- Quarter Highlighted by Record Revenue, Record Adjusted Net Income and Continued Strong Cash Flow Generation -
TORONTO, Aug. 7 /PRNewswire-FirstCall/ -- Tucows Inc. (AMEX:TCXAMEX:TSX:TC), a leading provider of Internet services to web hosting companies, ISPs and other service providers worldwide, today reported its financial results for the second quarter of fiscal 2007, ended June 30, 2007. All figures are in U.S. dollars unless otherwise stated.
"We delivered solid financial performance in the second quarter, which benefited from the sale of a block of 2,500 domain names from our portfolio," said Elliot Noss, President and CEO of Tucows. "Consolidation in the domain name industry, the ramp-up in the sales cycle for our new email service and disappointing Google ad revenues resulted in weaker year-over-year revenue growth than we would have liked. Our overriding objective is to drive strong long-term growth and we have recently taken several steps in this regard, including the recent launch of our new email platform, the launch of our Premium Domains service and subsequent to quarter end, the acquisition of ItsYourDomain.
"Most importantly, this morning we announced our decision to make a significant investment in our business. We introduced a new cost-plus domain pricing structure and a reduction in our domain name pricing.
"Given the above, our expectation is that cash flow from operations will be in excess of $10 million for 2007. We are confident that these steps strengthen our position to capitalize on the significant long-term opportunities in the domain name and email markets." Summary Financial Results
(Numbers in Thousands of US Dollars, Except Per Share Data) -------------------------------------------------------------------------
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2007 2006 2007 2006
-------------------------------------------------------------------------
Net Revenue 20,815 15,679 38,586 30,966
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EBITDA 4,572 1,001 6,544 1,435
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Adjusted Net Income 4,686 1,759 7,128 3,265
-------------------------------------------------------------------------
Net Income 3,171 226 3,921 69
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Net Income/Share 0.04 0.00 0.05 0.00
-------------------------------------------------------------------------
Cash Flow from Operations 2,359 3,220 3,524 5,054
------------------------------------------------------------------------- Summary of Revenue and Cost of Revenue
(Numbers in Thousands of US Dollars) -------------------------------------------------------------------------
Revenue Cost of Revenue
-------------------------------------------------------------------------
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2007 2006 2007 2006
-------------------------------------------------------------------------
Domain Names, excluding
Domain Direct 12,274 10,559 9,146 7,509
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Other Internet services,
including Domain Direct 4,229 4,045 1,038 1,011
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Sale of Domain Names 3,068 - 11 -
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Advertising and other
revenue 1,244 1,075 112 -
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Total 20,815 15,679 10,307 8,520
------------------------------------------------------------------------- Second Quarter Fiscal 2007 Financial Summary Revenue - Net revenue for the second quarter of fiscal 2007 increased 33% to $20.8 million from $15.7 million for the second quarter of fiscal 2006. The increase was primarily the result of an atypically large sale of approximately 2,500 domain names from the Company's portfolio of domain names for $3.0 million and revenue growth across all areas of the business.
Adjusted Net Income - Adjusted net income for the second quarter of fiscal 2007 increased to $4.7 million from $1.8 million for the corresponding quarter of last year.
Net Income - Net income for the second quarter of fiscal 2007 increased to $3.2 million, or $0.04 per share from $0.2 million, or $0.00 per share, for the second quarter of fiscal 2006. Included in net income for the second quarter of fiscal 2007 is an unrealized gain in the change in the fair value of forward contracts of $0.9 million compared with a gain on foreign exchange of $0.4 million for the corresponding quarter of fiscal 2006.
Deferred Revenue - Deferred revenue at the end the second quarter of fiscal 2007 was $49.0 million, an increase of 13% from $43.2 million at the end of the second quarter of fiscal 2006 and an increase of 2% from $48.0 million at the end of the first quarter of fiscal 2007.
Cash - Cash, cash equivalents and restricted cash at the end of the second quarter of fiscal 2007 were $6.2 million compared to $6.6 million at the end of the first quarter of fiscal 2007 and $7.0 million at the end of the second quarter of fiscal 2006. The decrease compared to the end of the first quarter of fiscal 2007 resulted primarily from the repurchase of 1.1 million of the Company's shares at a cost of $1.1 million during the second quarter under its previously announced stock buyback program and our investing $1.7 million in property and equipment related to our hosted email environment. This decrease was partially offset by the generation of cash flow from operations of $2.4 million during the second quarter of fiscal 2007.
