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TUCOWS INC. REPORTS FINANCIAL RESULTS FOR THIRD QUARTER 2010
Nov 10, 2010 (03:11 PM EST)


TORONTO, Nov. 10 /PRNewswire-FirstCall/ - Tucows Inc. (NYSE AMEX:TCX, TSX:TC), a global provider of domain names, email and other Internet services, today reported its financial results for the third quarter ended September 30, 2010. All figures are in U.S. dollars. 

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

  3 Months Ended
Sept 30, 2010
(unaudited)
3 Months Ended
Sept 30, 2009
(unaudited)
9 Months Ended
Sept 30, 2010
(unaudited)
9 Months Ended
Sept 30, 2009
(unaudited)
Net revenue 21,209 20,496 62,501 60,610
 
Gain (loss) on change in fair value of forward exchange contracts 142 1,878 (1,669) 3,902
Other income - 1,880 - 4,493
Net income for the period 1,083 5,196 880 10,603

Net earnings per common share 0.02 0.08 0.01 0.15
Net cash provided by operating activities 1,876 82  4,428 3,586 

Summary of Revenue and Cost of Revenue before Network Costs
(Numbers in Thousands of US Dollars) 

  Revenue
Cost of Revenue
  3 Months Ended
Sept 30, 2010
(unaudited)
3 Months Ended
Sept 30, 2009
(unaudited)
3 Months Ended
Sept 30, 2010
(unaudited)
3 Months Ended
Sept 30, 2009
(unaudited)
OpenSRS:        
Domain
Services
16,517 15,098 13,817 12,326
Email Services 578 842 97 103
Other Services 1,086 1,109 417 412
Total OpenSRS
Services
18,181 17,049 14,331 12,841
         
YummyNames 1,249 1,782 180 218
Hover 1,147 1,204 381 493
Butterscotch 632 461 12 26
Total
21,209 20,496 14,904 13,578

"Our third quarter results continued our track record of solid performance throughout 2010," said Elliot Noss, President and CEO of Tucows. "Revenue reached a record $21.2 million, driven by continued strength in both OpenSRS and YummyNames along with increased contribution from our reinvigorated Hover and Butterscotch services. The consistency and reliability of our business continues to support our objective of returning capital to shareholders, as evidenced by our repurchase of an additional 3.9 million shares in October under our most recent Dutch tender offer."  

Net revenue for the third quarter of 2010 increased 3.5% to $21.2 million from $20.5 million for the third quarter of 2009. 

Net income for the third quarter of 2010 was $1.1 million, or $0.02 per share, compared with net income of $5.2 million, or $0.08 per share, for the third quarter of 2009.  Net income for the third quarter of 2009 included the final payment related to the sale of the Company's equity stake in Afilias Inc. of $1.9 million and a gain in the fair value of forward exchange contracts of $1.9 million.  

Deferred revenue at the end of the third quarter of fiscal 2010 was $62.3 million, an increase of 10.3% from $56.5 million at the end of the third quarter of fiscal 2009 and 3.8% from $60.0 million in the second quarter of 2010. 

Cash and cash equivalents at the end of the third quarter of 2010 were $5.4 million compared with $8.2 million at the end of the third quarter of 2009 and $4.1 million at the end of second quarter of 2010. The increase in cash and cash equivalents from the second quarter of 2010 was primarily the result of cash flow from operating activities of $1.9 million for the third quarter of 2010, which was partially offset by the repayment of $0.5 million of the Company's bank loan. 

Subsequent to quarter end, the Company announced the final results of its modified "Dutch auction" tender announced on September 7, 2010. Under the terms of the tender, Tucows purchased 3.9 million of its shares at a purchase price of $0.70 per share, for a total of $2.8 million. Year to date in 2010, the Company has repurchased an aggregate of 13.7 million shares through both its modified Dutch tender offers and normal course issuer bids ("Buyback Programs"), representing 20.4% of the Company's outstanding shares at the end of 2009.  Since initiating its first share buyback program in February 2007, the Company has repurchased a total of 23.2 million shares through its Buyback Programs representing 30.0% of the Company's total shares outstanding at the end of January 2007.  

