Tucows Reports Continuing Strong Financial Results for the Third Quarter of 2014

- Quarter Highlighted by Net Earnings of $0.24 Per Share, Continued Momentum at Ting -

TORONTO, Nov. 12, 2014 /CNW/ - Tucows Inc. (NASDAQ:TCX, TSX:TC), a provider of network access, domain name and other Internet services, today reported its financial results for the third quarter ended September 30, 2014. All figures are in U.S. dollars.

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

	3 Months Ended Sept. 30, 2014 (unaudited)	3 Months Ended Sept. 30, 2013 (unaudited)	9 Months Ended Sept. 30, 2014 (unaudited)	9 Months Ended Sept. 30, 2013 (unaudited)
Net revenue	38,874	35,637	108,865	96,795
Income before provision for income taxes and change in fair value of forward exchange contracts	4,072	3,565	7,462	4,944
Net income	2,691	2,593	4,515	3,258
Net earnings per common share^1	$0.24	$0.24	$0.40	$0.32
Net cash provided by (used in) operating activities	5,014	3,664	6,110	7,052

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

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

	Revenue	Revenue	Cost of Revenue	Cost of Revenue
	3 Months Ended Sept. 30, 2014 (unaudited)	3 Months Ended Sept. 30, 2013 (unaudited)	3 Months Ended Sept. 30, 2014 (unaudited)	3 Months Ended Sept. 30, 2013 (unaudited)
Domain Services
Wholesale
OpenSRS Domain Service	21,880	22,003	18,230	18,581
Value-Added Services	2,350	2,606	576	485
Total Wholesale	24,230	24,609	18,806	19,066
Retail	2,687	2,143	1,197	946
Portfolio^1	2,208	4,167	189	660
Total Domain Services	29,125	30,919	20,192	20,672
Network Access Services (Ting)	9,749	4,718	5,794	3,597
Network, other costs	-	-	1,139	1,193
Network, depreciation and amortization costs	-	-	172	176
Total revenue/cost of revenue	38,874	35,637	27,297	25,638

1. Portfolio revenue for Q3 2014 and Q3 2013 includes the net amounts received from the previously announced confidential arrangements related to the Company's withdrawal of its application under the ICANN New gTLD Program for .group, and .media and .marketing, respectively.

"In the third quarter we again saw the growing contribution from Ting in our financial results as our Domain Services businesses continued to deliver consistent, reliable performance," said Elliot Noss, President and Chief Executive Officer, Tucows Inc.  "We achieved net earnings of $0.24 per share, bringing net earnings for the year-to-date to $0.40 per share, surpassing our total for the entire 2013 year.  Consolidated gross margin increased to 26% from 21% a year earlier, excluding the Portfolio group, which benefited from atypical contributions in both quarters."

"Ting continued its strong momentum in customer acquisition, adding almost 11,000 accounts and more than 17,000 devices."

Net revenue for the third quarter of 2014 increased 9% to $38.9 million from $35.6 million for the third quarter of 2013.

Net income for the third quarter of 2014 was $2.7 million, or $0.24 per share, compared with $2.6 million, or $0.24 per share, for the third quarter of 2013.  Net income for both the third quarters of 2013 and 2014 included the contribution of confidential arrangements related to the Company's withdrawal of certain of its applications under the ICANN New gTLD Program.

Cash and cash equivalents at the end of the third quarter of 2014 were $13.6 million, compared with $14.2 million at the end of the second quarter of 2014 and $11.5 million at the end of the third quarter of 2013.  During the third quarter of 2014, the Company generated cash flow from operating activities of $5.0 million, as well as $1.1 million from the proceeds of stock options. This was partially offset by the use of $5.4 million for the repayment in full of the Company's bank loan and $1.1 million for the repurchase of shares under the Company's ongoing share buyback program.

Conference Call
Tucows management will host a conference call today, Wednesday, November 12, 2014 at 5:00 p.m. (ET) to discuss the Company's third quarter 2014 results. Participants can access the conference call by dialing 1-888-231-8191 or 647-427-7450 or via the Internet at http://www.tucows.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 21916055 followed by the pound key.  The telephone replay will be available until Wednesday, November 19, 2014 at midnight. To access the archived conference call as an MP3 via the Internet, go to http://www.tucows.com/investors.

About Tucows
Tucows is a provider of network access, domain name and other Internet services. Ting (https://ting.com) is a mobile phone service provider dedicated to bringing clarity and control to US mobile phone users.  OpenSRS (http://opensrs.com) manages over 13 million domain names and millions of value-added services through a global 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. More information can be found on Tucows' corporate website (http://tucows.com).