Subsequent Events - On July 25, 2007, Tucows acquired Innerwise Inc. (ItsYourDomain.com), a privately held, ICANN-accredited registrar with more than 700,000 domains under management and offering domain services through a worldwide wholesale network of over 2,500 affiliates. Tucows paid $10.8 million in cash for IYD with the opportunity for IYD to realize an additional $1.1 million based on specific targets. The acquisition was funded from working capital and a bank loan for $9.6 million.
EBITDA and Adjusted Net Income To assist financial statement users in their 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.
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.
Conference Call Tucows will host a conference call today, Tuesday, August 7, 2007, at 8:30 a.m. (ET) to discuss the Company's second quarter fiscal 2007 results. To access the conference call via the Internet go to http://about.tucows.com/, and click on "Investor Relations." For those unable to join 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 1-877-289-8525 or 416-640-1917 and enter the pass code 21228036 followed by the pound key. The telephone replay will be available until Tuesday, August 14, 2007, at midnight. To access the archived conference call via the Internet, go to about.tucows.com and click on "Investors." About Tucows Tucows is the largest Internet services provider for hosting companies and ISPs. Through our network of over 7,000 service providers around the world we provide millions of email boxes, billing solutions and manage over seven million domains. Tucows is an accredited registrar with ICANN (the Internet Corporation for Assigned Names and Numbers). Tucows remains one of the most popular software download sites on the Internet. For more information please visit about.tucows.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)
(unaudited) June 30, December 31,
2007 2006
------------- -------------
Assets Current assets:
Cash and cash equivalents $ 5,717,412 $ 6,256,392
Restricted cash 510,000 1,019,423
Accounts receivable 4,033,648 2,969,997
Prepaid expenses and deposits 4,037,325 2,394,627
Prepaid domain name registry and other
Internet services fees, current portion 24,321,679 22,168,558
Deferred tax asset, current portion 1,000,000 1,000,000
------------- -------------
Total current assets 39,620,064 35,808,997 Prepaid domain name registry and other
Internet services fees, long-term portion 10,110,771 9,511,341
Property and equipment 6,394,697 5,647,532
Deferred tax asset, long-term portion 2,000,000 2,000,000
Intangible assets 17,989,747 18,554,436
Goodwill 12,189,767 12,094,817
Investment 353,737 353,737
Cash held in escrow - 694,579
------------- -------------
Total assets $ 88,658,783 $ 84,665,439
------------- -------------
------------- -------------
Liabilities and Stockholders' Equity Current liabilities:
Accounts payable $ 1,901,126 $ 2,867,814
Accrued liabilities 2,502,580 2,567,012
Customer deposits 2,773,653 3,144,119
Deferred revenue, current portion 34,527,977 31,658,081
Accreditation fees payable, current portion 521,844 847,325
Promissory note payable, current portion 6,000,000 -
------------- -------------
Total current liabilities 48,227,180 41,084,351 Deferred revenue, long-term portion 14,485,149 13,478,525
Accreditation fees payable, long-term portion 173,441 163,988
Promissory note payable, long-term portion - 6,000,000
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; 73,735,782 shares issued
and outstanding at June 30, 2007 and
75,978,502 shares issued and outstanding
at December 31, 2006 14,321,144 15,395,381
Additional paid-in capital 49,347,731 50,359,906
Deficit (43,291,862) (47,212,712)
------------- -------------
Total stockholders' equity 20,377,013 18,542,575
------------- -------------
Total liabilities and stockholders' equity $ 88,658,783 $ 84,665,439
------------- -------------
------------- ------------- Tucows Inc. Consolidated Statements of Operations
(Dollar amounts in U.S. dollars)
(unaudited) Three months ended June 30, Six months ended June 30,
2007 2006 2007 2006
