Tucows Inc. Reports Q1 Financial Results
Written by Chief Editor , Thursday, 08 May 2008
TORONTO, May 7 /CNW/ - Tucows Inc., (AMEX:TCX, TSX:TC) a leading provider of Internet services to web hosting companies and ISPs worldwide, today announced its financial results for its first quarter ended March 31, 2008. All figures are in U.S. dollars…
“The results of the quarter were right in line with expectations. We are seeing the positive impact of the domain price reduction with an 18% year/year improvement in renewals among other positives. We expect traditional domain name registration to contribute favorably to gross margin in the remainder of the year. In addition, the migration of our email customers to our enhanced platform is nearing completion and we expect to realize considerable cost savings during the second half of the year,” said Elliot Noss, President and
CEO of Tucows.
“While the strength of the Canadian dollar, last year’s price reduction for domain registrations and cost burden of carrying multiple email platforms held down our bottom line results this quarter, the positives noted above, combined with the anticipated continued growth in our domain portfolio business, will place us in an excellent position to achieve our stated goal of
growing revenue, profitability and cash flow in 2008.”
Summary Financial Results
(Numbers in Thousands of US Dollars, Except Per Share Data)
————————————————————————-
3 Months 3 Months
Ended Ended
March 31, March 31,
2008 2007
————————————————————————-
Net Revenue $ 18,711 $ 17,771
————————————————————————-
EBITDA 504 1,971
————————————————————————-
Adjusted Net Income 953 2,442
————————————————————————-
Net (Loss)/Income (1,082) 750
————————————————————————-
Net (Loss) Income/Share (0.01) 0.01
————————————————————————-
Cash Flow from Operations $ 117 $ 1,165
————————————————————————-
Summary of Revenue and Cost of Revenue
(Numbers in Thousands of US Dollars)
————————————————————————-
Revenue Cost of Revenue
————————————————————————-
Three Months Three Months Three Months Three Months
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
2008 2007 2008 2007
————————————————————————-
Traditional Domain
Registration Services $ 12,871 $ 11,901 $ 9,936 $ 8,731
————————————————————————-
Domain Portfolio
Services 905 637 178 100
————————————————————————-
Email Services 1,575 2,133 107 205
————————————————————————-
Retail Services 1,641 1,207 567 406
————————————————————————-
Other Services 1,719 1,893 412 407
————————————————————————-
Total $ 18,711 $ 17,771 $ 11,200 $ 9,849
————————————————————————-
>>
Net revenue for the first quarter of fiscal 2008 increased 5% to
$18.7 million from $17.8 million for the first quarter of fiscal 2007.
Adjusted Net Income for the first quarter of 2008 was $1.0 million,
compared to $2.4 million for the corresponding quarter of last year. Net loss
for the first quarter of 2008 was $1.1 million, or $0.01 per share, compared
with net income of $0.7 million, or $0.01 per share, for the first quarter of
2007.
Deferred revenue at the end the first quarter of fiscal 2008 was
$53.6 million, an increase of 12% from $48.0 million at the end of the first
quarter of 2007 and an increase of 6% from $50.6 million at the end of the
fourth quarter of fiscal 2007.
Cash and restricted cash at the end of the first quarter of fiscal 2008
was $7.5 million compared to $8.1 million at the end of the fourth quarter of
fiscal 2007 and $6.6 million at the end of the first quarter of fiscal 2007.
Cash flow from operations of was $0.1 million during the first quarter of
fiscal 2008.
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, Wednesday, May 7, at 5:00 ET to
discuss the Company’s first quarter ended March 31, 2008 results. To access
the conference call via the Internet go to about.tucows.com and click on
“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 416-640-1917 or 1-877-289-8525
and enter the pass code 21270559 followed by the pound key. The telephone
replay will be available until Wednesday, May 14, 2008 at midnight. To access
the archived conference call via the Internet, go to http://about.tucows.com
and click on “Investors.”
About Tucows
Tucows provides Internet services for web hosting companies and ISPs.
