August 13, 2008; 04:36 AM
TORONTO, Aug. 12 /CNW/ - Tucows Inc., (AMEX:TCX, TSX:TC) a leading
provider of Internet services to web hosting companies, ISPs and consumers
worldwide, today reported its financial results for its second quarter ended
June 30, 2008. All figures are in U.S. dollars.
"A number of positive trends this quarter keep us on track to grow
revenue, profitability and cash flow in 2008," said Elliot Noss, President and
CEO of Tucows. "We experienced increased domain name transaction volumes and
we finalized our email platform migration, which will result in significantly
decreased operating costs starting next quarter. In addition, our portfolio of
high value domain names continued to make an impressive contribution. We note
that the second quarter of 2007 included a large $3 million bulk sale of
domain names."
Noss continued, "We continued to generate strong cash flow from
operations during the quarter, assisting us to comfortably pay down debt by
$7 million. We are confident that our continued ability to deliver strong cash
flow from operations, as well as opportunities to divest non-core assets, will
enable us to create additional value for shareholders and execute on our
previously announced stock buyback program."
"We see growth opportunities in our wholesale channel with new services
such as personal domain names and our upgraded email offering. We also plan to
more aggressively target customers directly through our retail offering, which
we will soon re-launch as Hover.com," concluded Noss.
<<
Summary Financial Results
(Numbers in Thousands of US Dollars, Except Per Share Data)
-------------------------------------------------------------------------
3 Months 3 Months 6 Months 6 Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2008 2007 2008 2007
-------------------------------------------------------------------------
Net Revenue $20,450 $20,815 $39,162 $38,586
-------------------------------------------------------------------------
EBITDA 3,689 4,572 4,194 6,544
-------------------------------------------------------------------------
Adjusted Net Income 1,779 4,686 2,732 7,128
-------------------------------------------------------------------------
Net (Loss)/Income 2,209 3,171 1,127 3,921
-------------------------------------------------------------------------
Net (Loss) Income/Share 0.03 0.04 0.02 0.05
-------------------------------------------------------------------------
Cash Flow from Operations 2,580 2,359 2,697 3,524
-------------------------------------------------------------------------
Summary of Revenue and Cost of Revenue
(Numbers in Thousands of US Dollars)
-------------------------------------------------------------------------
Revenue Cost of Revenue
-------------------------------------------------------------------------
Three Three Three Three
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2008 2007 2008 2007
-------------------------------------------------------------------------
Traditional Domain
Registration Services $13,269 $12,274 $10,505 $9,110
-------------------------------------------------------------------------
Domain Portfolio 1,873 3,606 181 158
-------------------------------------------------------------------------
Email Services 1,552 1,881 (24) 209
-------------------------------------------------------------------------
Retail Services 2,046 1,208 577 417
-------------------------------------------------------------------------
Other Services 1,711 1,845 421 413
-------------------------------------------------------------------------
Total $20,450 $20,815 $11,660 $10,307
-------------------------------------------------------------------------
>>
Net revenue for the second quarter of fiscal 2008 was $20.5 million
compared with $20.8 million for the second quarter of fiscal 2007. Revenue for
the second quarter of fiscal 2007 included the atypically large sale of a
block of domain names from the Company's portfolio of high value domain names
in the amount of $3.0 million.
Adjusted net income for the second quarter of 2008 was $1.8 million,
compared with $4.7 million for the corresponding quarter of last year. Net
income was $2.2 million, or $0.03 per share, compared with $3.2 million, or
$0.04 per share, for the second quarter of fiscal 2007.
Deferred revenue at the end of the second quarter of fiscal 2008 was
$54.4 million, an increase of 11% from $49.0 million at the end of the second
quarter of 2007 and an increase of 2% from $53.6 million at the end of the
first quarter of fiscal 2008.
