income (expenses):
	Interest expense, net			(83,101)		(47,153)		(354,857)		(192,863)
	Other income			-		-		-		529,711
		Total other income (expenses)		(83,101)		(47,153)		(354,857)		336,848

Income before provision for income taxes				1,208,947		678,397		5,799,803		6,428,298

Provision for income taxes				286,052		248,872		1,619,339		2,004,156
Net income				922,895		429,525		4,180,464		4,424,142

Other comprehensive income, net of tax of $257,505 for the three months ended September 30, 2013 and $24,800 for the nine months ended September 30, 2013				(336,693)		44,104		(289,085)		44,104
Comprehensive income (loss) for the period			$	586,202	$	473,629	$	3,891,379	$	4,468,246

Basic earnings per common share (1)			$	0.08	$	0.04	$	0.40	$	0.39

Shares used in computing basic earnings per common share (1)				10,900,842		11,064,045		10,468,250		11,458,216

Diluted earnings per common share (1)			$	0.08	$	0.04	$	0.37	$	0.36

Shares used in computing diluted earnings per common share (1)				11,538,283		11,930,942		11,281,409		12,283,736



(*) Stock-based compensation has been included in expenses as follows:
	Network expenses		$	8,851	$	6,126	$	31,664	$	24,480
	Sales and marketing		$	36,302	$	25,121	$	129,302	$	92,168
	Technical operations and development		$	21,634	$	15,651	$	78,800	$	59,141
	General and administrative		$	35,233	$	21,869	$	191,137	$	184,910

(1) Net earnings per common share reflects the 1-for-4 reverse split of common shares that became effective December 31, 2013.


				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,
				2013		2012		2013		2012
Cash provided by:				(unaudited)				(unaudited)
Operating activities:
	Net income for the period		$	922,895	$	429,525	$	4,180,464	$	4,424,142
	Items not involving cash:
		Depreciation of property and equipment		231,876		201,883		843,420		802,060
		Loss on write off of property and equipment		-		118,944		-		118,944
		Amortization of deferred financing charges		-		-		-		2,300
		Amortization of intangible assets		219,030		254,940		959,910		1,019,760
		Deferred income taxes (recovery)		(169,268)		499,625		(247,371)		832,736
		Excess tax benefits on share-based compensation expense		(34,157)		-		(1,090,171)		-
		Deferred rent		4,081		6,205		21,829		27,663
		Acquisition of domain names		-		-		-		(3,664)
		Disposal of domain names		8,221		12,662		52,513		50,843
		Gain on disposition of intangible assets		-		-		-		(508,800)
		(Gain) loss on change in the fair value of forward contracts		134,561		54,986		496,207		(1,100,161)
		Stock-based compensation		102,020		68,767		430,903		360,699

	Changes in non-cash operating working capital:
		Accounts receivable		(435,937)		413,511		(892,138)		(533,081)
		Inventory		28,424		(173,894)		277,418		(381,507)
		Prepaid expenses and deposits		(67,637)		(278,001)		772,369		(1,325,100)
		Prepaid fees for domain name registry and ancillary services fees		1,785,439		1,712,684		1,440,720		(1,679,703)
		Income taxes recoverable/payable		(63,695)		(233,573)		1,023,638		233,312
		Accounts payable		(170,657)		283,217		529,537		931,467
		Accrued liabilities		725,821		302,852		1,390,805		547,590
		Customer deposits		428,621		689,955		(454,725)		752,772
		Deferred revenue		(1,972,072)		(2,315,219)		(982,115)		1,824,650
		Accreditation fees payable		(25,188)		(26,831)		(49,106)		(53,491)
	Net cash provided by operating activities			1,652,378		2,022,238		8,704,107		6,343,431

Financing activities:
	Proceeds received on exercise of stock options			37,919		54,210		1,492,174		418,108
	Excess tax benefits on share-based compensation expense			34,157		-		1,090,171		-
	Repurchase of common stock			-		-		(6,537,616)		(9,115,833)
	Proceeds received on loan payable			-		-		5,200,000		4,000,000
	Repayment of loan payable			(600,000)		(300,000)		(2,600,000)		(1,150,000)
	Net cash used in financing activities			(527,924)		(245,790)		(1,355,271)		(5,847,725)

Investing activities:
	Additions to property and equipment			(255,514)		(330,502)		(1,345,627)		(997,036)
	Proceeds on disposition of intangible assets			-		-		-		508,800
	Net cash used in investing activities			(255,514)		(330,502)		(1,345,627)		(488,236)

Increase in cash and cash equivalents				868,940		1,445,946		6,003,209		7,470

Cash and cash equivalents, beginning of period				11,549,948		4,969,733		6,415,679		6,408,209
Cash and cash equivalents, end of period			$	12,418,888	$	6,415,679	$	12,418,888	$	6,415,679

Supplemental cash flow information:
	Interest paid		$	83,370	$	99,504	$	372,853	$	97,369

Supplementary disclosure of non-cash investing activity:
	Property and equipment acquired during the period not yet paid for		$	-	$	96,515	$	-	$	96,515

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.

SOURCE Tucows Inc.