TORONTO, Nov. 6 /PRNewswire-FirstCall/ -- Tucows Inc. (AMEX:TCXAMEX:TSX:TC), a leading provider of Internet services to web hosting companies and ISPs worldwide, today reported its financial results for the third quarter of fiscal 2007, ended September 30, 2007. All figures are in U.S. dollars unless otherwise stated.
"Despite short-term challenges, we are optimistic about the significant opportunities for long-term growth in our business," said Elliot Noss, President and CEO, Tucows Inc. "We are confident that the price reduction on wholesale domain names implemented in early August and affiliate channel opportunities from the acquisition of IYD will re-energize our traditional domain names business. Moreover, our emerging domain name revenue streams from direct navigation, premium domain name sales from our own inventory, and agency fees on sales of third-party premium domain name inventories provide excellent future growth potential. In addition, our new hosted email service will allow our customers to compete with the best of the free and hosted services in the market. We have positioned Tucows to achieve sustainable long-term growth.
"Our financial results were affected by our decision to reduce the price in our traditional domain names business and the declining yields from our Google ads. In addition, we experienced unsatisfactory results from our content libraries, which we are currently addressing. These factors combined to have a muting effect on generation of cash flow from operations, which we now expect to be in the range of $8.5 million to $9.0 million for fiscal 2007." Summary Financial Results
(Numbers in Thousands of US Dollars, Except Per Share Data)
-------------------------------------------------------------------------
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September September September September
30, 2007 30, 2006 30, 2007 30, 2006
-------------------------------------------------------------------------
Net Revenue 17,812 16,864 56,398 47,830
-------------------------------------------------------------------------
EBITDA 1,378 2,944 7,922 4,379
-------------------------------------------------------------------------
Adjusted Net Income 1,130 1,518 8,258 4,783
-------------------------------------------------------------------------
Net Income (loss) (311) 1,935 3,610 2,004
-------------------------------------------------------------------------
Net Income/Share $0.00 $0.03 $0.05 $0.03
-------------------------------------------------------------------------
Cash Flow from
Operations 2,264 (133) 5,788 4,921
------------------------------------------------------------------------- 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
September September September September
30, 2007 30, 2006 30, 2007 30, 2006
-------------------------------------------------------------------------
Domain Names,
excluding Domain
Direct 12,301 11,272 9,158 8,069
-------------------------------------------------------------------------
Other Internet
services, including
Domain Direct 4,422 4,305 1,028 1,129
-------------------------------------------------------------------------
Sale of Domain Names 21 - - -
-------------------------------------------------------------------------
Advertising and
other revenue 1,068 1,287 145 -
-------------------------------------------------------------------------
Total 17,812 16,864 10,331 9,198
------------------------------------------------------------------------- Third Quarter Fiscal 2007 Financial Summary Revenue - Net revenue for the third quarter of fiscal 2007 increased 6% to $17.8 million from $16.9 million for the third quarter of fiscal 2006. The increase was primarily the result of higher revenue from domain registrations, which was partially offset by lower revenue from both email and advertising.
Adjusted Net Income - Adjusted net income for the third quarter of fiscal 2007 was $1.1 million compared to $1.5 million for the corresponding quarter of last year.
Net Income/Loss - Net loss for the third quarter of fiscal 2007 was $0.3 million, or $0.00 per share, compared to net income of $1.9 million, or $0.03 per share, for the third quarter of fiscal 2006. Net income for the third quarter of fiscal 2006 included other income of $1.9 million related to contingent consideration associated with the sale in 2002 of patents acquired through the reverse takeover of Infonautics in 2001. Included in net income for the third quarter of fiscal 2007 is a dividend of $531,000 from Afilias, Inc. a company in which Tucows has an investment. Tucows does not expect to receive additional dividends from Afilias in 2007.
Deferred Revenue - Deferred revenue at the end the third quarter of fiscal 2007 was $49.8 million, an increase of 11% from $44.7 million at the end of the third quarter of fiscal 2006 and an increase of 2% from $49.0 million at the end of the second quarter of fiscal 2007.