Cash and restricted cash at the end of the second quarter of fiscal 2008
was $2.9 million compared with $6.2 million at the end of the second quarter
of fiscal 2007 and $7.5 million at the end of the first quarter of fiscal
2008. This decrease compared to the first quarter of this year is primarily
the result of the repayment of the $6 million promissory note payable to the
former shareholders of mailbank.com Inc., as well as payment of $1.4 million
on the Company's bank loan. These uses of funds were partially offset by the
$2.6 million of cash flow generated from operations, as well as $1.4 million
generated through the sale of 14,000 hosting accounts to Hostopia.
EBITDA and Adjusted Net Income
To assist financial statement users in an assessment of the Company's
historical performance and to project its future earnings and cash flows, the
Company has included earnings before interest, taxes, depreciation and
amortization (EBITDA). EBITDA is presented because it is an important
supplemental measure of performance frequently used by securities analysts,
investors and other interested parties in the evaluation of companies. Other
companies may calculate EBITDA differently. EBITDA is not a measurement of
financial performance under generally accepted accounting principles (GAAP)
and should not be considered as an alternative to cash flow from operating
activities or as a measure of liquidity or an alternative to Net Income as
indicators of operating performance or any other measures of performance
derived in accordance with (GAAP). Because EBITDA is calculated before
recurring cash charges, including interest expense and taxes, and is not
adjusted for capital expenditures or other recurring cash requirements of the
business, it should not be considered as a measure of discretionary cash
available to invest in the growth of the business. See the Consolidated
Statements of Cash Flows included in the attached financial statements. As a
non-GAAP performance measure, EBITDA, has certain material limitations as
follows:
<<
- It does not include interest expense. Because the Company has
borrowed money to finance some of its operations, interest is a
necessary part of the Company's costs and ability to generate
revenue. Therefore, any measure that excludes interest has material
limitations;
- It does not include depreciation and amortization expense. Because
the Company must utilize capital assets in order to generate
revenues, depreciation and amortization expense is a necessary and
ongoing part of the Company's costs. Therefore, any measure that
excludes depreciation and amortization expense has material
limitations; and,
- It does not include taxes. Because the payment of taxes is a
necessary and ongoing part of the Company's operations, any measure
that excludes taxes has material limitations.
>>
Management compensates for these limitations by considering the economic
effect of the excluded expense items independently as well as in connection
with its analysis of net earnings.
Adjusted Net Income represents EBITDA plus the additional adjustments
described in the table below. The adjustments reflect the material amount of
cash collected by the Company for domain registrations and other Internet
services paid for the full term at the time of activation, with the revenue
deferred, net of prepaid fees. In addition, adjusted Net Income reflects
earnings and expenses considered as non-representative of ongoing business for
the reasons specified below. Each of the items being adjusted for may create
certain material limitations in the use of Adjusted Net Income as a non-GAAP
financial measure. Adjusted Net Income is one of the primary measures the
Company uses for planning and budgeting purposes, incentive compensation and
to monitor and evaluate Tucows' financial and operating results. Adjusted Net
Income is not a measurement of financial performance under GAAP and should not
be considered as an alternative to cash flow from operating activities or as a
measure of liquidity or an alternative to net income as indicators of
operating performance or any other measures of performance derived in
accordance with generally accepted accounting principles. See the Consolidated
Statements of Cash Flows included in the attached financial statements.
Conference Call
Tucows will host a conference call today, Tuesday, August 12, at
5:00 p.m. ET to discuss the Company's second quarter results. To access the
conference call via the Internet go to http://tucowsinc.com/investors and
click on "Financials."
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 416-640-1917 or 1-877-289-8525
and enter the pass code 21278773 followed by the pound key. The telephone
replay will be available until Tuesday, August 19, 2008 at midnight. To access
the archived conference call as an MP3 via the Internet, go to
http://tucowsinc.com/investors.
About Tucows
Tucows provides Internet services for web hosting companies and ISPs.
Through our global network of over 9,000 service providers our OpenSRS group
provides millions of email boxes and manages over eight million domains.
