Tucows Inc. Reports Continuing Strong Financial Results for First Quarter of 2012

- Company Reports 8th Consecutive Quarter of Record Revenue and Strong Cash Flow from Operations -

TORONTO, May 8, 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 first quarter ended March 31, 2012. All figures are in U.S. dollars. 

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

	3 Months Ended March 31, 2012 (unaudited)	3 Months Ended March 31, 2011 (unaudited)
Net revenue	27,537	22,555
Income before provision for income taxes and change in fair value of forward exchange contracts	1,950	512
Net income for the period	1,664	728
Net earnings per common share	0.04	0.01
Net cash provided by operating activities	2,081	763

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

	Revenue		Cost of Revenue
	3 Months Ended March 31, 2012 (unaudited)	3 Months Ended March 31, 2011 (unaudited)	3 Months Ended March 31, 2012 (unaudited)	3 Months Ended March 31, 2011 (unaudited)
Wholesale
Domain Service	21,108	17,540	17,620	14,573
Value-Added Services	2,689	2,266	507	513
Total Wholesale	23,797	19,806	18,127	15,086
Retail	1,850	1,195	930	419
Portfolio	1,891	1,554	210	190
Network, other costs	-	-	1,257	1,263
Network, depreciation and amortization costs	-	-	183	256
Total revenue/cost of revenue	27,537	22,555	20,707	17,214

NOTE: Beginning in the first quarter of 2012, Tucows has 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.

"The first quarter of 2012 was a solid Tucows quarter - growth across all areas of our business, strong cash generation from operations, consistency and reliability," said Elliot Noss, President and Chief Executive Officer, Tucows Inc. "We generated growth in revenue and gross margin far in excess of the growth in operating expenses, demonstrating the leverage in our business. We think that consistent growth and continued leverage will serve us well throughout 2012."

Net revenue for the first quarter of 2012 increased 22% to a record $27.5 million from $22.6 million for the first quarter of 2011 and was driven by growth in each of the Company's three service offerings.

Net income for the first quarter of 2012 was $1.7 million, or $0.04 per share, compared with net income for the first quarter of 2011 of $0.7 million, or $0.01 per share.  Net income for the first quarter of 2012 benefitted from other income of $0.5 million resulting from the sale of certain intangible assets with no book value.

Deferred revenue at the end of the first quarter of 2012 was $73.0 million, an increase of 12% from $64.9 million at the end of the first quarter of 2011 and $69.2 from the end of the fourth quarter of 2011.

Cash and cash equivalents at the end of the first quarter of 2012 were $6.4 million compared with $4.2 million at the end of the first quarter of 2011 and relatively unchanged from the end of the fourth quarter of 2011.  During the first quarter of 2012, the Company generated cash flow from operations of $2.1 million, as well as $0.5 million in cash proceeds from the aforementioned sale of intangible assets.  In addition, the Company utilized $4.0 million from its credit facility to partially fund the $5.9 million cost of the share repurchases under the modified Dutch auction tender completed in January of this year.  The Company also used $0.5 million for principal repayments under its credit facility 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, May 8, 2012 at 5:00 p.m. (ET) to discuss the Company's first 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 74551438 followed by the pound key.  The telephone replay will be available until Tuesday, May 15, 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 twelve million domain names and millions of value-added services 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 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)
		March 31,		December 31,
		2012		2011
		(unaudited)		(unaudited)
Assets
Current assets:
Cash and cash equivalents		$ 6,366,302		$ 6,408,209
Accounts receivable		4,894,913		3,880,184
Prepaid expenses and deposits		5,070,003		3,961,905
Derivative instrument asset, current portion		137,973		-
Prepaid domain name registry and ancillary services fees, current portion		45,727,148		43,209,033
Income taxes recoverable		284,082		867,093
Total current assets		62,480,421		58,326,424
Derivative instrument asset, long-term portion		127,391		87,023
Prepaid domain name registry and ancillary services fees, long-term portion		13,001,462		12,600,154
Property and equipment		1,365,438		1,437,564
Deferred financing charges		800		2,300
Deferred tax asset, long-term portion		6,811,757		6,880,377
Intangible assets		17,215,576		17,482,590
Goodwill		18,873,127		18,873,127
Total assets		$ 119,875,972		$ 115,689,559
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable		$ 1,864,847		$ 1,051,115
Accrued liabilities		2,243,550		2,081,968
Customer deposits		4,459,899		4,202,899
Derivative instrument liability, current portion		263,004		781,027
Loan payable, current portion		4,311,667		850,000
Deferred revenue, current portion		55,962,976		52,683,546
Accreditation fees payable, current portion		600,227		555,869
Deferred tax liability, current portion		1,051,376		880,008
Income taxes payable		194,320		158,258
Total current liabilities		70,951,866		63,244,690
Derivative instrument liability, long-term portion		-		5,479
Deferred revenue, long-term portion		17,036,557		16,492,155
Accreditation fees payable, long-term portion		153,657		156,061
Deferred rent, long-term portion		33,756		26,487
Deferred tax liability, long-term portion		5,317,800		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;   46,221,565 shares issued and outstanding as of   March 31, 2012 and   53,497,584 shares issued and outstanding as of December 31, 2011		9,952,314		11,358,959
Additional paid-in capital		36,700,388		40,994,013
Deficit		(20,270,366)		(21,933,985)
Total stockholders' equity		26,382,336		30,418,987
Total liabilities and stockholders' equity		$ 119,875,972		$115,689,559

