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's 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)
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