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Press release from PR Newswire

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 /PRNewswire/ - 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.For further information: <p> </p> <p> Lawrence Chamberlain<br/> TMX Equicom<br/> (416) 815-0700 ext. 257<br/> <a href="mailto:lchamberlain@tmxequicom.com">lchamberlain@tmxequicom.com</a> </p>