Cash - Cash, cash equivalents and restricted cash at the end of the third quarter of fiscal 2007 was unchanged from the end of the second quarter of fiscal 2007 at $6.2 million and up from $3.8 million at the end of the third quarter of fiscal 2006. Compared to the end of the second quarter of fiscal 2007, cash, cash equivalents and restricted cash remained unchanged primarily as a result of the generation of $2.3 million from cash flow from operations during the third quarter being offset by our investing $1.1 million in cash in partial payment of the acquisition of Innerwise Inc. (ItsYourDomain.com) at closing and the transfer of an additional $1.1 million into an escrow account to be held against certain performance contingencies being met by August 2008.
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, November 6, 2007, at 5:00 p.m. (ET) to discuss the Company's third quarter fiscal 2007 results. To access the conference call via the Internet go to about.tucows.com, and click on "Investors".
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 21251093 followed by the pound key. The telephone replay will be available until Tuesday, November 13, 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 9,000 service providers around the world we provide billing solutions, 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). 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) September 30, December 31,
2007 2006
------------- -------------
Assets Current assets:
Cash and cash equivalents $ 5,915,732 $ 6,256,392
Restricted cash 255,000 1,019,423
Accounts receivable 3,971,950 2,969,997
Prepaid expenses and deposits 3,474,477 2,394,627
Prepaid domain name registry and other
Internet services fees, current portion 24,669,326 22,168,558
Cash held in escrow 1,058,620 -
Deferred tax asset, current portion 1,000,000 1,000,000
------------- -------------
Total current assets 40,345,105 35,808,997 Prepaid domain name registry and other
Internet services fees, long-term portion 10,559,073 9,511,341
Property and equipment 5,680,675 5,647,532
Deferred financing charges 142,600 -
Deferred tax asset, long-term portion 2,000,000 2,000,000
Intangible assets 22,363,906 18,554,436
Goodwill 17,762,228 12,094,817
Investment 353,737 353,737
Cash held in escrow - 694,579
------------- -------------
Total assets $ 99,207,324 $ 84,665,439
------------- -------------
------------- -------------
Liabilities and Stockholders' Equity Current liabilities:
Accounts payable $ 1,870,124 $ 2,867,814
Accrued liabilities 3,038,887 2,567,012
Customer deposits 2,978,559 3,144,119
Promissory note payable, current portion 6,000,000 -
Loan payable, current portion 1,914,242 -
Deferred revenue, current portion 34,853,150 31,658,081
Accreditation fees payable, current portion 479,546 847,325
------------- -------------
Total current liabilities 51,134,508 41,084,351 Deferred revenue, long-term portion 14,994,772 13,478,525
Accreditation fees payable, long-term portion 181,484 163,988
Promissory note payable, long-term portion - 6,000,000
Loan payable, long-term portion 7,337,927 -
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; 73,772,502
shares issued and outstanding at
September 30, 2007 and 75,978,502 shares
issued and outstanding at
December 31, 2006 15,250,235 15,395,381
Additional paid-in capital 48,514,852 50,359,906
Deficit (43,602,454) (47,212,712)
------------- -------------
Total stockholders' equity 20,162,633 18,542,575
------------- -------------
Total liabilities and stockholders' equity $ 99,207,324 $ 84,665,439
------------- -------------
------------- -------------
Tucows Inc. Consolidated Statements of Operations
(Dollar amounts in U.S. dollars)
(unaudited) Three months ended Nine months ended
September 30, September 30,
2007 2006 2007 2006
------------- ------------- ------------- ------------- Net revenues $ 17,811,914 $ 16,864,320 $ 56,398,012 $ 47,830,296 Cost of revenues:
Cost of
revenues (x) 12,271,047 10,464,829 35,702,644 30,458,945
Depreciation of
property and
equipment 995,954 695,624 2,791,050 1,889,799
Amortization of
intangible
assets 83,060 66,550 210,132 143,628
------------- ------------- ------------- -------------
Total cost of
revenues 13,350,061 11,227,003 38,703,826 32,492,372