Tucows is an accredited registrar with ICANN (the Internet Corporation for
Assigned Names and Numbers). We hold a domain name portfolio of approximately
150,000 domain names that are available for sale, monetized through
advertising and support our wholesale Personal Names Service. Our Retail
division sells Tucows services to consumers and small business owners through
Domain Direct, IYD (It's Your Domain) and NetIdentity. Tucows.com remains one
of the most popular software download sites on the Internet. For more
information please visit: http://tucowsinc.com.
This release may contain forward-looking statements, relating to the
Company's operations or to the environment in which it operates, which are
based on Tucows Inc.'s operations, estimates, forecasts and projections. These
statements are not guarantees of future performance and are subject to
important risks, uncertainties and assumptions concerning future conditions
that may ultimately prove to be inaccurate or differ materially from actual
future events or results. A number of important factors could cause actual
outcomes and results to differ materially from those expressed in these
forward-looking statements. Consequently, investors should not place undue
reliance on these forward-looking statements, which are based on Tucows Inc.'s
current expectations, estimates, projections, beliefs and assumptions. These
forward-looking statements speak only as of the date of this presentation and
are based upon the information available to Tucows Inc. at this time. Tucows
Inc. disclaims any intention or obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
<<
Tucows Inc.
Consolidated Balance Sheets
(Dollar amounts in U.S. dollars)
(unaudited)
June 30 December 31,
2008 2007
------------- -------------
Assets
Current assets:
Cash and cash equivalents $ 2,947,069 $ 8,093,476
Accounts receivable 3,138,257 3,422,180
Prepaid expenses and deposits 3,237,366 3,132,129
Prepaid domain name registry and other
Internet services fees, current portion 28,479,571 25,473,465
Cash held in escrow 1,083,397 1,070,632
Deferred tax asset, current portion 500,000 500,000
------------- -------------
Total current assets 39,385,660 41,691,882
Prepaid domain name registry and other
Internet services fees, long-term portion 11,466,553 10,765,862
Property and equipment 4,887,720 4,963,311
Deferred financing charges 102,000 128,200
Deferred tax asset, long-term portion 2,500,000 2,500,000
Intangible assets 20,991,504 22,150,738
Goodwill 17,490,807 17,490,807
Investment 353,737 353,737
------------- -------------
Total assets $ 97,177,981 $100,044,537
------------- -------------
------------- -------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 3,329,112 $ 2,689,346
Accrued liabilities 2,627,816 3,289,087
Customer deposits 3,286,783 3,267,784
Promissory note payable - 6,000,000
Loan payable, current portion 1,914,242 1,914,242
Deferred revenue, current portion 38,354,640 35,465,584
Accreditation fees payable, current portion 510,900 483,090
------------- -------------
Total current liabilities 50,023,493 53,109,133
Deferred revenue, long-term portion 16,036,242 15,147,644
Accreditation fees payable, long-term portion 187,655 181,345
Loan payable, long-term portion 4,902,246 6,859,366
Deferred tax liability 5,396,000 5,396,000
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; 73,923,542 shares issued
and outstanding at June 30, 2008 and
73,888,542 shares issued and outstanding at
December 31, 2007 15,368,310 15,350,915
Additional paid-in capital 48,674,568 48,537,313
Deficit (43,410,533) (44,537,179)
------------- -------------
Total stockholders' equity 20,632,345 19,351,049
------------- -------------
Total liabilities and stockholders' equity $ 97,177,981 $100,044,537
------------- -------------
------------- -------------
Tucows Inc.
