Financial News

Tucows Reports Continuing Strong Financial Results for the Third Quarter of 2014

- Quarter Highlighted by Net Earnings of $0.24 Per Share, Continued Momentum at Ting -

TORONTO, Nov. 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 third quarter ended September 30, 2014. All figures are in U.S. dollars.

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

3 Months
Ended
Sept. 30, 2014
(unaudited)
3 Months
Ended
Sept. 30, 2013
(unaudited)
9 Months
Ended
Sept. 30, 2014
(unaudited)
9 Months
Ended
Sept. 30, 2013
(unaudited)
Net revenue 38,874 35,637 108,865 96,795
Income before provision for income taxes and change in fair value of forward exchange contracts 4,072 3,565 7,462 4,944
Net income 2,691 2,593 4,515 3,258
Net earnings per common share1 $0.24 $0.24 $0.40 $0.32
Net cash provided by (used in) operating activities 5,014 3,664 6,110 7,052
  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
Sept. 30, 2014
(unaudited)
3 Months Ended
Sept. 30, 2013
(unaudited)
3 Months Ended
Sept. 30, 2014
(unaudited)
3 Months Ended
Sept. 30, 2013
(unaudited)
Domain Services
  Wholesale
    OpenSRS Domain Service 21,880 22,003 18,230 18,581
    Value-Added Services 2,350 2,606 576 485
  Total Wholesale 24,230 24,609 18,806 19,066
  Retail 2,687 2,143 1,197 946
  Portfolio1 2,208 4,167 189 660
Total Domain Services 29,125 30,919 20,192 20,672
Network Access Services (Ting) 9,749 4,718 5,794 3,597
Network, other costs - - 1,139 1,193
Network, depreciation and amortization costs - - 172 176
Total revenue/cost of revenue 38,874 35,637 27,297 25,638
  1. Portfolio revenue for Q3 2014 and Q3 2013 includes the net amounts received from the previously announced confidential arrangements related to the Company's withdrawal of its application under the ICANN New gTLD Program for .group, and .media and .marketing, respectively.

"In the third quarter we again saw the growing contribution from Ting in our financial results as our Domain Services businesses continued to deliver consistent, reliable performance," said Elliot Noss, President and Chief Executive Officer, Tucows Inc.  "We achieved net earnings of $0.24 per share, bringing net earnings for the year-to-date to $0.40 per share, surpassing our total for the entire 2013 year.  Consolidated gross margin increased to 26% from 21% a year earlier, excluding the Portfolio group, which benefited from atypical contributions in both quarters."

"Ting continued its strong momentum in customer acquisition, adding almost 11,000 accounts and more than 17,000 devices."

Net revenue for the third quarter of 2014 increased 9% to $38.9 million from $35.6 million for the third quarter of 2013.

Net income for the third quarter of 2014 was $2.7 million, or $0.24 per share, compared with $2.6 million, or $0.24 per share, for the third quarter of 2013.  Net income for both the third quarters of 2013 and 2014 included the contribution of confidential arrangements related to the Company's withdrawal of certain of its applications under the ICANN New gTLD Program.

Cash and cash equivalents at the end of the third quarter of 2014 were $13.6 million, compared with $14.2 million at the end of the second quarter of 2014 and $11.5 million at the end of the third quarter of 2013.  During the third quarter of 2014, the Company generated cash flow from operating activities of $5.0 million, as well as $1.1 million from the proceeds of stock options. This was partially offset by the use of $5.4 million for the repayment in full of the Company's bank loan and $1.1 million for the repurchase of shares under the Company's ongoing share buyback program.

Conference Call
Tucows management will host a conference call today, Wednesday, November 12, 2014 at 5:00 p.m. (ET) to discuss the Company's third 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 21916055 followed by the pound key.  The telephone replay will be available until Wednesday, November 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 13 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. More information can be found on Tucows' corporate website (http://tucows.com).