 

Tucows  Inc.
Consolidated Balance Sheets
(Dollar amounts in U.S. dollars)
				September 30,		December 31,
				2014		2013
				(unaudited)
Assets
Current assets:
	Cash and cash equivalents			$ 13,589,246		$ 12,418,888
	Accounts receivable			6,914,690		5,305,403
	Inventory			391,026		309,686
	Prepaid expenses and deposits			4,322,231		4,309,039
	Prepaid domain name registry and ancillary services fees, current portion			45,985,103		44,209,591
	Deferred tax asset, current portion			1,874,824		1,081,526
	Income taxes recoverable			526,534		475,889
		Total current assets		73,603,654		68,110,022
Prepaid domain name registry and ancillary services fees, long-term portion				11,911,238		11,838,579
Property and equipment				1,742,305		1,757,836
Deferred tax asset, long-term portion				5,569,900		5,370,037
Intangible assets				14,261,216		15,403,228
Goodwill				18,873,127		18,873,127
		Total assets		$ 125,961,440		$ 121,352,829
Liabilities and Stockholders' Equity
Current liabilities:
	Accounts payable			$ 3,574,165		$ 2,361,481
	Accrued liabilities			4,957,900		3,913,034
	Customer deposits			4,069,332		4,500,946
	Derivative instrument liability			762,053		491,098
	Loan payable, current portion			-		6,300,000
	Deferred revenue, current portion			57,182,978		54,379,719
	Accreditation fees payable, current portion			484,989		473,811
	Income taxes payable			179,007		1,024,004
		Total current liabilities		71,210,424		73,444,093
Deferred revenue, long-term portion				15,795,206		15,638,517
Accreditation fees payable, long-term portion				130,166		135,522
Deferred rent, long-term portion				90,191		75,979
Deferred tax liability, long-term portion				5,092,000		5,141,500
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; 11,301,891 shares issued and outstanding as of September 30, 2014 and 10,907,063 shares issued and outstanding as of December 31, 2013 (1)			13,984,072		11,859,267
	Additional paid-in capital			28,883,823		28,632,311
	Deficit			(8,814,453)		(13,329,379)
	Accumulated other comprehensive income (loss)			(409,989)		(244,981)
		Total stockholders' equity		33,643,453		26,917,218
Total liabilities and stockholders' equity				$ 125,961,440		$ 121,352,829
(1) Shares issued and outstanding at both September 30, 2014 and December 31, 2013 reflects the 1-for-4 reverse split of common shares that became effective on 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 September 30,				Nine months ended September 30,
				2014		2013		2014		2013
					(unaudited)				(unaudited)
Net revenues			$	38,874,183	$	35,637,085	$	108,864,578	$	96,795,464
Cost of revenues:
	Cost of revenues			25,985,875		24,268,961		75,038,518		69,354,366
	Network expenses (*)			1,139,515		1,192,450		3,427,856		3,716,471
	Depreciation of property and equipment			172,019		164,283		528,956		452,711
	Amortization of intangible assets			-		11,970		-		83,790
		Total cost of revenues		27,297,409		25,637,664		78,995,330		73,607,338
Gross profit				11,576,774		9,999,421		29,869,248		23,188,126
Expenses:
	Sales and marketing (*)			3,593,486		2,998,419		11,377,701		8,792,091
	Technical operations and development (*)			1,041,136		1,215,327		3,238,566		3,097,294
	General and administrative (*)			2,639,868		1,869,668		6,293,987		5,266,997
	Depreciation of property and equipment			58,685		52,972		167,527		158,833
	Amortization of intangible assets			107,230		219,030		545,290		657,090
	Impairment of indefinite life intangible assets			-		-		577,145		-
	Loss on currency forward contracts			237,985		(28,068)		885,901		353,209
		Total expenses		7,678,390		6,327,348		23,086,117		18,325,514
Income from operations				3,898,384		3,672,073		6,783,131		4,862,612
Other income (expenses):
	Interest expense, net			(63,498)		(78,966)		(206,679)		(271,756)
		Total other income (expenses)		(63,498)		(78,966)		(206,679)		(271,756)
Income before provision for income taxes				3,834,886		3,593,107		6,576,452		4,590,856
Provision for income taxes				1,143,981		999,747		2,061,526		1,333,287
Net income				2,690,905		2,593,360		4,514,926		3,257,569
Other comprehensive income (loss), net of tax
	Unrealized loss on hedging activities			(437,519)		402,026		(602,901)		(71,629)
	Net amount reclassified to earnings			57,701		92,308		437,893		119,237
