Financial News

Tucows Reports Financial Results for the First Quarter of 2014

- Ting Continues Strong Momentum in Customer and Device Additions/Domains Business Delivers Another Quarter of Solid Performance -

TORONTO, May 14, 2014 /PRNewswire/ - Tucows Inc. (NASDAQ: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, 2014. All figures are in U.S. dollars.

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

3 Months
Ended
Mar. 31, 2014
(unaudited)
3 Months
Ended
Mar. 31, 2013
(unaudited)
Net revenue 34,402 29,985
Income before provision for income taxes and change
in fair value of forward exchange contracts
1,280 431
Net income 477 77
Net earnings per common share1 $0.04 $0.01
Net cash provided by (used in) operating activities (39)2 416
  1. Net earnings per common share reflects the 1-for-4 reverse split of common shares that became effective December 31, 2013.
  2. Net cash used in operating activities includes an excess tax benefit from share-based compensation expenses of $1.0 million in Q1 2014. Net cash provided by financing activities in Q1 2014 reflects the excess tax benefit as a corresponding in-flow.

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

Revenue Revenue Cost of Revenue Cost of Revenue

3 Months Ended
Mar. 31, 2014
(unaudited)
3 Months Ended
Mar. 31, 2013
(unaudited)
3 Months Ended
Mar. 31, 2014
(unaudited)
3 Months Ended
Mar. 31, 2013
(unaudited)
Domain Services
  Wholesale
    OpenSRS
    Domain
    Service
21,649 21,896 18,235 18,454
    Value-Added
    Services
2,604 2,689 541 562
  Total Wholesale 24,253 24,585 18,776 19,016
  Retail 2,384 1,918 1,015 751
  Portfolio 1,053 1,134 244 201
Total Domain
Services
27,690 27,637 20,035 19,968
Network Access
Services (Ting)
6,712 2,348 4,281 2,110
Network, other costs - - 1,144 1,254
Network,
depreciation and
amortization
costs
- - 183 173
Total
revenue/cost of
revenue
34,402 29,985 25,643 23,505

NOTE: To better reflect the manner in which these revenue streams are generated and assessed by management, beginning in the first quarter of 2014, Tucows has reclassified its revenue streams into Domain Services and Network Access Services.  Domain Services includes Wholesale OpenSRS (Domain Service and Value Added Services), Retail (Hover) and Portfolio.  Network Access Services includes Ting.

"Our performance in the first quarter once again demonstrates the reliability and consistency of the business, alongside our ability to generate growth," said Elliot Noss, President and Chief Executive Officer, Tucows Inc.  "Ting delivered another record quarter, adding more than 13,000 accounts and 20,000 devices to end the quarter at 61,000 accounts and 94,000 devices, and subsequent to quarter end, we achieved another growth milestone, surpassing 100,000 devices.  After little more than two years since launch, Ting is on track to match and exceed the size of our Wholesale domains business in terms of gross margin contribution later this year."

"Our Domain Services business continues to perform well," added Mr. Noss.  "Our Wholesale channel and our Portfolio services business both had solid quarters, while our Retail channel, Hover, delivered yet another quarter of year-over-year growth in excess of 20%."

Net revenue for the first quarter of 2014 increased 15% to $34.4 million from $30.0 million for the first quarter of 2013.

Net income for the first quarter of 2014 was $0.5 million, or $0.04 per share, compared with $0.08 million, or $0.01 per share, for the first quarter of 2013.  Net income for the first quarter of 2014 included a loss on foreign exchange contracts of $0.6 million compared with a loss on foreign exchange contracts of $0.2 million in the first quarter of 2013.  Net income for the first quarter of 2014 also included the incremental investment of approximately $1.2 million for the acquisition and support of Ting customers as compared to the first quarter of 2013.

Deferred revenue at the end of the first quarter of 2014 was $72.8 million, a marginal increase from $72.4 million at the end of the first quarter of 2013 and an increase of 4% from $70.0 million at the end of the fourth quarter of 2013.

