Financial News

Tucows Reports Strong Financial Results for the Second Quarter of 2014

- Quarter Highlighted by Doubling of Net Earnings Per Share, Continued Steady Customer Growth at Ting -

TORONTO, Aug. 12, 2014 /PRNewswire/ - Tucows Inc. (NASDAQ:TCX, TSX:TC), a provider of network access, domain name and other Internet services, today reported its financial results for the second quarter ended June 30, 2014. All figures are in U.S. dollars.

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

3 Months Ended
Jun. 30, 2014 (unaudited)
3 Months Ended
Jun. 30, 2013 (unaudited)
6 Months
Ended
Jun. 30, 2014 (unaudited)
6 Months
Ended
Jun. 30, 2013 (unaudited)
Net revenue 35,588 31,173 69,990 61,158
Income before provision for income taxes and change in fair value of forward exchange contracts 2,110 948 3,389 1,379
Net income 1,347 588 1,824 664
Net earnings per common share1 $0.12 $0.06 $0.16 $0.07
Net cash provided by (used in) operating activities 1,135 2,971 1,096 2,388
  1. Net earnings per common share reflects the 1-for-4 reverse split of common shares that became effective December 31, 2013.

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

Revenue Revenue Cost of Revenue Cost of Revenue

3 Months Ended
Jun. 30, 2014
(unaudited)
3 Months Ended
Jun. 30, 2013
(unaudited)
3 Months Ended
Jun. 30, 2014
(unaudited)
3 Months Ended
Jun. 30, 2013
(unaudited)
Domain Services
  Wholesale
     OpenSRS
     Domain
     Service
21,503 21,800 17,809 18,485
     Value-Added
     Services
2,396 2,560 563 520
  Total Wholesale 23,899 24,360 18,372 19,005
  Retail 2,540 2,001 1,111 833
  Portfolio 889 1,078 213 230
Total Domain
Services
27,328 27,439 19,696 20,068
Network Access
Services (Ting)
8,260 3,734 5,040 2,940
Network, other
costs
- - 1,145 1,270
Network,
depreciation and
amortization
costs
- - 174 187
Total
revenue/cost of
revenue
35,588 31,173 26,055 24,465

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 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.

"The strong momentum in our business, driven by the growing contribution of Ting, is evident in our bottom line as net earnings for the second quarter doubled year-over-year to $0.12 per share," said Elliot Noss, President and Chief Executive Officer, Tucows Inc.  "Ting saw another solid quarter of customer growth, adding more than 12,000 accounts and 18,000 devices to end the quarter at 73,000 accounts and 113,000 devices.  Gross margin per account remains strong, customer acquisition costs remain low.  Importantly, Ting's contribution is really starting to show through in our overall results and was the primary reason for second quarter consolidated gross margin increasing by 5% to 27% from 22% a year earlier."

Mr. Noss added, "We continue to see steady performance from our Domains Services business.  Notably, Wholesale Domains gross margin for the second quarter was up 11% from a year ago on similar volumes due to our shifting sales mix to higher margin services. Retail delivered yet another quarter of year-over-year revenue growth in excess of 20%."

Net revenue for the second quarter of 2014 increased 14% to $35.6 million from $31.2 million for the second quarter of 2013.

Net income for the second quarter of 2014 was $1.3 million, or $0.12 per share, compared with $0.6 million, or $0.06 per share, for the second quarter of 2013. Included in net income for the second quarter of 2014 was a write-off of $0.3 million related to indefinite life intangible assets, the result of the Company's assessment, under its normal portfolio review process, that certain domains acquired in June 2006 not be renewed. In addition, net income for the second quarter of the prior year included the benefit of a $0.5 million Interactive Digital Media Tax Credit from the Ontario government.

Conference Call
Tucows management will host a conference call today, Tuesday, August 12, 2014 at 5:00 p.m. (ET) to discuss the Company's second quarter 2014 results. Participants can access the conference call by dialing 1-888-231-8191 or 647-427-7450 or via the Internet at http://www.tucows.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 74220945 followed by the pound key.  The telephone replay will be available until Tuesday, August 19, 2014 at midnight. To access the archived conference call as an MP3 via the Internet, go to http://www.tucows.com/investors.

About Tucows
Tucows is a provider of network access, domain name and other Internet services. Ting (https://ting.com) is a mobile phone service provider dedicated to bringing clarity and control to US mobile phone users.  OpenSRS (http://opensrs.com) manages over fourteen million domain names and millions of value-added services through a global 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. 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).

