Financial News

Tucows Reports Financial Results for the First Quarter of 2013

- Company Achieves Twelfth Consecutive Quarter of Record Revenue -

TORONTO, May 15, 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 first quarter ended March 31, 2013. All figures are in U.S. dollars.

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

3 Months Ended
Mar. 31, 2013
(unaudited)
3 Months Ended
Mar. 31, 2012
(unaudited)
Net revenue 29,985 27,537
Income before provision for income taxes and change in fair value of forward
exchange contracts 
431  1,950
Net income 77 1,664
Net earnings per common share $0.00 $0.04
Net cash provided by operating activities 416 2,081

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

Revenue Cost of Revenue
3 Months Ended
Mar. 31, 2013
(unaudited)
3 Months Ended
Mar. 31, 2012
(unaudited)
3 Months Ended
Mar. 31, 2013
(unaudited)
3 Months Ended
Mar. 31, 2012
(unaudited)
Wholesale
Domain Services 21,896 21,108 18,454 17,620
Value-Added Services 2,689 2,689 562 507
Total Wholesale 24,585 23,797 19,016 18,127
Retail 4,266 1,849 2,861 930
Portfolio 1,134 1,891 201 210
Network, other costs - - 1,254 1,257
Network, depreciation and amortization costs - - 173 183
Total revenue/cost of revenue 29,985 27,537 23,505 20,707

"The first quarter was a solid start to 2013, highlighted by our twelfth consecutive quarter of year-over-year revenue growth to another record total," said Elliot Noss, President and Chief Executive Officer, Tucows Inc. "The consistency and reliability of the more mature parts of our business have helped us return capital to shareholders while launching new growth opportunities such as Hover a few years ago and, to a greater extent, Ting just last year.  Hover continues to generate healthy gross margins and year-over-year growth in excess of 20%. We are even more excited about Ting, which is now demonstrating real momentum.

Mr. Noss continued, "Everything on Ting is moving in the right direction. Our customer base grew by 2,000 in Q2 2012, 3,000 in Q3, 5,000 in Q4 and now over 6,300 in Q1 2013. Gross margin per account is growing as customers gain confidence in the service and add additional devices. More customers are referring more of their friends to Ting. Timelines are shortening between our network provider, Sprint, getting coveted devices like the HTC One and the Samsung Galaxy 4 and us offering these devices to our customers. With all these trends in our favor, we have every reason to believe our momentum will continue."

Net revenue for the first quarter of 2013 increased 9% to a record $30.0 million from $27.5 million for the first quarter of 2012.

Net income for the first quarter of 2013 was $0.1 million, or $0.00 per share, compared with $1.7 million, or $0.04 per share, for the first quarter of 2012.  The decrease was primarily the result of the incremental investment of approximately $1.0 million made in the first quarter of 2013 for the acquisition and support of Ting customers, as well as the negative impact of a loss on foreign exchange contracts of $0.2 million in the first quarter of 2013 compared with a gain on foreign exchange contracts of $0.6 million in the first quarter of 2012.  In addition, net income for the first quarter of 2012 benefitted from other income of $0.5 million resulting from the sale of certain intangible assets with no book value which was not repeated in the first quarter of 2013.

Deferred revenue at the end of the first quarter of 2013 was $72.4 million, a decrease of 1% from $73.0 million at the end of the first quarter of 2012 and an increase of 2% from $71.0 million at the end of the fourth quarter of 2012.

Cash and cash equivalents at the end of the first quarter of 2013 were $4.3 million compared with $6.4 million at the end of the fourth quarter of 2012 and $6.4 million from the end of the first quarter of 2012.  During the first quarter of 2013, the Company generated cash flow from operations of $0.4 million compared with $2.1 million for the same quarter of 2012.  The decrease in cash flow from operations is primarily attributable to changes in working capital, due mainly to the timing of payments in the normal course of business.  The Company used $6.5 million to repurchase shares under its modified "Dutch auction" tender that concluded on January 7, 2013, under which the Company repurchased 4,114,121 million shares at a purchase price of $1.50 per share.  The Company also used $0.8 million for principal repayments under its credit facility and invested $0.4 million in equipment purchases. The repurchase of shares was partially funded through a drawdown of $5.2 million on the Company's credit facility.

