Tucows Inc. (NASDAQ:TCX, TSX:TC), reported its financial results for the second quarter ended June 30, 2014 in a day that saw intraday 52 week high for the shares.
Tucows.com closed at $16.20 a share after hitting an intraday 52 week high of $16.33 per shares.
Yummy domain sold less than $1 Million in domains for the quarter
Summary Financial Results
(In Thousands of US Dollars, Except Per Share Data)
| 3 Months Ended Jun. 30, 2014 (unaudited) |
3 Months Ended Jun. 30, 2013 (unaudited) |
6 Months Ended Jun. 30, 2014 (unaudited) |
6 Months Ended Jun. 30, 2013 (unaudited) |
|
| Net revenue | 35,588 | 31,173 | 69,990 | 61,158 |
| Income before provision for income taxes and change in fair value of forward exchange contracts | 2,110 | 948 | 3,389 | 1,379 |
| Net income | 1,347 | 588 | 1,824 | 664 |
| Net earnings per common share1 | $0.12 | $0.06 | $0.16 | $0.07 |
| Net cash provided by (used in) operating activities | 1,135 | 2,971 | 1,096 | 2,388 |
- Net earnings per common share reflects the 1-for-4 reverse split of common shares that became effective December 31, 2013.
Summary of Revenues and Cost of Revenues
(In Thousands of US Dollars)
| Revenue | Revenue | Cost of Revenue | Cost of Revenue | |
| 3 Months Ended Jun. 30, 2014 (unaudited) |
3 Months Ended Jun. 30, 2013 (unaudited) |
3 Months Ended Jun. 30, 2014 (unaudited) |
3 Months Ended Jun. 30, 2013 (unaudited) |
|
| Domain Services | ||||
| Wholesale | ||||
| OpenSRS Domain Service |
21,503 | 21,800 | 17,809 | 18,485 |
| Value-Added Services |
2,396 | 2,560 | 563 | 520 |
| Total Wholesale | 23,899 | 24,360 | 18,372 | 19,005 |
| Retail | 2,540 | 2,001 | 1,111 | 833 |
| Portfolio | 889 | 1,078 | 213 | 230 |
| Total Domain Services |
27,328 | 27,439 | 19,696 | 20,068 |
| Network Access Services (Ting) |
8,260 | 3,734 | 5,040 | 2,940 |
| Network, other costs |
– | – | 1,145 | 1,270 |
| Network, depreciation and amortization costs |
– | – | 174 | 187 |
| Total revenue/cost of revenue |
35,588 | 31,173 | 26,055 | 24,465 |
NOTE: To better reflect the manner in which these revenue streams are generated and assessed by management, beginning in the first quarter of 2014, Tucows reclassified its revenue streams into Domain Services and Network Access Services. Domain Services includes Wholesale OpenSRS (Domain Service and Value Added Services), Retail (Hover) and Portfolio. Network Access Services includes Ting.
Mr. Noss said, “We continue to see steady performance from our Domains Services business. Notably, Wholesale Domains gross margin for the second quarter was up 11% from a year ago on similar volumes due to our shifting sales mix to higher margin services. Retail delivered yet another quarter of year-over-year revenue growth in excess of 20%.”Net revenue for the second quarter of 2014 increased 14% to $35.6 million from $31.2 million for the second quarter of 2013.
Net income for the second quarter of 2014 was $1.3 million, or $0.12 per share, compared with $0.6 million, or $0.06 per share, for the second quarter of 2013. Included in net income for the second quarter of 2014 was a write-off of $0.3 million related to indefinite life intangible assets, the result of the Company’s assessment, under its normal portfolio review process, that certain domains acquired in June 2006 not be renewed. In addition, net income for the second quarter of the prior year included the benefit of a $0.5 million Interactive Digital Media Tax Credit from the Ontario government.
