Tucows Reports Continuing Strong Financial Results for Fourth Quarter of 2012

- Company Achieves Eleventh Consecutive Quarter of Record Revenue and Generates Strong Cash Flow From Operations -

TORONTO, Feb. 13, 2013 /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 fourth quarter ended December 31, 2012. All figures are in U.S. dollars.

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

	3 Months Ended Dec. 31, 2012 (unaudited)	3 Months Ended Dec. 31, 2011 (unaudited)	12 Months Ended Dec. 31, 2012 (unaudited)	12 Months Ended Dec. 31, 2011 (unaudited)
Net revenue	29,791	26,370	114,727	97,065
Income before provision for income taxes and change in fair value of forward exchange contracts	789	1,745	5,745	3,986
Net income and comprehensive income for the period	474	6,055	4,468	6,170
Net earnings per common share	$0.01	$0.11	$0.10	$0.12
Net cash provided by operating activities	2,022	2,683	6,343	5,885

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

	Revenue		Cost of Revenue
	3 Months Ended Dec. 31, 2012 (unaudited)	3 Months Ended Dec. 31, 2011 (unaudited)	3 Months Ended Dec. 31, 2012 (unaudited)	3 Months Ended Dec. 31, 2011 (unaudited)
Wholesale
Domain Services	22,391	20,742	18,893	17,347
Value-Added    Services	2,705	2,186	456	435
Total Wholesale	25,096	22,928	19,349	17,782
Retail	3,628	1,432	2,454	549
Portfolio	1,067	2,010	201	179
Network, other costs	-	-	1,296	1,146
Network, depreciation and amortization costs	-	-	187	177
Total revenue/cost of revenue	29,791	26,370	23,487	19,833

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

"Our performance in the fourth quarter and for the year underscores the consistency and reliability in our business, as well as our ability to deliver growth," said Elliot Noss, President and Chief Executive Officer, Tucows Inc.  "All facets of our operations continue to perform well, although our results for the quarter were dampened by the timing of Portfolio revenues and vendor marketing programs.  Moreover, our ability to generate cash enabled us to continue to deliver on our stated objective to return capital to shareholders, repurchasing an additional 14.1 million shares, or 26.3% of shares outstanding, since the beginning of 2012. In addition, our launch of Ting was a great example of our ability to introduce new services that have the opportunity generate meaningful growth with little capital expenditure or impact on ongoing costs."

"As we look ahead to 2013, our core businesses will continue to grow and Ting is on track to contribute to EBITDA in the coming years.  Despite a modest upfront investment and very little incremental ongoing expenses, we already consider Ting to be a success.  We continue to experience efficient customer acquisition costs and attractive gross margins. While we have kept our expectations modest, we've been pleasantly surprised by the reception and momentum Ting has experienced in the market."

"We continue to benefit from the efficiency in our business and remain well positioned to continue to deliver consistent, reliable performance, generate growth and build value for our shareholders."

Net revenue for the fourth quarter of 2012 increased 13% to a record $29.8 million from $26.4 million for the fourth quarter of 2011.

Net income and comprehensive income for the fourth quarter of 2012 was $0.5 million, or $0.01 per share, compared with $6.1 million, or $0.11 per share, for the fourth quarter of 2011, which included the recovery of $3.5 million in income taxes and the benefit of a gain on foreign exchange contracts of $0.8 million compared with a loss on foreign exchange contracts of $0.1 million in the fourth quarter of 2012.  In addition, net income for the fourth quarter of 2012 was impacted by the timing of both vendor marketing programs and domain sales from inventory, which dampened the contribution from the Portfolio component of business.

Deferred revenue at the end of the fourth quarter of 2012 was $71.0 million, an increase of 3% from $69.2 million at the end of the fourth quarter of 2011 and a decrease of 3% from $73.3 million at the end of the third quarter of 2012.

Cash and cash equivalents at the end of the fourth quarter of 2012 were $6.4 million compared with $5.0 million at the end of the third quarter of 2012 and $6.4 million from the end of the fourth quarter of 2011.  During the fourth quarter of 2012, the Company generated cash flow from operations of $2.0 million compared with $2.7 million for the same quarter of 2011. During the quarter, the Company used $0.3 million for principal repayments under its credit facility and invested $0.3 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.

As previously announced, subsequent to the end of the fourth quarter the Company completed the repurchase of 4.1 million of its shares at a purchase price of $1.50 per share for a total of $6.2 million under its modified "Dutch auction" tender announced on November 13, 2012. Since initiating its first share buyback program in February 2007, the Company has repurchased a total of 37.3 million shares through its buyback programs, representing 49% of the Company's total shares outstanding at the end of December 2006.