Conference Call
Tucows management will host a conference call today, Wednesday, November 10, 2010, at 5:00 p.m. (ET) to discuss the third quarter fiscal 2010 results. Participants can access the conference call via the Internet at http://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 1-800-642-1687and enter the pass code 20897695 followed by the pound key.  The telephone replay will be available until Wednesday, November 17, 2010 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 manages over ten million domain names and millions of email boxes through a reseller network of over 10,000 web hosts and ISPs. Hover is the easiest way for individuals and small businesses to manage their domain names and email addresses. YummyNames owns premium domain names that generate revenue through advertising or resale. Butterscotch.com is an online video network building on the foundation of Tucows.com. More information can be found at http://tucowsinc.com

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)        
         
    September 30   December 31,
    2010   2009
    (unaudited)   (unaudited)
         
Assets        
         
Current assets:        
  Cash and cash equivalents     $     5,431,589    $     9,632,394
  Accounts receivable   3,332,277   2,822,045
  Prepaid expenses and deposits   2,437,566   2,498,922
  Derivative instrument asset, current portion   576,581   2,107,825
  Prepaid domain name registry and ancillary services fees, current portion   36,621,716   31,596,236
  Income taxes recoverable   547,000   674,000
    Total current assets   48,946,729   49,331,422
         
Derivative instrument asset, long-term portion   5,436   112,553
Prepaid domain name registry and ancillary services fees, long-term portion   12,887,593   12,126,515
Property and equipment   1,410,195   1,986,768
Deferred financing charges   20,900   41,000
Deferred tax asset, long-term portion   3,870,038   3,907,476
Intangible assets   17,333,237   18,656,353
Goodwill   17,990,807   17,990,807
    Total assets    $ 102,464,935    $ 104,152,894
         
         
Liabilities and Stockholders' Equity        
         
Current liabilities:        
  Accounts payable    $     1,156,803    $     1,547,863
  Accrued liabilities   1,625,663   1,889,980
  Customer deposits   3,702,464   3,624,317
  Derivative instrument liability,current portion   37,933   -
  Loan payable, current portion   1,784,443   3,220,125
  Deferred revenue, current portion   45,475,807   40,211,766
  Accreditation fees payable, current portion   545,694   530,656
  Deferred tax liability, current portion   870,038   907,476
    Total current liabilities   55,198,845   51,932,183
         
Derivative instrument liability, long-term portion   8,445   15,708
Deferred revenue, long-term portion   16,858,661   16,098,812
Accreditation fees payable, long-term portion   168,464   169,620
Deferred tax liability, long-term portion   4,840,000   4,840,000
         
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; 57,362,236 shares issued and outstanding as of September 30, 2010 and 67,080,353 shares issued and outstanding as of December 31, 2009   12,107,580   14,030,384
  Additional paid-in capital   42,623,860   47,287,351
  Deficit   (29,340,920)   (30,221,164)
    Total stockholders' equity   25,390,520   31,096,571
Total liabilities and stockholders' equity    $ 102,464,935    $ 104,152,894

       

Tucows  Inc.
Consolidated Statements of Operations
(Dollar amounts in U.S. dollars)
           
      Three months ended September 30,         Nine months ended September 30,  
    2010   2009   2010   2009
      (unaudited)       (unaudited)    
                 
Net revenues $ 21,209,468 $ 20,496,129 $ 62,501,219 $      60,609,673
                 
Cost of revenues:                
  Cost of revenues (*)   15,991,455   14,770,868   46,372,315        42,942,314
  Depreciation of property and equipment   231,253   347,619   794,368         1,316,986
  Amortization of intangible assets   74,802   29,199   224,406               87,597
    Total cost of revenues   16,297,510   15,147,686   47,391,089   44,346,897
               
Gross profit   4,911,958   5,348,443   15,110,130   16,262,776
                
Expenses:               
  Sales and marketing (*)   1,830,999   1,568,727   5,480,228   4,261,070
  Technical operations and development (*)   1,053,768   1,142,331   3,486,718   3,421,825
  General and administrative (*)   633,457   1,145,951   2,049,813   4,608,173
  Depreciation of property and equipment   40,239   47,249    127,559   221,937
  Loss on disposition of property and equipment   -     40,369   -     40,369
  Amortization of intangible assets   360,540            360,540   1,081,620          1,081,620
  Loss (gain) on change in fair value of forward exchange contracts   (141,981)   (1,878,230)   1,669,031   (3,902,394)
    Total expenses   3,777,022   2,426,937   13,894,969   9,732,600
                 
Income from operations   1,134,936   2,921,506   1,215,161   6,530,176
                 
Other (expenses) income:              
  Interest (expense) income, net   (26,917)   (52,887)   (99,812)   (178,669)
  Other income   -   1,880,000   -   4,493,190
  Total other (expenses) income   (26,917)   1,827,113   (99,812)   4,314,521
               
Income before provision for income taxes   1,108,019   4,748,619   1,115,349   10,844,697
               