Cash and cash equivalents at the end of the first quarter of 2014 were $13.5 million compared with $12.4 million at the end of the fourth quarter of 2013 and $4.3 million at the end of the first quarter of 2013.  The increase in cash and cash equivalents of $1.1 million when compared to the fourth quarter of 2013 primarily resulted from the $1.0 million in incremental tax benefit related to share-based compensation and the $0.9 million in proceeds we received from the issuance of our common stock through the exercise of stock options during the first quarter of 2014. This was partially offset by the use of $0.6 million for principal repayments under the Company's credit facility and investment of $0.1 million in equipment purchases.

Conference Call
Tucows management will host a conference call today, Wednesday, May 14, 2014 at 5:00 p.m. (ET) to discuss the Company's first quarter 2014 results. Participants can access the conference call by dialing 1-888-231-8191 or 647-427-7450 or 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 30814878 followed by the pound key.  The telephone replay will be available until Wednesday, May 21, 2014 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 (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,
2014 2013
(unaudited) 
  
Assets
Current assets:
Cash and cash equivalents  $ 13,537,252  $ 12,418,888
Accounts receivable 6,568,324 5,305,403
Inventory 509,433 309,686
Prepaid expenses and deposits 4,675,875 4,309,039
Prepaid domain name registry and ancillary services fees, current portion 45,831,314 44,209,591
Deferred tax asset, current portion 1,648,178 1,081,526
Income taxes recoverable 1,210,117 475,889
Total current assets 73,980,493 68,110,022
Prepaid domain name registry and ancillary services fees, long-term portion 12,032,539 11,838,579
Property and equipment 1,873,124 1,757,836
Deferred tax asset, long-term portion 5,242,356 5,370,037
Intangible assets 14,931,888 15,403,228
Goodwill 18,873,127 18,873,127
Total assets  $ 126,933,527  $ 121,352,829
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable  $ 4,317,717  $ 2,361,481
Accrued liabilities 3,490,636 3,913,034
Customer deposits 4,471,817 4,500,946
Derivative instrument liability 905,951 491,098
Loan payable, current portion 5,683,333 6,300,000
Deferred revenue, current portion 56,789,545 54,379,719
Accreditation fees payable, current portion 525,977 473,811
Income taxes payable 311,131 1,024,004
Total current liabilities 76,496,107 73,444,093
Deferred revenue, long-term portion 15,977,624 15,638,517
Accreditation fees payable, long-term portion 133,443 135,522
Deferred rent, long-term portion 79,191 75,979
Deferred tax liability, long-term portion 5,125,000 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; 11,192,884 shares
issued and outstanding as of March 31, 2014 and 10,907,063 shares issued and
outstanding as of December 31, 2013 (1)
13,301,296 11,859,267
Additional paid-in capital 29,133,854 28,632,311
Deficit (12,852,540) (13,329,379)
Accumulated other comprehensive income (loss) (460,448) (244,981)
Total stockholders' equity 29,122,162 26,917,218
Total liabilities and stockholders' equity  $ 126,933,527  $ 121,352,829
(1) Shares issued and outstanding at both March 31, 2014 and December 31, 2013
reflects the 1-for-4 reverse split of common shares that became effective on
December 31, 2013.

Tucows  Inc.
Consolidated Statements of Operations
(Dollar amounts in U.S. dollars)
       
  Three months ended March 31,
2014 2013
(unaudited)
 
