Tucows Reports First Quarter Fiscal 2006 Results

Revenue Increases 30% to a Record $15.3 Million; Company Achieves Revenue Diversification Goal

TORONTO, Canada – May 04, 2006 – Tucows Inc. (AMEX:TCX, TSX:TC) today reported financial results for the first quarter of fiscal 2006 ended March 31, 2006.

Highlights for the first quarter included:

  • Completion of the acquisition of substantially all of Critical Path’s hosted messaging assets.
  • A 30% year-over-year increase in net revenue, including the contribution of the Critical Path hosted messaging asset acquisition, to a record $15.3 million;
  • Net loss of $0.2 million, including $0.8 million of transitional costs related to the Critical Path hosted messaging asset acquisition;
  • Adjusted EBITDA growth of 48% to $1.5 million;
  • Cash flow from operations of $1.8 million, the Company‚Äôs eighteenth consecutive quarter of positive cash flow from operations;
  • A 15% year-over-year increase in deferred revenue to a record $41.1 million; and

“The first quarter of 2006 was marked by strong performance, including record revenue, which was driven by the contribution from the acquisition of the Critical Path Hosted Messaging assets to now manage over 2 million mailboxes, higher domain name registration transactions and growth in our other Internet services. We also saw growth in adjusted EBITDA of 48%,” said Elliot Noss, President and Chief Executive Officer, Tucows Inc. ” The integration of the hosted messaging assets is progressing well and initial sales of our new services have been stronger than expected. It has long been our stated goal to diversify our revenue streams such that services other than domain name registrations represent at least 25% of gross margin by 2007. As a result of the contribution from hosting messaging, as well as the growth in other Internet services, this number surpassed 45% in the first quarter and we look forward to an increase to roughly 50% throughout the remainder of the year.”

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

3 Months Ended March 31, 2006 3 Months Ended March 31, 2005
Net Revenue 15,287 11,802
EBITDA 434 515
Adjusted EBITDA 1,506 1,018
Net (loss) Income (157) 443
Net Income/Share 0.00 0.01
Cash Flow from Operations 1,834 655

Net revenue for the first quarter of fiscal 2006 increased 30% to $15.3 million from $11.8 million for the first quarter of fiscal 2005. The increase was primarily the result of the acquisition of the hosted messaging assets of Critical Path, Inc., as well as a higher number of domain transactions and higher revenue from other Internet services, which were partially offset by lower revenue from the content business due to the short-term impact of the relaunch of the content business web site last year.

Net loss for the first quarter of fiscal 2006 was $0.2 million, or $0.00 per share, compared to net income of $0.4 million, or $0.01 per share, for the first quarter of fiscal 2005. Adjusted EBITDA for the first quarter of fiscal 2006 increased 48% to $1.5 million, or 10% of net revenue, compared to $1.0 million, or 9% of net revenue, for the corresponding quarter of last year. Adjusted EBITDA excludes transitional costs related to our acquisition of the hosted messaging acquisition of $0.8 million and $0.5 million of other income from settlements related to the infringement of patents obtained through the Company’s merger with Infonautics in 2001.

Deferred revenue at the end the first quarter of fiscal 2006 was $41.1 million, an increase of 15% from $35.8 million at the end of the first quarter fiscal 2005 and an increase of 8% from $37.9 million at the end of the fourth quarter of fiscal 2005.

Cash, short-term investments and restricted cash at the end of the first quarter of fiscal 2006 decreased to $11.8 million from $15.0 million at the end of the first quarter of fiscal 2005 and $19.2 million at the end of the fourth quarter of fiscal 2005. The decrease compared to the end of the fourth quarter of fiscal 2005 is primarily the result of the payments of $6.6 million to purchase the Critical Path hosted messaging assets and the placement in escrow of $1.8 million to meet the contingent considerations related to the acquisition. The Company also invested $0.9 million in property and equipment, primarily for Internet services infrastructure, which was offset by positive cash flow from operations for the first quarter of $1.8 million.

EBITDA and Adjusted EBITDA

To assist those analyzing the financial statements 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 and Reconciliation of EBITDA and Adjusted EBITDA included in the attached financial statements.