Conference Call

Tucows management will host a conference call today, Wednesday, February 13, 2013 at 5:00 p.m. (ET) to discuss the Company's fourth 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 95427084 followed by the pound key.  The telephone replay will be available until Wednesday, February 20, 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).

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

			December 31,		December 31,
			2012		2011
			(unaudited)		(unaudited)
Assets
Current assets:
	Cash and cash equivalents		6,415,679		6,408,209
	Accounts receivable		4,413,265		3,880,184
	Inventory		587,104		205,597
	Prepaid expenses and deposits		5,081,408		3,756,308
	Derivative instrument asset, current portion		412,944		-
	Prepaid domain name registry and ancillary services fees, current portion		45,170,167		43,209,033
	Income taxes recoverable		1,730,631		867,093
		Total current assets	63,811,198		58,326,424
Derivative instrument asset, long-term portion			31,838		87,023
Prepaid domain name registry and ancillary services fees, long-term portion			12,318,723		12,600,154
Property and equipment			1,352,144		1,437,564
Deferred financing charges			-		2,300
Deferred tax asset, long-term portion			5,970,462		6,880,377
Intangible assets			16,415,651		17,482,590
Goodwill			18,873,127		18,873,127
		Total assets	118,773,143		115,689,559
Liabilities and Stockholders' Equity
Current liabilities:
	Accounts payable		1,928,459		1,051,115
	Accrued liabilities		2,522,229		2,081,968
	Customer deposits		4,955,671		4,202,899
	Derivative instrument liability, current portion		-		781,027
	Loan payable, current portion		3,700,000		850,000
	Deferred revenue, current portion		54,997,887		52,683,546
	Accreditation fees payable, current portion		512,847		555,869
	Deferred tax liability, current portion		914,429		880,008
	Income taxes payable		1,255,108		158,258
		Total current liabilities	70,786,630		63,244,690
Derivative instrument liability, long-term portion			-		5,479
Deferred revenue, long-term portion			16,002,464		16,492,155
Accreditation fees payable, long-term portion			145,592		156,061
Deferred rent, long-term portion			54,150		26,487
Deferred tax liability, long-term portion			5,234,100		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; 44,322,159 shares issued and outstanding as of December 31, 2012 and 53,497,584 shares issued and outstanding as of December 31, 2011		10,084,417		11,358,959
	Additional paid-in capital		33,931,529		40,994,013
	Deficit		(17,509,843)		(21,933,985)
	Accumulated other comprehensive income		44,104		-
		Total stockholders' equity	26,550,207		30,418,987
Total liabilities and stockholders' equity			118,773,143		115,689,559

				Tucows  Inc.				Tucows  Inc.
				Consolidated Statements of Operations and Comprehensive Income      (Dollar amounts in U.S. dollars)				Consolidated Statements of Operations and Comprehensive Income (Dollar amounts in U.S. dollars)
				Three months ended December 31,				Year ended December 31,
				2012		2011		2012		2011
				(unaudited)				(unaudited)
Net revenues			$	29,790,912	$	26,369,781	$	114,726,901	$	97,064,967
Cost of revenues:
	Cost of revenues (*)			22,003,975		18,509,663		82,837,395		68,088,387
	Network expenses			1,295,419		1,145,655		4,925,058		4,837,650
	Depreciation of property and equipment			151,381		141,494		611,640		750,455
	Amortization of intangible assets			35,910		35,910		143,640		85,590
		Total cost of revenues		23,486,685		19,832,722		88,517,733		73,762,082
Gross profit				6,304,227		6,537,059		26,209,168		23,302,885
Expenses:
	Sales and marketing (*)			2,413,744		1,778,922		8,701,446		7,442,681
	Technical operations and development (*)			1,073,151		1,216,446		4,302,820		4,868,228
	General and administrative (*) (note 1)			1,592,641		1,477,153		6,610,819		6,096,596
	Depreciation of property and equipment			50,502		46,449		190,420		187,005
	Loss on disposition of property and equipment			118,944		42,165		118,944		42,165
	Amortization of intangible assets			219,030		219,030		876,120		1,004,950
	Loss (gain) on currency forward contracts (note 1)			110,665		(838,954)		(682,851)		535,223
		Total expenses		5,578,677		3,941,211		20,117,718		20,176,848
Income from operations				725,550		2,595,848		6,091,450		3,126,037
Other income (expenses):
	Interest (expense) income, net			(47,153)		(11,489)		(192,863)		(50,404)
	Other income			-		-		529,711		374,977
		Total other income (expenses)		(47,153)		(11,489)		336,848		324,573
Income before provision for income taxes				678,397		2,584,359		6,428,298		3,450,610
Provision for (recovery of) income taxes				248,872		(3,470,527)		2,004,156		(2,719,621)
Net income before comprehensive income for the period				429,525		6,054,886		4,424,142		6,170,231
Comprehensive income				44,104		-		44,104		-
Net income and comprehensive income for the period			$	473,629	$	6,054,886	$	4,468,246	$	6,170,231
Basic earnings per common share			$	0.01	$	0.11	$	0.10	$	0.12
Shares used in computing basic earnings per common share				44,256,179		53,483,508		45,832,862		53,454,675
Diluted earnings per common share			$	0.01	$	0.11	$	0.09	$	0.11
Shares used in computing diluted earnings per common share				47,723,766		55,780,131		49,134,944		55,749,433
(*) Stock-based compensation has been included in expenses as follows:
	Network expenses		$	6,126	$	5,802	$	24,480	$	22,972
	Sales and marketing		$	25,121	$	24,088	$	92,168	$	91,244
	Technical operations and development		$	15,651	$	11,862	$	59,141	$	51,984
	General and administrative		$	21,869	$	20,588	$	184,910	$	144,757