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. 

Tucows  Inc.
Consolidated Balance Sheets
(Dollar amounts in U.S. dollars)
June 30, December 31,
2014 2013
(unaudited) 
  
Assets
Current assets:
Cash and cash equivalents  $ 14,164,518  $ 12,418,888
Accounts receivable 6,919,130 5,305,403
Inventory 481,140 309,686
Prepaid expenses and deposits 4,935,573 4,309,039
Prepaid domain name registry and ancillary services fees, current portion 46,379,230 44,209,591
Deferred tax asset, current portion 1,250,468 1,081,526
Income taxes recoverable 631,632 475,889
     Total current assets 74,761,691 68,110,022
Prepaid domain name registry and ancillary services fees, long-term portion 12,090,838 11,838,579
Property and equipment 1,693,720 1,757,836
Deferred tax asset, long-term portion 5,814,675 5,370,037
Intangible assets 14,379,154 15,403,228
Goodwill 18,873,127 18,873,127
     Total assets $ 127,613,205 $ 121,352,829
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $   3,185,060 $ 2,361,481
Accrued liabilities 3,743,663 3,913,034
Customer deposits 4,487,871 4,500,946
Derivative instrument liability 59,077 491,098
Loan payable, current portion 5,358,333 6,300,000
Deferred revenue, current portion 57,609,511 54,379,719
Accreditation fees payable, current portion 505,645 473,811
Income taxes payable 194,303 1,024,004
     Total current liabilities 75,143,463 73,444,093
Deferred revenue, long-term portion 16,025,103 15,638,517
Accreditation fees payable, long-term portion 132,020 135,522
Deferred rent, long-term portion 88,359 75,979
Deferred tax liability, long-term portion 5,108,500 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; 11,240,992  shares
issued and outstanding as of June 30, 2014 and 10,907,063 shares issued and
outstanding as of December 31, 2013 (1)
13,513,124 11,859,267
Additional paid-in capital 29,138,165 28,632,311
Deficit (11,505,358) (13,329,379)
Accumulated other comprehensive income (loss) (30,171) (244,981)
     Total stockholders' equity 31,115,760 26,917,218
Total liabilities and stockholders' equity $ 127,613,205 $ 121,352,829

(1) Shares issued and outstanding at both June 30, 2014 and December 31, 2013 reflects the 1-for-4 reverse split of common shares that became effective on December 31, 2013.




Tucows  Inc.Tucows  Inc.
Consolidated Statements of OperationsConsolidated Statements of Operations
(Dollar amounts in U.S. dollars)(Dollar amounts in U.S. dollars)
   
Three months ended June 30,Six months ended June 30,
2014 20132014 2013
(unaudited)(unaudited)
  
Net revenues $ 35,588,001 $ 31,173,357 $ 69,990,395 $ 61,158,379
Cost of revenues:
Cost of revenues 24,736,004 23,007,506 49,052,643 45,085,405
Network expenses (*) 1,144,697 1,269,808 2,288,341 2,524,021
Depreciation of property and equipment 173,963 151,356 356,937 288,428
Amortization of intangible assets - 35,910 - 71,820
     Total cost of revenues 26,054,664 24,464,580 51,697,921 47,969,674
Gross profit 9,533,337 6,708,777 18,292,474 13,188,705
Expenses:
Sales and marketing (*) 3,762,441 2,946,586 7,784,215 5,793,672
Technical operations and development (*) 1,107,532 748,137 2,197,430 1,881,967
General and administrative (*) (note 1) 1,886,319 1,698,697 3,654,119 3,397,329
Depreciation of property and equipment 52,538 54,922 108,842 105,861
Amortization of intangible assets 219,030 219,030 438,060 438,060
Impairment of indefinite life intangible assets 326,457 - 577,145 -
Loss on currency forward contracts 96,545 146,639 647,916 381,277
     Total expenses 7,450,862 5,814,011 15,407,727 11,998,166
Income from operations 2,082,475 894,766 2,884,747 1,190,539
Other income (expenses):
Interest expense, net (69,348) (93,428) (143,181) (192,790)
     Total other income (expenses) (69,348) (93,428) (143,181) (192,790)
Income before provision for income taxes 2,013,127 801,338 2,741,566 997,749
Provision for income taxes 665,945 213,708 917,545 333,540
Net income 1,347,182 587,630 1,824,021 664,209
Other comprehensive income (loss), net of tax
Unrealized loss on hedging activities 370,868 (260,941) 7,687 (446,726)
Net amount reclassified to earnings 59,409 - 207,123 -
Other comprehensive income (loss) net of tax of $111,897
and $133,761 for the three months ended June 30, 2014
and June 30, 2013, and $224,137 and $230,538 for the
six months ended June 30, 2014 and June 30, 2013
(2013 : $96,777)
430,277 (260,941) 214,810 (446,726)
Comprehensive income (loss), net of tax for the period  $  1,777,459  $  326,689  $  2,038,831  $  217,483
Basic earnings per common share $ 0.12 $ 0.06 $ 0.16 $ 0.07
Shares used in computing basic earnings per common share 11,219,101 10,080,815 11,124,357 10,081,831
Diluted earnings per common share $ 0.11 $ 0.05 $ 0.16 $ 0.06
Shares used in computing diluted earnings per common share 11,729,547 11,069,713 11,684,529 11,073,504
(*) Stock-based compensation has been included
in expenses as follows:
Network expenses $ 6,916 $ 7,932 $ 15,797 $ 14,058
Sales and marketing $ 30,804 $ 33,909 $ 66,803 $ 60,319
Technical operations and development $ 18,447 $ 20,370 $ 36,652 $ 35,617
General and administrative $ 29,190 $ 29,044 $ 67,082 $ 56,103