Through our global network of over 9,000 service providers we provide millions
of email boxes and manage 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://about.tucows.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 release 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)
March 31, December 31,
2008 2007
————– ————–
Assets
Current assets:
Cash and cash equivalents $ 7,506,468 $ 8,093,476
Accounts receivable 3,488,300 3,422,180
Prepaid expenses and deposits 2,992,440 3,132,129
Prepaid domain name registry and other
Internet services fees, current portion 27,498,326 25,473,465
Cash held in escrow 1,078,031 1,070,632
Deferred tax asset, current portion 2,000,000 2,000,000
————– ————–
Total current assets 44,563,565 43,191,882
Prepaid domain name registry and other
Internet services fees, long-term portion 11,271,602 10,765,862
Property and equipment 4,779,837 4,963,311
Deferred financing charges 114,700 128,200
Deferred tax asset, long-term portion 1,000,000 1,000,000
Intangible assets 21,698,540 22,150,738
Goodwill 17,490,807 17,490,807
Investment 353,737 353,737
————– ————–
Total assets $ 101,272,788 $ 100,044,537
————– ————–
————– ————–
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 2,747,421 $ 2,689,346
Accrued liabilities 3,012,682 3,289,087
Customer deposits 3,167,194 3,267,784
Promissory note payable, current portion 6,000,000 6,000,000
Loan payable, current portion 2,914,242 1,914,242
Deferred revenue, current portion 37,757,064 35,465,584
Accreditation fees payable, current portion 533,187 483,090
————– ————–
Total current liabilities 56,131,790 53,109,133
Deferred revenue, long-term portion 15,835,098 15,147,644
Accreditation fees payable, long-term portion 188,064 181,345
Loan payable, long-term portion 5,380,806 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; 73,888,542 shares
issued and outstanding at March 31, 2008
and 73,888,542 shares issued and
outstanding at December 31, 2007 15,350,915 15,350,915
Additional paid-in capital 48,609,513 48,537,313
Deficit (45,619,398) (44,537,179)
————– ————–
Total stockholders’ equity 18,341,030 19,351,049
————– ————–
Total liabilities and stockholders’
equity $ 101,272,788 $ 100,044,537
————– ————–
————– ————–
Tucows Inc.
Consolidated Statements of Operations
(Dollar amounts in U.S. dollars)
(unaudited)
Three months ended March 31,
2008 2007
————– ————–
Net revenues $ 18,711,207 $ 17,771,217
Cost of revenues:
Cost of revenues(*) 13,149,932 11,232,789
Depreciation of property and equipment 825,837 809,666
Amortization of intangible assets 73,457 63,532
————– ————–
Total cost of revenues 14,049,226 12,105,987
————– ————–
Gross profit 4,661,981 5,665,230
Expenses:
Sales and marketing(*) 1,696,132 1,344,444
Technical operations and development(*) 1,565,854 1,812,279
General and administrative(*) 1,794,865 1,498,769
Depreciation of property and equipment 61,070 61,524
Amortization of intangible assets 385,161 233,301
————– ————–
Total expenses 5,503,082 4,950,317
————– ————–
Income (loss) from operations (841,101) 714,913
Other income (expenses):
Interest income (expense), net (209,984) (41,649)
Other income, net - 88,431
————– ————–
Total other income (expense) (209,984) 46,782
————– ————–
Income (loss) before provision for
income taxes (1,051,085) 761,695
Provision for income taxes 31,134 12,000
————– ————–
Net income (loss) for the period $ (1,082,219) $ 749,695
————– ————–
————– ————–
Basic earnings (loss) per common share $ (0.01) $ 0.01
————– ————–
————– ————–
Shares used in computing basic earnings
(loss) per common share 73,888,542 75,459,822
————– ————–
————– ————–
Diluted earnings (loss) per common share $ (0.01) $ 0.01
————– ————–
————– ————–
Shares used in computing diluted earnings
(loss) per common share 73,888,542 77,959,165
————– ————–
————– ————–
(*) Stock-based compensation has been included in expenses as follows:
Cost of revenues $ 4,300 $ 2,500
Sales and marketing $ 18,300 $ 14,200
Technical operations and development $ 20,700 $ 20,100
General and administrative $ 28,900 $ 25,900
Tucows Inc.