Tucows  Inc.
Consolidated Balance Sheets
(Dollar amounts in U.S. dollars)
September 30, December 31,
2014 2013
(unaudited) 
  
Assets
Current assets:
Cash and cash equivalents  $ 13,589,246  $ 12,418,888
Accounts receivable 6,914,690 5,305,403
Inventory 391,026 309,686
Prepaid expenses and deposits 4,322,231 4,309,039
Prepaid domain name registry and ancillary services fees, current portion 45,985,103 44,209,591
Deferred tax asset, current portion 1,874,824 1,081,526
Income taxes recoverable 526,534 475,889
Total current assets 73,603,654 68,110,022
Prepaid domain name registry and ancillary services fees, long-term portion 11,911,238 11,838,579
Property and equipment 1,742,305 1,757,836
Deferred tax asset, long-term portion 5,569,900 5,370,037
Intangible assets 14,261,216 15,403,228
Goodwill 18,873,127 18,873,127
Total assets  $ 125,961,440  $ 121,352,829
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable  $ 3,574,165  $ 2,361,481
Accrued liabilities 4,957,900 3,913,034
Customer deposits 4,069,332 4,500,946
Derivative instrument liability 762,053 491,098
Loan payable, current portion - 6,300,000
Deferred revenue, current portion 57,182,978 54,379,719
Accreditation fees payable, current portion 484,989 473,811
Income taxes payable 179,007 1,024,004
Total current liabilities 71,210,424 73,444,093
Deferred revenue, long-term portion 15,795,206 15,638,517
Accreditation fees payable, long-term portion 130,166 135,522
Deferred rent, long-term portion 90,191 75,979
Deferred tax liability, long-term portion 5,092,000 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; 11,301,891 shares issued and outstanding as of September 30, 2014 and 10,907,063 shares issued and outstanding as of December 31, 2013 (1) 13,984,072 11,859,267
Additional paid-in capital 28,883,823 28,632,311
Deficit (8,814,453) (13,329,379)
Accumulated other comprehensive income (loss) (409,989) (244,981)
Total stockholders' equity 33,643,453 26,917,218
Total liabilities and stockholders' equity  $ 125,961,440  $ 121,352,829
(1) Shares issued and outstanding at both September 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 September 30,  Nine months ended September 30, 
2014 20132014 2013
(unaudited)(unaudited)
  
