Tucows Reports Financial Results for the Second Quarter of 2013

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Aug 08, 2013, 04:00 ET

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

TORONTO, Aug. 8, 2013 /PRNewswire/ - Tucows Inc. (NYSEAMEX: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