Adjusted EBITDA represents EBITDA plus the additional adjustments described in the table below. Adjusted EBITDA is presented because it better represents ongoing business performance than EBITDA. 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 and deferred, net of prepaid fees. In addition, adjusted EBITDA reflects earnings and expenses considered as non-representative of ongoing business for the reasons specified below. Adjusted EBITDA is one of the primary measures we use for planning and budgeting purposes and to monitor and evaluate our financial and operating results. Adjusted EBITDA 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 and Reconciliation of EBITDA and Adjusted EBITDA included in the attached financial statements.

Conference Call

Tucows will host a conference call today, Thursday, May 4, 2006, at 5:00 p.m. (ET) to discuss the Company’s first quarter fiscal 2006 results. To access the conference call via the Internet go to www.tucowsinc.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 1-800-408-3053 or 416-695-5800 and enter the pass code 3185448 followed by the pound key. The telephone replay will be available until Thursday, May 11, 2006, at midnight. To access the archived conference call via the Internet, go to www.tucowsinc.com and click on Investor Relations.

About Tucows

Tucows Inc. (AMEX:TCX, TSX:TC) provides Internet services and download libraries through a global distribution network of 6,000 service providers. This distribution network primarily consists of web hosting companies, ISPs (Internet Service Providers) and other Internet related service companies. These companies use Tucows’ provisioned services to offer solutions to their customers: enterprises, small and medium businesses and consumers. Tucows is an accredited registrar with ICANN (the Internet Corporation for Assigned Names and Numbers) and earns most of its revenue from domain name registration services plus hosted email, spam and virus protection, Blogware, website building tools, the Platypus Billing System and digital certificates. For more information, please visit: www.tucowsinc.com

Contact:
Hilda Kelly
Investor Relations
Tucows Inc.
416-538-5493
This page prints out best in landscape format Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows

Tucows Inc.

Consolidated Balance Sheets
(Dollar amounts in U.S. dollars)

   

March 31,
2006

(unaudited)
        

March 31,
2005
 
Assets
Current assets:
Cash and cash equivalents $ 11,120,593  $ 17,348,088 
Short-term investments   72,000    1,771,569 
Restricted cash   612,500    60,000 
Interest receivable   1,980    39,574 
Accounts receivable   3,266,971    1,439,329 
Prepaid expenses and deposits   2,489,602    1,999,820 
Prepaid domain name registry and other internet service fees, current portion   19,791,804    18,175,988 
Deferred tax asset, current portion   1,000,000 
  1,000,000 
Total current assets   38,355,450    41,834,368 
 
Prepaid domain name registry and ancillary services fees, long-term portion   8,399,171    7,701,939 
Deferred acquisition costs     46,034 
Property and equipment   3,906,981    1,542,671 
Deferred tax asset, long-term portion   2,000,000    2,000,000 
Intangible assets   2,099,247    1,006,080 
Goodwill   5,008,428    1,951,067 
Investments   353,737    353,737 
Cash held in escrow   2,347,217    621,412 
Total assets $

62,470,231 

$
57,057,308 
     
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 2,147,862  $ 1,655,195 
Accrued liabilities   2,905,178    1,417,035 
Customer deposits   2,424,471    2,276,637 
Deferred revenue, current portion   29,082,673    26,790,166 
Accreditation fees payable, current portion   758,597 
  651,811 
Total current liabilities   37,318,781    32,790,844 
     
Deferred revenue, long-term portion   11,995,519    11,079,537 
Accreditation fees payable, long-term portion   119,263    94,785 
 
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; 72,014,173 shares issued and outstanding at March 31, 2006, and 71,945,303 shares issued and outstanding at December 31, 2005   12,434,712    12,403,422 
Additional Paid-in Capital   50,132,066    50,061,866 
Deficit   (49,530,110)
  (49,373,146
Total stockholders’ equity   13,036,668 
  13,092,142 
Total liabilities and stockholders’ equity $ 62,470,231 
$ 57,057,308 

 

Tucows Inc.
Consolidated Statements of Operations

(Dollar amounts in U.S. dollars)
(unaudited)

  Three months ended
March 31,
  2006

2005
Net revenues   $ 15,287,120    $ 11,801,706 
Cost of revenues(*)   10,491,313 
  7,322,432 
Gross profit   4,795,807 
  4,479,274 
Operating expenses:
Sales and marketing (*)   1,459,156    1,352,454 
Technical operations and development(*)   2,320,716    1,322,785 
General and administrative(*)   1,619,053    1,390,762 
Depreciation of property and equipment   37,050    159,936 
Amortization of intangible assets   93,293    39,750 
Total operating expenses  
5,529,268 
 