Conference Call

Tucows management will host a conference call today, Wednesday, May 15, 2013 at 5:00 p.m. (ET) to discuss the Company's first quarter 2013 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 59299893 followed by the pound key.  The telephone replay will be available until Wednesday, May 22, 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)
March 31,December 31,
20132012
(unaudited)(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 4,286,319 $ 6,415,679
Accounts receivable 4,961,583 4,413,265
Inventory 308,804 587,104
Prepaid expenses and deposits 5,419,706 5,081,408
Derivative instrument asset, current portion 83,622 412,944
Prepaid domain name registry and ancillary services fees, current portion 46,207,926 45,170,167
Income taxes recoverable 830,631 1,730,631
Total current assets 62,098,591 63,811,198
Derivative instrument asset, long-term portion - 31,838
Prepaid domain name registry and ancillary services fees, long-term portion 12,322,678 12,318,723
Property and equipment 1,675,546 1,352,144
Deferred tax asset, long-term portion 5,970,237 5,970,462
Intangible assets 16,146,218 16,415,651
Goodwill 18,873,127 18,873,127
Total assets $ 117,086,397 $ 118,773,143
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 2,599,091 $ 1,928,459
Accrued liabilities 1,998,027 2,522,229
Customer deposits 4,394,250 4,955,671
Derivative instrument liability, current portion 249,155 -
Loan payable, current portion 8,100,000 3,700,000
Deferred revenue, current portion 56,417,381 54,997,887
Accreditation fees payable, current portion 561,259 512,847
Deferred tax liability, current portion 850,039 914,429
Income taxes payable 464,261 1,255,108
Total current liabilities 75,633,463 70,786,630
Derivative instrument liability, long-term portion 26,611 -
Deferred revenue, long-term portion 16,002,554 16,002,464
Accreditation fees payable, long-term portion 141,179 145,592
Deferred rent, long-term portion 59,654 54,150
Deferred tax liability, long-term portion 5,206,200 5,234,100
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; 40,121,797 shares issued
and outstanding as of March 31, 2013 and 44,322,159 shares issued and outstanding as
of December 31, 2012
9,297,924 10,084,417
Additional paid-in capital 28,293,757 33,931,529
Deficit (17,433,264) (17,509,843)
Accumulated other comprehensive income (loss) (141,681) 44,104
Total stockholders' equity 20,016,736 26,550,207
Total liabilities and stockholders' equity $ 117,086,397 $ 118,773,143