------------- ------------- ------------- ------------- Gross profit 4,461,853 5,637,317 17,694,186 15,337,924 Expenses:
Sales and
marketing (x) 1,712,676 1,706,951 4,537,198 4,738,397
Technical
operations and
development (x) 1,723,857 1,924,435 5,288,829 6,335,874
General and ad-
ministrative (x) 1,257,206 1,698,012 3,566,847 4,265,529
Depreciation of
property and
equipment 68,316 43,025 198,107 125,116
Amortization of
intangible
assets 322,781 230,291 778,823 436,175
------------- ------------- ------------- -------------
Total expenses 5,084,836 5,602,714 14,369,804 15,901,091
------------- ------------- ------------- ------------- Income (loss)
from operations (622,983) 34,603 3,324,382 (563,167) Other income
(expenses):
Interest income
(expense), net (203,376) (70,297) (294,322) 135,256
Other income,
net 530,583 1,873,420 619,014 2,347,026
------------- ------------- ------------- -------------
Total other
income
(expense) 327,207 1,803,123 324,692 2,482,282
------------- ------------- ------------- ------------- Income before
provision for
income taxes (295,776) 1,837,726 3,649,074 1,919,115 Provision for
income taxes 14,816 (96,895) 38,816 (84,895)
------------- ------------- ------------- -------------
Net income (loss)
for the period $ (310,592) $ 1,934,621 $ 3,610,258 $ 2,004,010
------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- Basic earnings
per common share $ (0.00) $ 0.03 $ 0.05 $ 0.03
------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- Shares used in
computing basic
earnings per
common share 74,100,911 75,706,078 74,548,903 73,418,358
------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- Diluted earnings
per common share $ (0.00) $ 0.02 $ 0.05 $ 0.03
------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- Shares used in
computing diluted
earnings per
common share 77,525,973 78,214,560 77,413,998 75,852,576
------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- (x) Stock-based
compensation has
been included in
expenses as
follows:
Cost of
revenues $ 4,100 $ 2,200 $ 11,000 $ 7,700
Sales and
marketing $ 21,400 $ 23,200 $ 61,100 $ 79,200
Technical
operations
and
development $ 18,900 $ 14,800 $ 62,300 $ 50,800
General and
administ-
rative $ 33,900 $ 21,300 $ 118,100 $ 72,300 Tucows Inc. Reconciliation of EBITDA and Adjusted Net Income
(Dollar amounts in U.S. dollars)
(unaudited) Three months ended Nine months ended
September 30, September 30,
2007 2006 2007 2006
------------- ------------- ------------- ------------- Net income (loss)
for the period $ (310,592) $ 1,934,621 $ 3,610,258 $ 2,004,010
Depreciation of
property and
equipment 1,064,270 738,649 2,989,157 2,014,915
Amortization of
intangible
assets 405,841 296,841 988,955 579,803
Interest income
(expense), net 203,376 70,297 294,322 (135,256)
Provision for
income taxes 14,816 (96,895) 38,816 (84,895)
------------- ------------- ------------- -------------
EBITDA 1,377,711 2,943,513 7,921,508 4,378,577
------------- ------------- ------------- ------------- Adjustments to
EBITDA (1)
Change in
prepaid domain
name registry
and other
Internet
services fees (795,949) (1,058,139) (3,548,500) (5,229,809)
Change in
deferred
revenue 834,795 1,506,423 4,711,315 6,702,773
Dividend income (530,583) - (619,014) -
Transitional
costs 244,336 - 244,336 1,278,842
Other income - (1,873,420) - (2,347,026)
Reversal of
contingencies - - (451,249) -
------------- ------------- ------------- -------------
Subtotal
Adjustments to
EBITDA (247,401) (1,425,136) 336,888 404,780
------------- ------------- ------------- -------------
Adjusted Net
Income $ 1,130,310 $ 1,518,377 $ 8,258,396 $ 4,783,357
------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- (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 $1,162,815 for the nine months ended September 30,
2007 compared to $1,472,964 for the nine months ended September 30, 2006.
For the three and nine months ended September 30, 2007, we incurred
$244,336 of transitional costs in connection with our acquisition of
Innersie Inc.
For the nine months ended September 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 nine months
ended September 30, 2006, we received $2.3 million in connection with
settlements related to patents we acquired in the merger with Infonautics
in 2001.