Reconciliation of EBITDA and Adjusted Net Income
(Dollar amounts in U.S. dollars)
(unaudited)
Three months ended March 31,
2008 2007
————– ————–
Net income (loss) for the period $ (1,082,219) $ 749,695
Depreciation of property and equipment 886,907 871,190
Amortization of intangible assets 458,618 296,833
Interest income (expense), net 209,984 41,649
Provision for income taxes 31,134 12,000
————– ————–
EBITDA 504,424 1,971,367
————– ————–
Adjustments to EBITDA (1)
Change in prepaid domain name registry
and other Internet services fees (2,530,601) (1,980,653)
Change in deferred revenue 2,978,934 2,896,925
Dividend income - (88,431)
Reversal of contingencies - (357,500)
————– ————–
Subtotal Adjustments to EBITDA 448,333 470,341
————– ————–
Adjusted Net Income $ 952,757 $ 2,441,708
————– ————–
————– ————–
(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.
The net amount of cash we collected for domain registrations and
other Internet services paid for the full term at the time of
activation and deferred amounted to $448,333 for the three months
ended March 31, 2008 compared to $916,272 for the three months ended
March 31, 2007.
Tucows Inc.
Consolidated Statements of Cash Flows
(Dollar amounts in U.S. dollars)
(unaudited)
Three months ended March 31,
2008 2007
————– ————–
Cash provided by (used in):
Operating activities:
Net income (loss) for the period $ (1,082,219) $ 749,695
Items not involving cash:
Depreciation of property and equipment 886,907 871,190
Amortization of deferred financing charges 13,500 -
Amortization of intangible assets 458,618 296,833
Unrealized change in the fair value of
forward exchange contracts 255,433 (216,789)
Stock-based compensation 72,200 62,700
Change in non-cash operating working
capital:
Accounts receivable (66,120) (852,623)
Prepaid expenses and deposits 139,689 (727,236)
Prepaid fees for domain name registry
and other Internet services fees (2,530,601) (1,980,653)
Accounts payable (433,827) (408,137)
Accrued liabilities (531,838) 649,139
Customer deposits (100,590) (175,124)
Deferred revenue 2,978,934 2,896,925
Accreditation fees payable 56,816 (708)
————– ————–
Cash provided by operating activities 116,902 1,165,212
————– ————–
Financing activities:
Proceeds received on exercise of stock
options - 101,071
Repurchase of shares - (1,327,500)
Repayment of loan payable (478,560) -
————– ————–
Cash used in financing activities (478,560) (1,226,429)
————– ————–
Investing activities:
Cost of domain names acquired (6,420) (28,728)
Additions to property and equipment (211,531) (1,202,630)
Decrease in restricted cash - being margin
security against forward exchange contracts - 251,638
Acquisition of Hosted Messaging Assets from
Critical Path Inc., net of cash acquired - (90,050)
(Decrease) increase in cash held in escrow (7,399) 694,579
————– ————–
Cash used in investing activities (225,350) (375,191)
————– ————–
Decrease in cash and cash equivalents (587,008) (436,408)
Cash and cash equivalents, beginning
of period 8,093,476 6,256,392
————– ————–
Cash and cash equivalents, end of period $ 7,506,468 $ 5,819,984
————– ————–
————– ————–
Supplemental cash flow information:
Interest paid $ 259,337 $ 105,000
Supplementary disclosure of non-cash
investing activity:
Capital assets acquired during the
period not yet paid for $ 764,972 $ 1,146,066
Dividend receivable $ - $ 88,431
For further information: Leona Hobbs, Director, Communications, Tucows Inc., (416) 538-5450, ir@tucows.com ; Charles Messman, President, MKR Group, (323) 468-2300, tcx@mkr-group.com