Tucows  Inc.
Consolidated Statements of Operations
(Dollar amounts in U.S. dollars)
Three months ended March 31,
20132012
(unaudited)
Net revenues $ 29,985,022 $ 27,537,306
Cost of revenues:
Cost of revenues 22,077,899 19,267,125
Network expenses (*) 1,254,213 1,256,890
Depreciation of property and equipment 137,072 147,418
Amortization of intangible assets 35,910 35,910
Total cost of revenues 23,505,094 20,707,343
Gross profit 6,479,928 6,829,963
Expenses:
Sales and marketing (*) 2,847,086 2,184,635
Technical operations and development (*) 1,133,830 1,113,145
General and administrative (*) (note 1) 1,698,632 1,783,453
Depreciation of property and equipment 50,939 47,415
Amortization of intangible assets 219,030 219,030
Loss (gain) on currency forward contracts (note 1) 234,638 (562,109)
Total expenses 6,184,155 4,785,569
Income (loss) from operations 295,773 2,044,394
Other income (expenses):
Interest expense, net (99,362) (40,969)
Other income - 508,800
Total other income (expenses) (99,362) 467,831
Income before provision for income taxes 196,411 2,512,225
Provision for income taxes 119,832 848,606
Net income 76,579 1,663,619
Other comprehensive income (loss), net of tax of $96,777 (185,785) -
Comprehensive income (loss) for the period $ (109,206) $ 1,663,619
Basic earnings (loss) per common share $ - $ 0.04
Shares used in computing basic earnings (loss) per common share 40,331,438 46,221,465
Diluted earnings (loss) per common share $ - $ 0.03
Shares used in computing diluted earnings (loss) per common share 44,311,323 48,954,451
(Note 1) The Company accounts for the fair value of currency forward contracts within the consolidated Balance Sheet
as a derivative financial asset or liability and the corresponding change in fair value is recorded in the consolidated
Statement of Operations.  In prior periods, the Company recorded the realized gain or loss upon settlement of the
currency forward contracts in "General and administrative expenses" and recorded the unrealized gain or loss in
"Loss (gain) on change in fair value of forward contracts".  The Company has determined that both of these amounts
are more appropriately classified in expenses as "Loss (gain) on currency forward contracts" and as a result a gain of
$0.3 million for the three months ended September 30, 2011 and a gain of $1.1 million for the nine months ended
September 30, 2011, has been reclassified from "General and administrative expense" to "Loss (gain) on currency
forward contracts" respectively. As a result of this reclassification, there was no change to previously reported net
income (loss), income from operations, net revenues, gross profit, reported cash flows or the amounts recorded in the
consolidated Balance Sheets.      
(*) Stock-based compensation has been included in expenses as follows:
Network expenses $ 6,126 $ 6,046
Sales and marketing $ 26,410 $ 22,782
Technical operations and development $ 15,247 $ 12,843
General and administrative $ 27,059 $ 20,794

Tucows  Inc.
Consolidated Statements of Cash Flows
(Dollar amounts in U.S. dollars)
Three months ended March 31,
20132012
Cash provided by: (unaudited)
Operating activities:
     
Net income for the period $ 76,579 $ 1,663,619
Items not involving cash:
Depreciation of property and equipment 188,011 194,833
Amortization of deferred financing charges - 1,500
Amortization of intangible assets 254,940 254,940
Deferred income taxes (recovery) (92,065) 212,088
Deferred rent 5,504 7,269
Acquisition of domain names (3,664)
Disposal of domain names 14,493 15,738
Gain on disposition of intangible assets (508,800)
(Gain) loss on change in the fair value of forward contracts 451,141 (701,843)
Stock-based compensation 74,842 62,465
Changes in non-cash operating working capital:
Accounts receivable (548,318) (1,014,729)
Inventory 278,300
Prepaid expenses and deposits (338,298) (1,108,098)
Prepaid fees for domain name registry and ancillary services fees (1,041,714) (2,919,423)
Income taxes recoverable/payable 109,153 619,073
Accounts payable 605,924 913,969
Accrued liabilities (524,202) 268,911
Customer deposits (561,421) 257,000
Deferred revenue 1,419,584 3,823,832
Accreditation fees payable 43,999 41,954
Net cash provided by operating activities 416,452 2,080,634
Financing activities:
Proceeds received on exercise of stock options 38,509 130,712
Repurchase of common stock (6,537,616) (5,893,447)
Proceeds received on loan payable 5,200,000 4,000,000
Repayment of loan payable (800,000) (538,333)
Net cash used in financing activities (2,099,107) (2,301,068)
Investing activities:
Additions to property and equipment (446,705) (330,273)
Proceeds on disposition of intangible assets 508,800
Net cash provided by (used in) investing activities (446,705) 178,527
Decrease in cash and cash equivalents (2,129,360) (41,907)
Cash and cash equivalents, beginning of period 6,415,679 6,408,209
Cash and cash equivalents, end of period $ 4,286,319 $ 6,366,302
Supplemental cash flow information:
Interest paid $ 99,504 $ 41,176
Supplementary disclosure of non-cash investing activity:
Property and equipment acquired during the period not yet paid for $ 161,223 $ 50,401

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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