| Tucows Inc. | ||||||
| Consolidated Balance Sheets | ||||||
| (Dollar amounts in U.S. dollars) | ||||||
| June 30, | December 31, | |||||
| 2014 | 2013 | |||||
| (unaudited) | ||||||
| Assets | ||||||
| Current assets: | ||||||
| Cash and cash equivalents | $ | 14,164,518 | $ | 12,418,888 | ||
| Accounts receivable | 6,919,130 | 5,305,403 | ||||
| Inventory | 481,140 | 309,686 | ||||
| Prepaid expenses and deposits | 4,935,573 | 4,309,039 | ||||
| Prepaid domain name registry and ancillary services fees, current portion | 46,379,230 | 44,209,591 | ||||
| Deferred tax asset, current portion | 1,250,468 | 1,081,526 | ||||
| Income taxes recoverable | 631,632 | 475,889 | ||||
| Total current assets | 74,761,691 | 68,110,022 | ||||
| Prepaid domain name registry and ancillary services fees, long-term portion | 12,090,838 | 11,838,579 | ||||
| Property and equipment | 1,693,720 | 1,757,836 | ||||
| Deferred tax asset, long-term portion | 5,814,675 | 5,370,037 | ||||
| Intangible assets | 14,379,154 | 15,403,228 | ||||
| Goodwill | 18,873,127 | 18,873,127 | ||||
| Total assets | $ | 127,613,205 | $ | 121,352,829 | ||
| Liabilities and Stockholders’ Equity | ||||||
| Current liabilities: | ||||||
| Accounts payable | $ | 3,185,060 | $ | 2,361,481 | ||
| Accrued liabilities | 3,743,663 | 3,913,034 | ||||
| Customer deposits | 4,487,871 | 4,500,946 | ||||
| Derivative instrument liability | 59,077 | 491,098 | ||||
| Loan payable, current portion | 5,358,333 | 6,300,000 | ||||
| Deferred revenue, current portion | 57,609,511 | 54,379,719 | ||||
| Accreditation fees payable, current portion | 505,645 | 473,811 | ||||
| Income taxes payable | 194,303 | 1,024,004 | ||||
| Total current liabilities | 75,143,463 | 73,444,093 | ||||
| Deferred revenue, long-term portion | 16,025,103 | 15,638,517 | ||||
| Accreditation fees payable, long-term portion | 132,020 | 135,522 | ||||
| Deferred rent, long-term portion | 88,359 | 75,979 | ||||
| Deferred tax liability, long-term portion | 5,108,500 | 5,141,500 | ||||
| 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; 11,240,992 shares issued and outstanding as of June 30, 2014 and 10,907,063 shares issued and outstanding as of December 31, 2013 (1) |
13,513,124 | 11,859,267 | ||||
| Additional paid-in capital | 29,138,165 | 28,632,311 | ||||
| Deficit | (11,505,358) | (13,329,379) | ||||
| Accumulated other comprehensive income (loss) | (30,171) | (244,981) | ||||
| Total stockholders’ equity | 31,115,760 | 26,917,218 | ||||
| Total liabilities and stockholders’ equity | $ | 127,613,205 | $ | 121,352,829 | ||
| (1) Shares issued and outstanding at both June 30, 2014 and December 31, 2013 reflects the 1-for-4 reverse split of common shares that became effective on December 31, 2013. |
| Tucows Inc. | Tucows Inc. | |||||||||
| Consolidated Statements of Operations | Consolidated Statements of Operations | |||||||||
| (Dollar amounts in U.S. dollars) | (Dollar amounts in U.S. dollars) | |||||||||
| Three months ended June 30, | Six months ended June 30, | |||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||
| (unaudited) | (unaudited) | |||||||||
| Net revenues | $ | 35,588,001 | $ | 31,173,357 | $ | 69,990,395 | $ | 61,158,379 | ||
| Cost of revenues: | ||||||||||
| Cost of revenues | 24,736,004 | 23,007,506 | 49,052,643 | 45,085,405 | ||||||
| Network expenses (*) | 1,144,697 | 1,269,808 | 2,288,341 | 2,524,021 | ||||||
| Depreciation of property and equipment | 173,963 | 151,356 | 356,937 | 288,428 | ||||||