Consolidated Statements of Operations
(Dollar amounts in U.S. dollars)
(unaudited)
Three months ended June 30, Six months ended June 30,
2008 2007 2008 2007
------------- ------------- ------------- -------------
Net revenues $ 20,450,329 $ 20,814,881 $ 39,161,536 $ 38,586,098
Cost of revenues:
Cost of
revenues(*) 13,663,097 12,198,808 26,813,029 23,431,597
Depreciation of
property and
equipment 816,260 985,430 1,642,097 1,795,096
Amortization of
intangible assets 31,941 63,540 105,398 127,072
------------- ------------- ------------- -------------
Total cost of
revenues 14,511,298 13,247,778 28,560,524 25,353,765
------------- ------------- ------------- -------------
Gross profit 5,939,031 7,567,103 10,601,012 13,232,333
Expenses:
Sales and
marketing(*) 1,730,736 1,480,078 3,426,868 2,824,522
Technical
operations and
development(*) 1,573,741 1,752,693 3,139,595 3,564,972
General and
administrative(*) 1,326,218 810,872 3,121,083 2,309,641
Depreciation of
property and
equipment 58,861 68,267 119,931 129,791
Amortization of
intangible assets 376,954 222,741 762,115 456,042
------------- ------------- ------------- -------------
Total expenses 5,066,510 4,334,651 10,569,592 9,284,968
------------- ------------- ------------- -------------
Income (loss) from
operations 872,521 3,232,452 31,420 3,947,365
Other income
(expenses):
Interest income
(expense), net (166,421) (49,297) (376,405) (90,946)
Other income, net 1,532,765 - 1,532,765 88,431
------------- ------------- ------------- -------------
Total other
income
(expense) 1,366,344 (49,297) 1,156,360 (2,515)
------------- ------------- ------------- -------------
Income before
provision for
income taxes 2,238,865 3,183,155 1,187,780 3,944,850
Provision for
income taxes 30,000 12,000 61,134 24,000
------------- ------------- ------------- -------------
Net income for
the period $ 2,208,865 $ 3,171,155 $ 1,126,646 $ 3,920,850
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Basic earnings per
common share $ 0.03 $ 0.04 $ 0.02 $ 0.05
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Shares used in
computing basic
earnings per
common share 73,899,695 74,447,018 73,894,119 74,950,621
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Diluted earnings
per common share $ 0.03 $ 0.04 $ 0.01 $ 0.05
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Shares used in
computing diluted
earnings per
common share 75,348,108 77,375,096 75,439,926 77,633,136
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
(*) Stock-based
compensation
has been
included in
expenses as
follows:
Cost of
revenues $ 4,800 $ 4,400 $ 9,100 $ 6,900
Sales and
marketing $ 13,000 $ 25,500 $ 31,300 $ 39,700
Technical
operations
and
develop-
ment $ 8,000 $ 23,300 $ 28,700 $ 43,400
General and
adminis-
trative $ 47,200 $ 58,300 $ 76,100 $ 84,200
Tucows Inc.
Reconciliation of EBITDA and Adjusted Net Income
(Dollar amounts in U.S. dollars)
(unaudited)
Three months ended June 30, Six months ended June 30,
2008 2007 2008 2007
------------- ------------- ------------- -------------
Net income for
the period $ 2,208,865 $ 3,171,155 $ 1,126,646 $ 3,920,850
Depreciation of
property and
equipment 875,121 1,053,697 1,762,028 1,924,887
Amortization of
intangible
assets 408,895 286,281 867,513 583,114
Interest income
(expense), net 166,421 49,297 376,405 90,946
Provision for
income taxes 30,000 12,000 61,134 24,000
------------- ------------- ------------- -------------
EBITDA 3,689,302 4,572,430 4,193,726 6,543,797
------------- ------------- ------------- -------------
Adjustments to
EBITDA(1)
Change in
prepaid domain
name registry
and other
Internet
services fees (1,176,196) (771,898) (3,706,797) (2,752,551)
Change in deferred
revenue 798,720 979,595 3,777,654 3,876,520
Dividend income (176,861) - (176,861) (88,431)
Reversal of
contingencies - (93,749) - (451,249)
Sale of customer
relationships (1,121,065) - (1,121,065) -
Other Income (234,839) - (234,839) -
------------- ------------- ------------- -------------
Subtotal Adjustments
to EBITDA (1,910,241) 113,948 (1,461,908) 584,289
------------- ------------- ------------- -------------
Adjusted Net
Income $ 1,779,061 $ 4,686,378 $ 2,731,818 $ 7,128,086
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
(1) Adjustments to EBITDA
We define Adjusted EBITDA as net income adjusted for depreciation,
amortization, interest, taxes and further adjusted for certain cash and non-
cash charges.