(Recovery of) provision for income taxes   24,863   (447,455)   235,105   241,621
 Net income for the period   $  1,083,156  $  5,196,074 $ 880,244 10,603,076
                 
                 
Basic earnings per common share $ 0.02 $ 0.08 $ 0.01 $ 0.15
                 
Shares used in computing basic earnings per common share   57,351,161   68,008,871   59,225,739   69,841,981
                 
Diluted earnings per common share $ 0.02 $ 0.08 $ 0.01 $ 0.15
               
Shares used in computing diluted earnings per common share   59,185,793   68,874,517   61,223,369   70,156,521
               
               
(*) Stock-based compensation has been included in expenses as follows:                
  Cost of revenues $ 6,557 $ 3,860 $ 15,759 $ 12,227
  Sales and marketing $ 30,358 $ 12,807 $ 71,589 $ 42,764
  Technical operations and development $ 19,058 $ 12,395 $ 51,903 $ 34,116
  General and administrative $ 99,813 $ 70,748 $ 174,437 $ 142,641

TORONTO, Nov. 10 /CNW/ -

          Tucows  Inc.      
          Consolidated Statements of Cash Flows      
          (Dollar amounts in U.S. dollars)      
                 
      Three months ended September 30,       Nine months ended September 30,  
    2010     2009   2010   2009
Cash provided by (used in):     (unaudited)       (unaudited)  
Operating activities:                
  Net income for the period    $ 1,083,156 $   5,196,074 880,244  $  10,603,076
  Items not involving cash:                
    Depreciation of property and equipment      271,492   394,868   921,927   1,538,923
    Loss on disposition of property and equipment                -     40,369           -        40,369
    Amortization of deferred financing charges   6,000   9,100   20,100   29,200
    Amortization of intangible assets   435,342   389,739   1,306,026   1,169,217
    Gain on disposal of investment in Afilias   -     (1,880,000)   -     (3,890,395)
    Reduction in deferred tax liability   -     (497,000)   -     (497,000)
    Disposal of domain names   5,084   649   17,090   2,596
  Unrealized (gain) loss in the fair value of forward contracts (141,981)   (1,878,230)   1,669,031   (3,902,394)
    Stock-based compensation   155,786   99,810   313,688  
231,748
  Changes in non-cash operating working capital:                
    Accounts receivable   53,373   (465,454)   (510,232)   (729,520)
    Prepaid expenses and deposits   489,843   419,761   61,356   (469,462)
  Prepaid fees for domain name registry and ancillary services fees (2,355,886)   33,425   (5,786,558)   (2,588,476)
    Income taxes recoverable   (165,000)   (835,398)   127,000   -  
    Accounts payable   (244,194)   (977,967)   (443,624)   (597,560)
    Accrued liabilities   (231,633)   (115,362)   (264,317)   (111,719)
    Customer deposits   240,907   592,612   78,147   445,079
    Deferred revenue   (14,435)   (398,657)   6,023,890   2,314,334
    Accreditation fees payable   2,287,739   (46,762)   13,882   (2,457)
    Net cash provided by operating activities   1,875,593   81,577   4,427,650   3,585,559
                     
    Financing activities:                
    Proceeds received on exercise of stock options   -     -     14,809   25,422
    Repurchase of common stock   -     (570,335)   (6,914,792)   (2,381,514)
    Repayment of loan payable   (478,561)   (478,561)   (1,435,682)   (2,160,682)
  Net cash used in financing activities   (478,561)   (1,048,896)   (8,335,665)   (4,516,774)
                 
Investing activities:                
    Cost of domain names acquired   -     -     -     (5,900)
    Additions to property and equipment   (33,111)   (281,282)   (292,790)   (426,292)
    Proceeds on disposal of investment in Afilias   -     1,980,000   -     4,090,395
    Net cash (used in) provided by investing activities   (33,111)   1,698,718   (292,790)   3,658,203
                 
    Increase (decrease) in cash and cash equivalents   1,363,921   731,399   (4,200,805)   2,726,988
                 
Cash and cash equivalents, beginning of period   4,067,668   7,423,056   9,632,394   5,427,467
Cash and cash equivalents, end of period $ 5,431,589 $ 8,154,455 $ 5,431,589 $ 8,154,455
                 
Supplemental cash flow information:                
    Interest paid $ 27,001  $   52,983 $  99,798  $  181,012
                 
Supplementary disclosure of non-cash investing activity:                
    Property and equipment acquired during the period not yet paid for $    146,158  $  343,777 $ 146,158  $  343,777

SOURCE Tucows Inc.