| Amortization of intangible assets | – | 35,910 | – | 71,820 | ||||||
| Total cost of revenues | 26,054,664 | 24,464,580 | 51,697,921 | 47,969,674 | ||||||
| Gross profit | 9,533,337 | 6,708,777 | 18,292,474 | 13,188,705 | ||||||
| Expenses: | ||||||||||
| Sales and marketing (*) | 3,762,441 | 2,946,586 | 7,784,215 | 5,793,672 | ||||||
| Technical operations and development (*) | 1,107,532 | 748,137 | 2,197,430 | 1,881,967 | ||||||
| General and administrative (*) (note 1) | 1,886,319 | 1,698,697 | 3,654,119 | 3,397,329 | ||||||
| Depreciation of property and equipment | 52,538 | 54,922 | 108,842 | 105,861 | ||||||
| Amortization of intangible assets | 219,030 | 219,030 | 438,060 | 438,060 | ||||||
| Impairment of indefinite life intangible assets | 326,457 | – | 577,145 | – | ||||||
| Loss on currency forward contracts | 96,545 | 146,639 | 647,916 | 381,277 | ||||||
| Total expenses | 7,450,862 | 5,814,011 | 15,407,727 | 11,998,166 | ||||||
| Income from operations | 2,082,475 | 894,766 | 2,884,747 | 1,190,539 | ||||||
| Other income (expenses): | ||||||||||
| Interest expense, net | (69,348) | (93,428) | (143,181) | (192,790) | ||||||
| Total other income (expenses) | (69,348) | (93,428) | (143,181) | (192,790) | ||||||
| Income before provision for income taxes | 2,013,127 | 801,338 | 2,741,566 | 997,749 | ||||||
| Provision for income taxes | 665,945 | 213,708 | 917,545 | 333,540 | ||||||
| Net income | 1,347,182 | 587,630 | 1,824,021 | 664,209 | ||||||
| Other comprehensive income (loss), net of tax | ||||||||||
| Unrealized loss on hedging activities | 370,868 | (260,941) | 7,687 | (446,726) | ||||||
| Net amount reclassified to earnings | 59,409 | – | 207,123 | – | ||||||
| Other comprehensive income (loss) net of tax of $111,897 and $133,761 for the three months ended June 30, 2014 and June 30, 2013, and $224,137 and $230,538 for the six months ended June 30, 2014 and June 30, 2013 (2013 : $96,777) |
430,277 | (260,941) | 214,810 | (446,726) | ||||||
| Comprehensive income (loss), net of tax for the period | $ | 1,777,459 | $ | 326,689 | $ | 2,038,831 | $ | 217,483 | ||
| Basic earnings per common share | $ | 0.12 | $ | 0.06 | $ | 0.16 | $ | 0.07 | ||
| Shares used in computing basic earnings per common share | 11,219,101 | 10,080,815 | 11,124,357 | 10,081,831 | ||||||
| Diluted earnings per common share | $ | 0.11 | $ | 0.05 | $ | 0.16 | $ | 0.06 | ||
| Shares used in computing diluted earnings per common share | 11,729,547 | 11,069,713 | 11,684,529 | 11,073,504 | ||||||
| (*) Stock-based compensation has been included in expenses as follows: |
||||||||||
| Network expenses | $ | 6,916 | $ | 7,932 | $ | 15,797 | $ | 14,058 | ||
| Sales and marketing | $ | 30,804 | $ | 33,909 | $ | 66,803 | $ | 60,319 | ||
| Technical operations and development | $ | 18,447 | $ | 20,370 | $ | 36,652 | $ | 35,617 | ||
| General and administrative | $ | 29,190 | $ | 29,044 | $ | 67,082 | $ | 56,103 | ||
| (1) Shares used in computing earnings per share as well as earnings per common share reflects the 1-for-4 reverse split of common shares that became effective on December 31, 2013. |
| Tucows Inc. | Tucows Inc. | ||||||||
| Consolidated Statements of Cash Flows | Consolidated Statements of Cash Flows | ||||||||
| (Dollar amounts in U.S. dollars) | (Dollar amounts in U.S. dollars) | ||||||||
| Three months ended June 30, | Six months ended June 30, | ||||||||
| 2014 | 2013 | 2014 | 2013 | ||||||