Consolidated Statements of Cash Flows
(Dollar amounts in U.S. dollars)
(unaudited)
Three months ended June 30, Six months ended June 30,
2008 2007 2008 2007
------------- ------------- ------------- -------------
Cash provided by
(used in):
Operating
activities:
Net income or
the period $ 2,208,865 $ 3,171,155 $ 1,126,646 $ 3,920,850
Items not
involving
cash:
Depreciation of
property and
equipment 875,121 1,053,697 1,762,028 1,924,887
Amortization of
deferred
financing
charges 12,700 - 26,200 -
Amortization of
intangible
assets 408,895 286,281 867,513 583,114
Gain on sale of
customer
relationships (1,121,065) - (1,121,065) -
Unrealized
change in the
fair value of
forward exchange
contracts (225,640) (885,652) 29,793 (1,102,441)
Stock-based
compensation 73,000 111,500 145,200 174,200
Change in non-cash
operating working
capital:
Accounts
receivable 350,043 (211,028) 283,923 (1,063,651)
Prepaid expenses
and deposits (244,926) (310,274) (105,237) (1,037,510)
Prepaid fees for
domain name
registry and
other Internet
services fees (1,176,196) (771,898) (3,706,797) (2,752,551)
Accounts payable 682,896 (337,450) 249,069 (745,587)
Accrued
liabilities (159,226) (216,318) (691,064) 432,821
Customer deposits 119,589 (195,342) 18,999 (370,466)
Deferred revenue 798,720 979,595 3,777,654 3,876,520
Accreditation
fees payable (22,696) (315,320) 34,120 (316,028)
------------- ------------- ------------- -------------
Net cash provided
by operating
activities 2,580,080 2,358,946 2,696,982 3,524,158
------------- ------------- ------------- -------------
Financing activities:
Proceeds received
on exercise of
stock options 9,450 85,272 9,450 186,343
Repurchase of
shares - (1,119,455) - (2,446,955)
Repayment of
promissory note
and loan
payable (7,478,560) - (7,957,120) -
------------- ------------- ------------- -------------
Net cash used in
financing
activities (7,469,110) (1,034,183) (7,947,670) (2,260,612)
------------- ------------- ------------- -------------
Investing activities:
Cost of domain
names acquired (2,524) 10,303 (8,944) (18,425)
Additions to
property and
equipment (1,084,209) (1,690,523) (1,295,740) (2,893,153)
Decrease in
restricted cash
- being margin
security against
forward exchange
contracts - 257,785 - 509,423
Acquisition of
Hosted Messaging
Assets from
Critical Path
Inc., net of cash
acquired - - - (90,050)
Acquisition of
Boardtown
Corporation, net
of cash acquired - (4,900) - (4,900)
Sale of customer
relationships 1,421,730 - 1,421,730 -
(Decrease) increase
in cash held in
escrow (5,366) - (12,765) 694,579
------------- ------------- ------------- -------------
Net cash provided
by (used in)
investing
activities 329,631 (1,427,335) 104,281 (1,802,526)
------------- ------------- ------------- -------------
Decrease in cash
and cash
equivalents (4,559,399) (102,572) (5,146,407) (538,980)
Cash and cash
equivalents,
beginning of
period 7,506,468 5,819,984 8,093,476 6,256,392
------------- ------------- ------------- -------------
Cash and cash
equivalents, end
of period $ 2,947,069 $ 5,717,412 $ 2,947,069 $ 5,717,412
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Supplemental cash
flow information:
Interest paid $ 192,900 $ 105,000 $ 452,237 $ 210,000
Supplementary
disclosure of
non-cash investing
activity:
Capital assets
acquired during
the period not
yet paid for $ 663,767 $ 163,169 $ 663,767 $ 163,169
>>
For further information: Company Contact: Leona Hobbs, Director,
Communications, Tucows Inc., (416) 538-5450, [email protected]; Investor Contact:
Todd Kehrli or Mary Magnani, MKR Group, (323) 468-2300, [email protected]
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