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Press release from CNW Group

Tucows Reports Continuing Strong Financial Results for Fourth Quarter of 2012

Wednesday, February 13, 2013

Tucows Reports Continuing Strong Financial Results for Fourth Quarter of 201216:00 EST Wednesday, February 13, 2013- 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 EndedDec. 31, 2012(unaudited)3 Months EndedDec. 31, 2011(unaudited)12 Months EndedDec. 31, 2012(unaudited)12 Months EndedDec. 31, 2011(unaudited)Net revenue29,79126,370114,72797,065Income before provision for income taxes and change in fair value of forward exchange contracts 7891,7455,7453,986Net income and comprehensive income for the period4746,0554,4686,170Net earnings per common share$0.01$0.11$0.10$0.12Net cash provided by operating activities2,0222,6836,3435,885Summary of Revenues and Cost of Revenues(In Thousands of US Dollars) RevenueCost of Revenue 3 Months EndedDec. 31, 2012(unaudited)3 Months EndedDec. 31, 2011(unaudited)3 Months EndedDec. 31, 2012(unaudited)3 Months EndedDec. 31, 2011(unaudited)Wholesale    Domain Services22,39120,74218,89317,347   Value-Added   Services2,7052,186456435Total Wholesale25,09622,92819,34917,782     Retail3,6281,4322,454549Portfolio1,0672,010201179     Network, othercosts--1,2961,146Network,depreciation andamortization costs--187177Total revenue/costof revenue29,79126,37023,48719,833NOTE: 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 CallTucows 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 TucowsTucows 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 87,023Prepaid domain name registry and ancillary services fees, long-term portion  12,318,723 12,600,154Property and equipment  1,352,144 1,437,564Deferred financing charges  - 2,300Deferred tax asset, long-term portion  5,970,462 6,880,377Intangible assets  16,415,651 17,482,590Goodwill  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  - 5,479Deferred revenue, long-term portion  16,002,464 16,492,155Accreditation fees payable, long-term portion  145,592 156,061Deferred rent, long-term portion  54,150 26,487Deferred 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 andoutstanding  - - 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 ofDecember 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 30,418,987Total 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 Operationsand 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 2011Cash 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 4,205,729Cash 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.For further information: Lawrence Chamberlain TMX Equicom (416) 815-0700 ext. 257 lchamberlain@tmxequicom.com