				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,
				2012		2011		2012		2011
Cash provided by (used in):				(unaudited)				(unaudited)
Operating activities:
	Net income and comprehensive income for the period		$	429,525	$	6,054,886	$	4,424,142	$	6,170,231
	Items not involving cash:
		Depreciation of property and equipment		201,883		187,943		802,060		937,460
		Loss on write off of property and equipment		118,944		42,165		118,944		42,165
		Amortization of deferred financing charges		-		2,200		2,300		13,300
		Amortization of intangible assets		254,940		254,940		1,019,760		1,090,540
		Deferred income taxes (recovery)		499,625		(3,028,269)		832,736		(3,046,669)
		Deferred rent		6,205		7,213		27,663		26,487
		Acquisition of domain names		-		-		(3,664)		-
		Disposal of domain names		12,662		4,164		50,843		34,071
		Gain on disposition of intangible assets with no book value		-		-		(508,800)		-
		(Gain) loss on change in fair value of forward exchange contracts		54,986		(924,661)		(1,100,161)		1,533,443
		Stock-based compensation		68,767		62,339		360,699		310,956
	Changes in non-cash operating working capital:
		Accounts receivable		413,511		409,278		(533,081)		(270,594)
		Inventory		(173,894)		(205,597)		(381,507)		(205,597)
		Prepaid expenses and deposits		(278,001)		67		(1,325,100)		(923,909)
		Prepaid fees for domain name registry and ancillary services fees		1,712,684		(109,892)		(1,679,703)		(4,855,039)
		Income taxes recoverable		(233,573)		(579,682)		233,312		(261,215)
		Accounts payable		283,217		(276,156)		931,467		(611,532)
		Accrued liabilities		302,852		254,361		547,590		515,931
		Customer deposits		689,955		299,335		752,772		209,984
		Deferred revenue		(2,315,219)		238,245		1,824,650		5,179,716
		Accreditation fees payable		(26,831)		(10,058)		(53,491)		(4,460)
	Net cash provided by operating activities			2,022,238		2,682,821		6,343,431		5,885,269
Financing activities:
	Proceeds received on exercise of stock options			54,210		17,201		418,108		31,346
	Repurchase of common stock			-		(18,442)		(9,115,833)		(18,442)
	Proceeds received on Short Swing Sale			-		3,659		4,000,000		3,659
	Repayment of loan payable			(300,000)		(709,722)		(1,150,000)		(455,883)
	Net cash used in financing activities			(245,790)		(707,304)		(5,847,725)		(439,320)
Investing activities:
	Additions to property and equipment			(330,502)		(221,073)		(997,036)		(851,008)
	Acquisition of EPAG Domainservices GMBH, net of cash acquired			-		-		-		(2,392,461)
	Proceeds  on disposition of intangible asset with no book value			-		-		508,800		-
	Net cash used in investing activities			(330,502)		(221,073)		(488,236)		(3,243,469)
Increase (decrease) in cash and cash equivalents				1,445,946		1,754,444		7,470		2,202,480
Cash and cash equivalents, beginning of period				4,969,733		4,653,765		6,408,209		4,205,729
Cash and cash equivalents, end of period			$	6,415,679	$	6,408,209	$	6,415,679	$	6,408,209
Supplemental cash flow information:
	Interest paid		$	49,167	$	13,969	$	195,509	$	53,166
Supplementary disclosure of non-cash investing activity:
	Property and equipment acquired during the period not yet paid for		$	96,515	$	257,967	$	96,515	$	257,967

 

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.

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