Tucows Inc. Consolidated Statements of Cash Flows
(Dollar amounts in U.S. dollars)
(unaudited) Three months ended Nine months ended
September 30, September 30,
2007 2006 2007 2006
------------- ------------- ------------- -------------
Cash provided
by (used in):
Operating
activities:
Net income
(loss) for
the period $ (310,592) $ 1,934,621 $ 3,610,258 $ 2,004,010
Items not
involving
cash:
Depreciation
of property
and equipment 1,064,270 738,649 2,989,157 2,014,915
Amortization
of intangible
assets 405,841 296,841 988,955 579,803
Unrealized
change in the
fair value of
forward
exchange
contracts (61,673) 145,177 (1,164,114) (50,725)
Stock-based
compensation 78,300 61,500 252,500 210,000
Change in
non-cash
operating
working
capital:
Interest
receivable - 5,027 - 39,574
Accounts
receivable 87,922 (2,100,231) (975,729) (4,262,944)
Prepaid
expenses and
deposits 875,841 388,487 (161,669) 367,608
Prepaid fees
for domain
name registry
and other
Internet
services fees (795,949) (1,058,139) (3,548,500) (5,229,809)
Deferred
financing
charges (142,600) - (142,600) -
Accounts
payable (161,037) (2,213,494) (906,624) 857,048
Accrued
liabilities 218,368 135,838 651,189 1,202,952
Customer
deposits 204,906 6,534 (165,560) 574,791
Deferred
revenue 834,795 1,506,423 4,711,315 6,702,773
Accreditation
fees payable (34,255) 19,402 (350,283) (89,434)
------------- ------------- ------------- -------------
Cash provided by
(used in)
operating
activities 2,264,137 (133,365) 5,788,295 4,920,562
------------- ------------- ------------- ------------- Financing
activities:
Proceeds
received on
exercise of
stock options 17,912 43,550 204,255 98,960
Repurchase of
shares - - (2,446,955) -
Repayment of
promissory note
payable - (2,122,930) - (2,122,930)
Proceeds
received on
loan payable,
net of
repayments 9,252,169 - 9,252,169 -
------------- ------------- ------------- -------------
Cash provided by
(used in)
financing
activities 9,270,081 (2,079,380) 7,009,469 (2,023,970)
------------- ------------- ------------- ------------- Investing
activities:
Cost of domain
names acquired - - (18,425) -
Additions to
property and
equipment (200,213) (787,824) (3,093,366) (4,079,249)
Decrease in
investment in
short-term
investments - - - 1,771,569
Decrease
(increase) in
restricted
cash - being
margin security
against forward
exchange
contracts 255,000 159,623 764,423 (202,835)
Acquisition of
Mailbank.com Inc.,
net of cash
acquired - (655,830) - (6,486,732)
Acquisition of
Hosted Messaging
Assets from
Critical Path Inc.,
net of cash
acquired - (1,037,303) (90,050) (7,456,788)
Acquisition of
Boardtown
Corporation, net
of cash acquired - (22,700) (4,900) (22,700)
Acquisition of
Innerwise Inc.,
net of cash
acquired (10,332,065) - (10,332,065) -
Increase in cash
held in escrow (1,058,620) 1,563,999 (364,041) (221,012)
------------- ------------- ------------- -------------
Cash used in
investing
activities (11,335,898) (780,035) (13,138,424) (16,697,747)
------------- ------------- ------------- ------------- Increase (decrease)
in cash and cash
equivalents 198,320 (2,992,780) (340,660) (13,801,155)
Cash and cash
equivalents,
beginning of
period 5,717,412 6,539,713 6,256,392 17,348,088
------------- ------------- ------------- -------------
Cash and cash
equivalents, end
of period $ 5,915,732 $ 3,546,933 $ 5,915,732 $ 3,546,933
------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- Supplemental cash
flow information:
Interest paid $ 274,368 $ - $ 484,368 $ - Supplementary
disclosure of
non-cash investing
activity:
Capital assets
acquired during
the period not
yet paid for $ 293,205 $ - $ 293,205 $ -
Common stock
issued on the
acquisition of
Mailbank.com
Inc. $ - $ - $ - $ 2,877,070
Promissory notes
issued on the
acquisition of
Mailbank.com
Inc. $ - $ - $ - $ 8,122,930
Loan taken on
the
acquisition of
Innerwise Inc. $ 9,571,209 $ - $ 9,571,209 $ -
DATASOURCE: Tucows Inc.
CONTACT: Leona Hobbs, Director, Communications, Tucows Inc., (416) 538-5450,
|