Other comprehensive income (loss) net of tax of $(197,852) and $257,505 for the three months ended September 30, 2014 and September 30, 2013, and $(85,955) and $24,800 for the nine months ended September 30, 2014 and September 30, 2013				(379,818)		494,334		(165,008)		47,608
Comprehensive income (loss), net of tax for the period			$	2,311,087	$	3,087,694	$	4,349,918	$	3,305,177
Basic earnings per common share			$	0.24	$	0.24	$	0.40	$	0.32
Shares used in computing basic earnings per common share				11,321,175		10,795,896		11,190,684		10,322,469
Diluted earnings per common share			$	0.23	$	0.23	$	0.39	$	0.29
Shares used in computing diluted earnings per common share				11,787,749		11,409,975		11,718,910		11,187,308
(*) Stock-based compensation has been included in expenses as follows:
		Network expenses	$	6,600	$	8,755	$	22,397	$	22,813
		Sales and marketing	$	37,637	$	32,681	$	104,440	$	93,000
		Technical operations and development	$	22,716	$	21,549	$	59,368	$	57,166
		General and administrative	$	163,759	$	99,801	$	230,841	$	155,904
(1) Shares used in computing earnings per share as well as earnings per common share reflects the 1-for-4 reverse split of common shares that became effective on 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 September 30,				Nine months ended September 30,
				2014		2013		2014		2013
Cash provided by:					(unaudited)				(unaudited)
Operating activities:
	Net income for the period		$	2,690,905	$	2,593,360	$	4,514,926	$	3,257,569
	Items not involving cash:
		Depreciation of property and equipment		230,704		217,255		696,483		611,544
		Amortization of intangible assets		107,230		231,000		545,290		740,880
		Impairment of indefinite life intangible asset		-		-		577,145		-
		Deferred income taxes recovery		(49,214)		(99,786)		(807,691)		(78,103)
		Excess tax benefits from share-based compensation expense		168,346		(1,056,014)		(250,555)		(1,056,014)
		Amortization of deferred rent		1,832		7,872		14,212		17,748
		Disposal of domain names		10,708		8,923		19,577		44,292
		Loss (gain) on change in the fair value of forward contracts		125,305		(204,341)		19,991		361,646
		Stock-based compensation		230,712		162,786		417,046		328,883
	Change in non-cash operating working capital:
		Accounts receivable		4,440		758,089		(1,609,287)		(456,201)
		Inventory		90,114		(150,686)		(81,340)		248,994
		Prepaid expenses and deposits		613,342		543,111		(13,192)		840,006
		Prepaid domain name registry and ancillary services fees		573,727		1,038,268		(1,848,171)		(344,719)
		Income taxes recoverable		(227,558)		980,969		(794,101)		1,087,333
		Accounts payable		326,610		92,473		1,130,552		700,194
		Accrued liabilities		1,214,237		163,300		1,044,866		664,984
		Customer deposits		(418,539)		(595,776)		(431,614)		(883,346)
		Deferred revenue		(656,430)		(986,779)		2,959,948		989,957
		Accreditation fees payable		(22,510)		(39,835)		5,822		(23,918)
	Net cash (used in) provided by operating activities			5,013,961		3,664,189		6,109,907		7,051,729
Financing activities:
	Proceeds received on exercise of stock options			343,953		1,136,061		1,385,816		1,454,255
	Excess tax benefits from share-based compensation expense			741,512		1,056,014		1,755,312		1,056,014
	Repurchase of common stock			(1,099,571)		-		(1,181,857)		(6,537,616)
	Proceeds received on loan payable			-		-		-		5,200,000
	Repayment of loan payable			(5,358,333)		(600,000)		(6,300,000)		(2,000,000)
	Net cash provided by (used in) financing activities			(5,372,439)		1,592,075		(4,340,729)		(827,347)
Investing activities:
	Additions to property and equipment			(216,794)		(171,442)		(598,820)		(1,090,113)
	Net cash used in investing activities			(216,794)		(171,442)		(598,820)		(1,090,113)
Increase (decrease) in cash and cash equivalents				(575,272)		5,084,822		1,170,358		5,134,269
Cash and cash equivalents, beginning of period				14,164,518		6,465,126		12,418,888		6,415,679
Cash and cash equivalents, end of period			$	13,589,246	$	11,549,948	$	13,589,246	$	11,549,948
Supplemental cash flow information:
	Interest paid		$	64,248	$	92,610	$	207,634	$	289,483
	Income taxes paid, net		$	469,248	$	(46,057)	$	1,724,976	$	141,256
Supplementary disclosure of non-cash investing and financinag activities:
	Property and equipment acquired during the period not yet paid for		$	82,132	$	99,060	$	82,132	$	99,060

 

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]