Financial News

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 /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,
20122011
(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,
2012201120122011
(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,
2012201120122011
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.

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