| Cash provided by: | (unaudited) | (unaudited) | |||||||
| Operating activities: | |||||||||
| Net income for the period | $ | 1,347,182 | $ | 587,630 | $ | 1,824,021 | $ | 664,209 | |
| Items not involving cash: | |||||||||
| Depreciation of property and equipment | 226,501 | 206,278 | 465,779 | 394,289 | |||||
| Amortization of intangible assets | 219,030 | 254,940 | 438,060 | 509,880 | |||||
| Impairment of indefinite life intangible asset | 326,457 | – | 577,145 | – | |||||
| Deferred income taxes (recovery) | (415,246) | 113,748 | (758,477) | 21,683 | |||||
| Excess tax benefits from share-based compensation expense | 594,899 | – | (418,901) | – | |||||
| Amortization of deferred rent | 9,168 | 4,372 | 12,380 | 9,876 | |||||
| Disposal of domain names | 7,247 | 20,876 | 8,869 | 35,369 | |||||
| Loss (gain) on change in the fair value of forward contracts | (192,460) | 114,846 | (105,314) | 565,987 | |||||
| Stock-based compensation | 85,357 | 91,255 | 186,334 | 166,097 | |||||
| Change in non-cash operating working capital: | |||||||||
| Accounts receivable | (350,806) | (665,972) | (1,613,727) | (1,214,290) | |||||
| Inventory | 28,293 | 121,380 | (171,454) | 399,680 | |||||
| Prepaid expenses and deposits | (259,698) | 635,193 | (626,534) | 296,895 | |||||
| Prepaid domain name registry and ancillary services fees | (606,215) | (341,273) | (2,421,898) | (1,382,987) | |||||
| Income taxes recoverable | (133,242) | (2,789) | (566,543) | 106,364 | |||||
| Accounts payable | (866,473) | 1,797 | 803,942 | 607,721 | |||||
| Accrued liabilities | 253,027 | 1,025,886 | (169,371) | 501,684 | |||||
| Customer deposits | 16,054 | 273,851 | (13,075) | (287,570) | |||||
| Deferred revenue | 867,445 | 557,152 | 3,616,378 | 1,976,736 | |||||
| Accreditation fees payable | (21,755) | (28,082) | 28,332 | 15,917 | |||||
| Net cash (used in) provided by operating activities | 1,134,765 | 2,971,088 | 1,095,946 | 3,387,540 | |||||
| Financing activities: | |||||||||
| Proceeds received on exercise of stock options | 130,782 | 279,685 | 1,041,863 | 318,194 | |||||
| Excess tax benefits on share-based compensation expense | – | – | 1,013,800 | – | |||||
| Repurchase of common stock | – | – | (82,286) | (6,537,616) | |||||
| Proceeds received on loan payable | – | – | – | 5,200,000 | |||||
| Repayment of loan payable | (325,000) | (600,000) | (941,667) | (1,400,000) | |||||
| Net cash provided by (used in) financing activities | (194,218) | (320,315) | 1,031,710 | (2,419,422) | |||||
| Investing activities: | |||||||||
| Additions to property and equipment | (313,281) | (471,966) | (382,026) | (918,671) | |||||
| Net cash used in investing activities | (313,281) | (471,966) | (382,026) | (918,671) | |||||
| Increase (decrease) in cash and cash equivalents | 627,266 | 2,178,807 | 1,745,630 | 49,447 | |||||
| Cash and cash equivalents, beginning of period | 13,537,252 | 4,286,319 | 12,418,888 | 6,415,679 | |||||
| Cash and cash equivalents, end of period | $ | 14,164,518 | $ | 6,465,126 | $ | 14,164,518 | $ | 6,465,126 | |
| Supplemental cash flow information: | |||||||||
| Interest paid | $ | 69,437 | $ | 97,369 | $ | 143,386 | $ | 196,873 | |
| Income taxes paid, net | $ | 588,916 | $ | 198,462 | $ | 1,258,540 | $ | 187,313 | |
| Supplementary disclosure of non-cash investing activity: | |||||||||
| Property and equipment acquired during the period not yet paid for | $ | 19,637 | $ | 4,864 | $ | 19,637 | $ | 4,864 | |