	Tucows  Inc.
	Consolidated Statements of Operations
	(Dollar amounts in U.S. dollars)
	Three months ended March 31,
		2012		2011
		(unaudited)
Net revenues	$	27,537,306	$	22,555,207
Cost of revenues:
Cost of revenues		19,267,125		15,695,140
Network expenses (*)		1,256,890		1,262,828
Depreciation of property and equipment		147,418		236,681
Amortization of intangible assets		35,910		19,290
Total cost of revenues		20,707,343		17,213,939
Gross profit		6,829,963		5,341,268
Expenses:
Sales and marketing (*)		2,184,635		2,024,703
Technical operations and development (*)		1,113,145		1,199,236
General and administrative (*) (note 1)		1,783,453		1,563,774
Depreciation of property and equipment		47,415		46,187
Amortization of intangible assets		219,030		306,990
Loss (gain) on currency forward contracts (note 1)		(562,109)		(354,144)
Total expenses		4,785,569		4,786,746
Income from operations		2,044,394		554,522
Other income (expenses):
Interest (expense) income, net		(40,969)		(11,540)
Other income		508,800		323,329
Total other income (expenses)		467,831		311,789
Income before provision for income taxes		2,512,225		866,311
Provision for income taxes		848,606		138,365
Net income and comprehensive income for the period	$	1,663,619	$	727,946
Basic earnings per common share	$	0.04	$	0.01
Shares used in computing basic earnings per common share		46,221,465		53,437,672
Diluted earnings per common share	$	0.03	$	0.01
Shares used in computing diluted earnings per common share		48,954,451		55,747,952
(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 $0.5 million for the three months endedMarch 31, 2011 has 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	$	6,046	$	6,013
Sales and marketing	$	22,782	$	25,333
Technical operations and development	$	12,843	$	15,708
General and administrative	$	20,794	$	27,277

			Tucows  Inc.
			Consolidated Statements of Cash Flows
			(Dollar amounts in U.S. dollars)
			Three months ended March 31,
				2012		2011
Cash provided by (used in):				(unaudited)
Operating activities:
	Net income for the period		$	1,663,619	$	727,946
	Items not involving cash:
		Depreciation of property and equipment		194,833		282,868
		Amortization of deferred financing charges		1,500		4,400
		Amortization of intangible assets		254,940		326,280
		Deferred income taxes		212,088		-
		Deferred rent		7,269		6,945
		Acquisition of domain names		(3,664)		-
		Disposal of domain names		15,738		13,195
		Gain on disposition of intangible assets		(508,800)		-
		(Gain) loss on currency forward contracts		(701,843)		112,704
		Stock-based compensation		62,465		74,331
	Changes in non-cash operating working capital:
		Accounts receivable		(1,014,729)		(1,232,805)
		Prepaid expenses and deposits		(1,108,098)		(521,647)
		Prepaid fees for domain name registry and ancillary services fees		(2,919,423)		(2,000,239)
		Income taxes recoverable/payable		619,073		135,000
		Accounts payable		913,969		253,897
		Accrued liabilities		268,911		316,472
		Customer deposits		257,000		(91,433)
		Deferred revenue		3,823,832		2,318,399
		Accreditation fees payable		41,954		36,183
	Net cash provided by operating activities			2,080,634		762,496
Financing activities:
	Proceeds received on exercise of stock options			130,712		3,460
	Repurchase of common stock			(5,893,447)		-
	Proceeds received on loan payable			4,000,000		-
	Repayment of loan payable			(538,333)		(478,561)
	Net cash used in financing activities			(2,301,068)		(475,101)
Investing activities:
	Additions to property and equipment			(330,273)		(328,958)
	Proceeds on disposition of intangible assets			508,800		-
	Net cash provided by (used in) investing activities			178,527		(328,958)
Decrease in cash and cash equivalents				(41,907)		(41,563)
Cash and cash equivalents, beginning of period				6,408,209		4,205,729
Cash and cash equivalents, end of period			$	6,366,302	$	4,164,166
Supplemental cash flow information:
Interest paid			$	41,176	$	11,589
Supplementary disclosure of non-cash investing activity:
Property and equipment acquired during the period not yet paid for			$	50,401	$	105,136

 

 

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