4,265,687 
Income from operations   (733,461)    213,587 
Other Income:  
Interest income, net   102,891    77,248 
Other income   473,606   
Total other income  
576,497
 
77,248 
Income (loss) before provision for income taxes   (156,964)    290,835 
Provision for (recovery of) income taxes  

  (151,975)
Net income (loss) for the year   $ (156,964) 
  $ 442,810 
   
Basic (loss) earnings per share   $
  $ 0.01 
   
Shares used in computing basic (loss) earnings per common share   71,980,393 
  66,883,487 
 
Diluted (loss) earnings per share $
$ 0.01 
 
Diluted (loss) earnings per share   71,980,393 
  71,604,368 
 
 
(*) Stock-based compensation has been included in operating expenses as follows:
Cost of revenues   $ 2,400    $
Sales and marketing   $ 17,400    $
Technical operations and development   $ 23,700    $
General and administrative   $ 26,700    $


Tucows Inc.
Reconciliation of EBITDA and Adjusted EBITDA

(Dollar amounts in U.S. dollars)
(unaudited)

  Three months ended
March 31,
  2006
2005
   
Net income (loss) for the period   $ (156,964)    $ 442,810 
Depreciation of property and equipment   561,969    241,873 
Amortization of intangible assets   131,833    59,040 
Interest income, net   (102,891)    (77,248) 
Provision for (recovery of) income taxes  
  (151,975) 
EBITDA   433,947 
  514,500 
 
Adjustments to EBITDA(1)  
Change in prepaid fees for domain name registry and other Internet services fees   (2,313,048)    (2,002,215) 
Change in deferred revenue   3,044,520 
  2,505,489 
Transitional costs   814,263   -
Other income   (473,606)   
Subtotal Adjustments to EBITDA   1,072,129 
  503,274 
Adjusted EBITDA   $ 1,506,076 
  $ 1,017,774 
 
(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. For the three months ended March 31, 2006, we incurred $814,263 of transitional costs in connection with our acquisition of the Hosted Messaging assets of Critical Path. In addition, during the three months ended March 31, 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 $731,472 for the three months ended March 31, 2006 compared to $503,274 for the three months ended March 31, 2005.


Tucows Inc.
Consolidated Statements of Cash Flows
(Dollar amounts in U.S. dollars)

(unaudited)

  Three months ended
March 31,
  2006
2005
Cash provided by (used in):  
Operating activities:  
Net income (loss) for the period   $ (156,964)    $ 442,810 
Items not involving cash:  
Depreciation of property and equipment   561,969    241,873 
Amortization of intangible assets   131,833    59,040 
Unrealized change in the fair value of forward contracts   182,944    107,628 
Stock-based compensation   70,200   
Change in non-cash operating working capital:  
Interest receivable   37,594    256 
Accounts receivable   (1,827,642)   (151,853)
Prepaid expenses and deposits   3,413   327,336
Prepaid fees for domain name registry and other Internet services fees   (2,313,048)   (2,002,215)
Accounts payable   492,667   42,962 
Accrued liabilities   1,327,080   (1,010,791)
Customer deposits   147,834    (78,127) 
Deferred revenue   3,044,520    2,505,489 
Accreditation fees payable   131,264 
  170,857 

Cash provided by operating activities   1,833,664 
  655,265 
 
Financing activities:  
Proceeds received on exercise of stock options   28,009    181,023 
Cash provided by financing activities   28,009 
  181,023 
 
Investing activities:  
Additions to property and equipment   (886,279)   (200,908)
Decrease in investment in short-term investments   1,699,569   
Decrease (increase) in restricted cash – being margin security against forward exchange contracts   (552,500)    460,398
Acquisition of Hosted Messaging Assets, net of cash acquired   (6,583,454)   
(Decrease) increase in cash held in escrow   (1,766,504)
  (3,716)
Cash provided by (used in) investing activities   (8,089,168) 
  255,774
 
(Decrease) increase in cash and cash equivalents   (6,227,495)    1,092,062 
Cash and cash equivalents, beginning of period   17,348,088 
  13,914,988 
Cash and cash equivalents, end of period   $ 11,120,593 
  $ 15,007,050 
 
To Top