------------- ------------- ------------- ------------- Net revenues $ 20,814,881 $ 15,678,856 $ 38,586,098 $ 30,965,976 Cost of revenues:
Cost of
revenues(x) 12,198,808 10,066,262 23,431,597 19,994,116
Depreciation of
property and
equipment 985,430 669,256 1,795,096 1,194,175
Amortization of
intangible
assets 63,540 38,538 127,072 77,078
------------- ------------- ------------- -------------
Total cost of
revenues 13,247,778 10,774,056 25,353,765 21,265,369
------------- ------------- ------------- ------------- Gross profit 7,567,103 4,904,800 13,232,333 9,700,607 Expenses: Sales and
marketing(x) 1,480,078 1,572,290 2,824,522 3,031,446
Technical
operations and
development(x) 1,752,693 2,090,723 3,564,972 4,411,439
General and
administrative(x) 810,872 948,464 2,309,641 2,567,517
Depreciation of
property and
equipment 68,267 45,041 129,791 82,091
Amortization of
intangible
assets 222,741 112,591 456,042 205,884
------------- ------------- ------------- -------------
Total expenses 4,334,651 4,769,109 9,284,968 10,298,377
------------- ------------- ------------- ------------- Income (loss) from
operations 3,232,452 135,691 3,947,365 (597,770) Other income
(expenses):
Interest income
(expense), net (49,297) 102,662 (90,946) 205,553
Other income, net - - 88,431 473,606
------------- ------------- ------------- -------------
Total other
income
(expense) (49,297) 102,662 (2,515) 679,159
------------- ------------- ------------- ------------- Income before
provision for
income taxes 3,183,155 238,353 3,944,850 81,389 Provision for
income taxes 12,000 12,000 24,000 12,000
------------- ------------- ------------- -------------
Net income for
the period $ 3,171,155 $ 226,353 $ 3,920,850 $ 69,389
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Basic earnings
per common share $ 0.04 $ 0.00 $ 0.05 $ 0.00
------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- Shares used in
computing basic
earnings per
common share 74,447,018 72,527,662 74,950,621 72,255,539
------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- Diluted earnings
per common share $ 0.04 $ 0.00 $ 0.05 $ 0.00
------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- Shares used in
computing diluted
earnings per
common share 77,375,096 74,704,791 77,633,136 74,540,626
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
(x) Stock-based
compensation
has been
included in
expenses as
follows:
Cost of
revenues $ 4,400 $ 3,200 $ 6,900 $ 5,500
Sales and
marketing $ 25,500 $ 18,900 $ 39,700 $ 36,000
Technical
operations
and
develop-
ment $ 23,300 $ 27,500 $ 43,400 $ 51,000
General and
adminis-
trative $ 58,300 $ 29,500 $ 84,200 $ 56,000
Tucows Inc. Consolidated Statements of Cash Flows
(Dollar amounts in U.S. dollars)
(unaudited) Three months ended June 30, Six months ended June 30,
2007 2006 2007 2006
------------- ------------- ------------- ------------- Cash provided by
(used in):
Operating activities:
Net income for
the period $ 3,171,155 $ 226,353 $ 3,920,850 $ 69,389
Items not
involving cash:
Depreciation of
property and
equipment 1,053,697 714,297 1,924,887 1,276,266
Amortization
of intangible
assets 286,281 151,129 583,114 282,962
Unrealized
change in the
fair value of
forward exchange
contracts (885,652) (378,846) (1,102,441) (195,902)
Stock-based
compensation 111,500 78,300 174,200 148,500
Change in non-cash
operating working
capital:
Interest
receivable - (3,047) - 34,547
Accounts
receivable (211,028) (335,071) (1,063,651) (2,162,713)
Prepaid expenses
and deposits (310,274) (24,292) (1,037,510) (20,879)
Prepaid fees for
domain name
registry and other
Internet services
fees (771,898) (1,858,622) (2,752,551) (4,171,670)
Accounts payable (337,450) 2,577,875 (745,587) 3,070,542
Accrued
liabilities (216,318) (259,966) 432,821 1,067,114
Customer deposits (195,342) 420,423 (370,466) 568,257
Deferred revenue 979,595 2,151,830 3,876,520 5,196,350
Accreditation
fees payable (315,320) (240,100) (316,028) (108,836)
------------- ------------- ------------- -------------
Cash provided by
operating
activities 2,358,946 3,220,263 3,524,158 5,053,927
------------- ------------- ------------- ------------- Financing activities:
Proceeds received
on exercise of
stock options 85,272 27,401 186,343 55,410
Repurchase of
shares (1,119,455) - (2,446,955) -
------------- ------------- ------------- -------------
Cash (used in)
provided by
financing
activities (1,034,183) 27,401 (2,260,612) 55,410
------------- ------------- ------------- ------------- Investing activities:
Cost of domain
names acquired 10,303 - (18,425) -
Additions to
property and
equipment (1,690,523) (2,405,146) (2,893,153) (3,291,425)
Decrease in
investment in
short-term
investments - 72,000 - 1,771,569
Decrease (increase)
in restricted cash
- being margin
security against
forward exchange
contracts 257,785 190,042 509,423 (362,458)
Acquisition of
Mailbank.com Inc.,
net of cash
acquired - (5,830,902) - (5,830,902)
Acquisition of Hosted
Messaging Assets,
net of cash acquired - 163,969 (90,050) (6,419,485)
Acquisition of
Boardtown
Corporation, net
of cash acquired (4,900) - (4,900) -
(Increase) decrease
in cash held in
escrow - (18,507) 694,579 (1,785,011)
------------- ------------- ------------- -------------
Cash used in
investing
activities (1,427,335) (7,828,544) (1,802,526) (15,917,712)
------------- ------------- ------------- ------------- Decrease in cash and
cash equivalents (102,572) (4,580,880) (538,980) (10,808,375)
Cash and cash
equivalents,
beginning of
period 5,819,984 11,120,593 6,256,392 17,348,088
------------- ------------- ------------- -------------
Cash and cash
equivalents,
end of period $ 5,717,412 $ 6,539,713 $ 5,717,412 $ 6,539,713
------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- Supplemental cash
flow information:
Interest paid $ 105,000 $ - $ 210,000 $ - Supplementary
disclosure of
non-cash investing
activity:
Capital assets
acquired during
the period not
yet paid for $ 163,169 $ - $ 163,169 $ -
Common stock
issued on the
acquisition of
Mailbank.com
Inc. $ - $ 2,877,070 $ - $ 2,877,070
Promissory notes
issued on the
acquisition of
Mailbank.com
Inc. $ - $ 8,122,930 $ - $ 8,122,930 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,
2007 2006 2007 2006
------------- ------------- ------------- ------------- Net income for the
period $ 3,171,155 $ 226,353 $ 3,920,850 $ 69,389
Depreciation of
property and
equipment 1,053,697 714,297 1,924,887 1,276,266
Amortization of
intangible
assets 286,281 151,129 583,114 282,962
Interest income
(expense), net 49,297 (102,662) 90,946 (205,553)
Provision for
income taxes 12,000 12,000 24,000 12,000
------------- ------------- ------------- -------------
EBITDA 4,572,430 1,001,117 6,543,797 1,435,064
------------- ------------- ------------- ------------- Adjustments to EBITDA(1)
Change in prepaid
domain name
registry and
other Internet
services fees (771,898) (1,858,622) (2,752,551) (4,171,670)
Change in deferred
revenue 979,595 2,151,830 3,876,520 5,196,350
Dividend income - - (88,431) -
Transitional costs - 464,579 - 1,278,842
Other income - - - (473,606)
Reversal of
contingencies (93,749) - (451,249) -
------------- ------------- ------------- -------------
Subtotal Adjustments
to EBITDA 113,948 757,787 584,289 1,829,916
------------- ------------- ------------- ------------- Adjusted Net
Income $ 4,686,378 $ 1,758,904 $ 7,128,086 $ 3,264,980
------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- (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 $207,697 for the three months ended June 30, 2007 compared to $293,208 for the three months ended June 30, 2006.
For the six months ended June 30, 2006, we incurred $1.3 million of transitional costs in connection with our acquisition of the Hosted Messaging assets of Critical Path. In addition, during the six months ended June 30, 2006, we received $473,606 in connection with settlements related to patents we acquired in the merger with Infonautics in 2001. 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 $1.1 million for the six months ended June 30, 2007 compared to $1.0 million for the six months ended June 30, 2006. DATASOURCE: Tucows Inc.
CONTACT: Leona Hobbs, Director, Communications, Tucows Inc., (416) 538-5450,
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