(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.Tucows  Inc.
Consolidated Statements of Cash FlowsConsolidated Statements of Cash Flows
(Dollar amounts in U.S. dollars)(Dollar amounts in U.S. dollars)
 
  Three months ended June 30,   Six months ended June 30,
2014 20132014 2013
Cash provided by: (unaudited)(unaudited)
Operating activities:
   Net income for the period   $  1,347,182 $ 587,630  $  1,824,021 $ 664,209
   Items not involving cash:
      Depreciation of property and equipment 226,501 206,278 465,779 394,289
      Amortization of intangible assets 219,030 254,940 438,060 509,880
      Impairment of indefinite life intangible asset 326,457 - 577,145 -
      Deferred income taxes (recovery) (415,246) 113,748 (758,477) 21,683
      Excess tax benefits from share-based compensation expense 594,899 - (418,901) -
      Amortization of deferred rent 9,168 4,372 12,380 9,876
      Disposal of domain names 7,247 20,876 8,869 35,369
      Loss (gain) on change in the fair value of forward contracts (192,460) 114,846 (105,314) 565,987
      Stock-based compensation 85,357 91,255 186,334 166,097
   Change in non-cash operating working capital:
      Accounts receivable (350,806) (665,972) (1,613,727) (1,214,290)
      Inventory 28,293 121,380 (171,454) 399,680
      Prepaid expenses and deposits (259,698) 635,193 (626,534) 296,895
      Prepaid domain name registry and ancillary services fees (606,215) (341,273) (2,421,898) (1,382,987)
      Income taxes recoverable (133,242) (2,789) (566,543) 106,364
      Accounts payable (866,473) 1,797 803,942 607,721
      Accrued liabilities 253,027 1,025,886 (169,371) 501,684
      Customer deposits 16,054 273,851 (13,075) (287,570)
      Deferred revenue 867,445 557,152 3,616,378 1,976,736
      Accreditation fees payable (21,755) (28,082) 28,332 15,917
   Net cash (used in) provided by operating activities 1,134,765 2,971,088 1,095,946 3,387,540
Financing activities:
   Proceeds received on exercise of stock options 130,782 279,685 1,041,863 318,194
   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 (325,000) (600,000) (941,667) (1,400,000)
   Net cash provided by (used in) financing activities (194,218) (320,315) 1,031,710 (2,419,422)
Investing activities:
   Additions to property and equipment (313,281) (471,966) (382,026) (918,671)
   Net cash used in investing activities (313,281) (471,966) (382,026) (918,671)
Increase (decrease) in cash and cash equivalents 627,266 2,178,807 1,745,630 49,447
Cash and cash equivalents, beginning of period 13,537,252 4,286,319 12,418,888 6,415,679
Cash and cash equivalents, end of period $ 14,164,518 $ 6,465,126 $ 14,164,518 $ 6,465,126
Supplemental cash flow information:
   Interest paid $ 69,437  $ 97,369 $ 143,386  $ 196,873
   Income taxes paid, net $ 588,916  $ 198,462 $ 1,258,540  $ 187,313
Supplementary disclosure of non-cash investing activity:
   Property and equipment acquired during the period not yet paid for $ 19,637 $ 4,864 $ 19,637 $ 4,864

SOURCE Tucows Inc.

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