Tucows Reports Strong Financial Results for the Second Quarter of 2014

- Quarter Highlighted by Doubling of Net Earnings Per Share, Continued Steady Customer Growth at Ting -

TORONTO, Aug. 12, 2014 /CNW/ - Tucows Inc. (NASDAQ:TCX, TSX:TC), a provider of network access, domain name and other Internet services, today reported its financial results for the second quarter ended June 30, 2014. All figures are in U.S. dollars.

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.

"The strong momentum in our business, driven by the growing contribution of Ting, is evident in our bottom line as net earnings for the second quarter doubled year-over-year to $0.12 per share," said Elliot Noss, President and Chief Executive Officer, Tucows Inc. "Ting saw another solid quarter of customer growth, adding more than 12,000 accounts and 18,000 devices to end the quarter at 73,000 accounts and 113,000 devices. Gross margin per account remains strong, customer acquisition costs remain low. Importantly, Ting's contribution is really starting to show through in our overall results and was the primary reason for second quarter consolidated gross margin increasing by 5% to 27% from 22% a year earlier."

Mr. Noss added, "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.

Conference Call
Tucows management will host a conference call today, Tuesday, August 12, 2014 at 5:00 p.m. (ET) to discuss the Company's second quarter 2014 results. Participants can access the conference call by dialing 1-888-231-8191 or 647-427-7450 or via the Internet at http://www.tucows.com/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 416-849-0833 or 1-855-859-2056 and enter the pass code 74220945 followed by the pound key. The telephone replay will be available until Tuesday, August 19, 2014 at midnight. To access the archived conference call as an MP3 via the Internet, go to http://www.tucows.com/investors.

About Tucows
Tucows is a provider of network access, domain name and other Internet services. Ting (https://ting.com) is a mobile phone service provider dedicated to bringing clarity and control to US mobile phone users. OpenSRS (http://opensrs.com) manages over fourteen million domain names and millions of value-added services through a global reseller network of over 13,000 web hosts and ISPs. Hover (http://hover.com) is the easiest way for individuals and small businesses to manage their domain names and email addresses. YummyNames (http://yummynames.com) owns and operates premium domain names that generate revenue through advertising or resale. More information can be found on Tucows' corporate website (http://tucows.com).

This release includes forward-looking statements as that term is defined in the U.S. Private Securities Litigation Reform Act of 1995 including statements regarding our expectations regarding our future financial results and, in particular, our expectations for Ting and its impact on our financial performance. These statements are based on management's current expectations and are subject to a number of uncertainties and risks that could cause actual results to differ materially from those described in the forward-looking statements, including the acceptance of Ting in the market. Information about other potential factors that could affect Tucows' business, results of operations and financial condition is included in the Risk Factors sections of Tucows' filings with the Securities and Exchange Commission. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. All forward-looking statements are based on information available to Tucows as of the date they are made. Tucows assumes no obligation to update any forward-looking statements, except as may be required by law.

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)

			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