Net revenues $ 38,874,183 $ 35,637,085 $ 108,864,578 $ 96,795,464
Cost of revenues:
Cost of revenues 25,985,875 24,268,961 75,038,518 69,354,366
Network expenses (*) 1,139,515 1,192,450 3,427,856 3,716,471
Depreciation of property and equipment 172,019 164,283 528,956 452,711
Amortization of intangible assets - 11,970 - 83,790
Total cost of revenues 27,297,409 25,637,664 78,995,330 73,607,338
Gross profit 11,576,774 9,999,421 29,869,248 23,188,126
Expenses:
Sales and marketing (*) 3,593,486 2,998,419 11,377,701 8,792,091
Technical operations and development (*) 1,041,136 1,215,327 3,238,566 3,097,294
General and administrative (*) 2,639,868 1,869,668 6,293,987 5,266,997
Depreciation of property and equipment 58,685 52,972 167,527 158,833
Amortization of intangible assets 107,230 219,030 545,290 657,090
Impairment of indefinite life intangible assets - - 577,145 -
Loss on currency forward contracts 237,985 (28,068) 885,901 353,209
Total expenses 7,678,390 6,327,348 23,086,117 18,325,514
Income from operations 3,898,384 3,672,073 6,783,131 4,862,612
Other income (expenses):
Interest expense, net (63,498) (78,966) (206,679) (271,756)
Total other income (expenses) (63,498) (78,966) (206,679) (271,756)
Income before provision for income taxes 3,834,886 3,593,107 6,576,452 4,590,856
Provision for income taxes 1,143,981 999,747 2,061,526 1,333,287
Net income 2,690,905 2,593,360 4,514,926 3,257,569
Other comprehensive income (loss), net of tax
Unrealized loss on hedging activities (437,519) 402,026 (602,901) (71,629)
Net amount reclassified to earnings 57,701 92,308 437,893 119,237
Other comprehensive income (loss) net of tax of $(197,852) and $257,505 for the three months ended September 30, 2014 and September 30, 2013, and $(85,955) and $24,800 for the nine months ended September 30, 2014 and September 30, 2013 (379,818) 494,334 (165,008) 47,608
Comprehensive income (loss), net of tax for the period  $  2,311,087  $  3,087,694  $  4,349,918  $  3,305,177
Basic earnings per common share $ 0.24 $ 0.24 $ 0.40 $ 0.32
Shares used in computing basic earnings per common share 11,321,175 10,795,896 11,190,684 10,322,469
Diluted earnings per common share $ 0.23 $ 0.23 $ 0.39 $ 0.29
Shares used in computing diluted earnings per common share 11,787,749 11,409,975 11,718,910 11,187,308
(*) Stock-based compensation has been included in expenses as follows:
Network expenses $ 6,600 $ 8,755 $ 22,397 $ 22,813
Sales and marketing $ 37,637 $ 32,681 $ 104,440 $ 93,000
Technical operations and development $ 22,716 $ 21,549 $ 59,368 $ 57,166
General and administrative $ 163,759 $ 99,801 $ 230,841 $ 155,904
(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 September 30,   Nine months ended September 30, 
2014 20132014 2013
Cash provided by: (unaudited)(unaudited)
Operating activities:
Net income for the period   $  2,690,905 $ 2,593,360  $  4,514,926 $ 3,257,569
Items not involving cash:
Depreciation of property and equipment 230,704 217,255 696,483 611,544
Amortization of intangible assets 107,230 231,000 545,290 740,880
Impairment of indefinite life intangible asset - - 577,145 -
Deferred income taxes recovery (49,214) (99,786) (807,691) (78,103)
Excess tax benefits from share-based compensation expense 168,346 (1,056,014) (250,555) (1,056,014)
Amortization of deferred rent 1,832 7,872 14,212 17,748
Disposal of domain names 10,708 8,923 19,577 44,292
Loss (gain) on change in the fair value of forward contracts 125,305 (204,341) 19,991 361,646
Stock-based compensation 230,712 162,786 417,046 328,883
Change in non-cash operating working capital:
Accounts receivable 4,440 758,089 (1,609,287) (456,201)
Inventory 90,114 (150,686) (81,340) 248,994
Prepaid expenses and deposits 613,342 543,111 (13,192) 840,006
Prepaid domain name registry and ancillary services fees 573,727 1,038,268 (1,848,171) (344,719)
Income taxes recoverable (227,558) 980,969 (794,101) 1,087,333
Accounts payable 326,610 92,473 1,130,552 700,194
Accrued liabilities 1,214,237 163,300 1,044,866 664,984
Customer deposits (418,539) (595,776) (431,614) (883,346)
Deferred revenue (656,430) (986,779) 2,959,948 989,957
Accreditation fees payable (22,510) (39,835) 5,822 (23,918)
Net cash (used in) provided by operating activities 5,013,961 3,664,189 6,109,907 7,051,729
Financing activities:
Proceeds received on exercise of stock options 343,953 1,136,061 1,385,816 1,454,255
Excess tax benefits from share-based compensation expense 741,512 1,056,014 1,755,312 1,056,014
Repurchase of common stock (1,099,571) - (1,181,857) (6,537,616)
Proceeds received on loan payable - - - 5,200,000
Repayment of loan payable (5,358,333) (600,000) (6,300,000) (2,000,000)
Net cash provided by (used in) financing activities (5,372,439) 1,592,075 (4,340,729) (827,347)
Investing activities:
Additions to property and equipment (216,794) (171,442) (598,820) (1,090,113)
Net cash used in investing activities (216,794) (171,442) (598,820) (1,090,113)
Increase (decrease) in cash and cash equivalents (575,272) 5,084,822 1,170,358 5,134,269
Cash and cash equivalents, beginning of period 14,164,518 6,465,126 12,418,888 6,415,679
Cash and cash equivalents, end of period $ 13,589,246 $ 11,549,948 $ 13,589,246 $ 11,549,948
Supplemental cash flow information:
Interest paid $ 64,248  $  92,610 $ 207,634  $  289,483
Income taxes paid, net $ 469,248  $  (46,057) $ 1,724,976  $  141,256
Supplementary disclosure of non-cash investing and financinag activities:
Property and equipment acquired during the period not yet paid for $ 82,132 $ 99,060 $ 82,132 $ 99,060

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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