Net revenues $ 34,402,394 $ 29,985,022
Cost of revenues:
Cost of revenues 24,316,639 22,077,899
Network expenses (*) 1,143,644 1,254,213
Depreciation of property and equipment 182,974 137,072
Amortization of intangible assets - 35,910
Total cost of revenues 25,643,257 23,505,094
Gross profit 8,759,137 6,479,928
Expenses:
Sales and marketing (*) 4,021,774 2,847,086
Technical operations and development (*) 1,089,898 1,133,830
General and administrative (*) (note 1) 1,767,800 1,698,632
Depreciation of property and equipment 56,304 50,939
Amortization of intangible assets 219,030 219,030
Impairment of indefinite life intangible assets 250,688 -
Loss on currency forward contracts 551,371 234,638
Total expenses 7,956,865 6,184,155
Income from operations 802,272 295,773
Other income (expenses):
Interest expense, net (73,833) (99,362)
Total other income (expenses) (73,833) (99,362)
Income before provision for income taxes 728,439 196,411
Provision for income taxes 251,600 119,832
Net income 476,839 76,579
Other comprehensive income (loss), net of tax
Unrealized loss on hedging activities (363,181) (185,785)
Net amount reclassified to earnings 147,714 -
Other comprehensive loss, net of tax of $112,240 (2013 : $96,777) (215,467) (185,785)
Comprehensive income (loss), net of tax for the period  $ 261,372  $ (109,206)
Basic earnings per common share $ 0.04 $ 0.01
Shares used in computing basic earnings per common share 11,028,559 10,082,860
Diluted earnings per common share $ 0.04 $ 0.01
Shares used in computing diluted earnings per common share 11,639,617 11,077,831
(*) Stock-based compensation has been included in expenses as follows:
Network expenses $ 8,881 $ 6,126
Sales and marketing $ 35,999 $ 26,410
Technical operations and development $ 18,205 $ 15,247
General and administrative $ 37,892 $ 27,059
(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.
Consolidated Statements of Cash Flows
    (Dollar amounts in U.S. dollars)
 
  Three months ended March 31,  
2014 2013
Cash provided by: (unaudited)
Operating activities:
Net income for the period   $  476,839  $ 76,579
Items not involving cash:
Depreciation of property and equipment 239,278 188,011
Amortization of deferred financing charges 219,030 254,940
Impairment of indefinite life intangible asset 250,688 -
Deferred income taxes (recovery) (343,231) (92,065)
Excess tax benefits from share-based compensation expense (1,013,800) -
Amortization of intangible assets 3,212 5,504
Disposal of domain names 1,622 14,493
Loss on change in the fair value of forward contracts 87,146 451,141
Stock-based compensation 100,977 74,842
Changes in non-cash operating working capital:
Accounts receivable (1,262,921) (548,318)
Inventory (199,747) 278,300
Prepaid expenses and deposits (366,836) (338,298)
Prepaid fees for domain name registry and ancillary services fees (1,815,683) (1,041,714)
Income taxes recoverable/payable (433,301) 109,153
Accounts payable 1,670,415 605,924
Accrued liabilities (422,398) (524,202)
Customer deposits (29,129) (561,421)
Deferred revenue 2,748,933 1,419,584
Accreditation fees payable 50,087 43,999
Net cash (used in) provided by operating activities (38,819) 416,452
Financing activities:
Proceeds received on exercise of stock options 911,081 38,509
Excess tax benefits on share-based compensation expense 1,013,800 -
Repurchase of common stock (82,286) (6,537,616)
Proceeds received on loan payable - 5,200,000
Repayment of loan payable (616,667) (800,000)
Net cash provided by (used in) financing activities 1,225,928 (2,099,107)
Investing activities:
Additions to property and equipment (68,745) (446,705)
Net cash used in investing activities (68,745) (446,705)
Increase (decrease) in cash and cash equivalents 1,118,364 (2,129,360)
Cash and cash equivalents, beginning of period 12,418,888 6,415,679
Cash and cash equivalents, end of period $ 13,537,252 $ 4,286,319
Supplemental cash flow information:
Interest paid $ 73,949  $ 99,504
Income taxes paid, net $ 669,624  $ 11,150
Supplementary disclosure of non-cash investing activity:
Property and equipment acquired during the period not yet paid for $ 285,821 $ 161,223

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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