Tucows Inc. (Nasdaq:TCX) (TSX:TC), a provider of network access, domain names and other Internet services, today reported its financial results for the fourth quarter ended December 31, 2014. All figures are in U.S. dollars.

Summary Financial Results
(In Thousands of US Dollars, Except Per Share Data)
 
  3 Months 3 Months 12 Months 12 Months
  Ended Ended Ended Ended
  Dec. 31, 2014 Dec. 31, 2013 Dec. 31, 2014 Dec. 31, 2013
  (unaudited) (unaudited)  (unaudited) (unaudited)
Net revenue 38,802 33,139 147,667 129,935
Income before provision for income taxes and change in fair value of forward exchange contracts 3,277 1,532 10,739 6,476
Net income 1,859 923 6,374 4,180
Net earnings per common share1 $0.16 $0.08 $0.57 $0.40
Net cash provided by operating activities 2,768 1,651 8,878 8,703
         
1.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  3 Months Ended  3 Months 3 Months
  Dec. 31, 2014 Dec. 31, 2013 Ended Ended
  (unaudited) (unaudited) Dec. 31, 2014 Dec. 31, 2013
      (unaudited) (unaudited)
Domain Services        
Wholesale        
OpenSRS Domain Service 21,609 21,595 18,079 17,949
Value-Added Services 2,305 2,417 531 548
Total Wholesale 23,914 24,012 18,610 18,497
Retail 2,805 2,298 1,216 991
Portfolio1 917 1,100 241 143
Total Domain Services 27,636 27,410 20,067 19,631
Network Access Services (Ting) 11,166 5,729 6,755 3,975
         
Network, other costs -- -- 1,127 1,120
Network, depreciation and amortization costs -- -- 171 175
Total revenue/cost of revenue 38,802 33,139 28,120 24,901

"The fourth quarter was a solid finish to a strong year for Tucows," said Elliot Noss, President and Chief Executive Officer, Tucows Inc. "The continuing growth in contribution from Ting Mobile, combined with steady performance of our Domain Services business, enabled us to deliver net earnings per share of $0.16 for the fourth quarter, bringing EPS for the year to a record $0.57, an increase of 43% over 2013. Importantly, we continue to realize the benefit from the operating leverage in our business as consolidated gross margin for the quarter grew to 26% from 23%, excluding the Portfolio Group, for the same period last year."

"Ting Mobile's momentum continued in the fourth quarter, adding more than 11,000 accounts and more than 17,000 devices to end the year with approximately 94,000 active accounts and 147,000 active devices. Over the course of 2014, we essentially doubled the size of our customer base. We look forward to continued growth in Ting Mobile over the course of 2015 as we begin to leverage Ting's world-leading customer experience for significant opportunity in the fixed access market."

Net revenue for the fourth quarter of 2014 increased 17% to $38.8 million from $33.1 million for the fourth quarter of 2013.

Net income for the fourth quarter of 2014 was $1.9 million, or $0.16 per share, compared with $0.9 million, or $0.08 per share, for the fourth quarter of 2013.

Cash and cash equivalents at the end of the fourth quarter of 2014 were $8.3 million, compared with $13.6 million at the end of the third quarter of 2014 and $12.4 million at the end of the fourth quarter of 2013. During the fourth quarter of 2014, Tucows generated cash flow in operating activities of $2.8 million. The Company also invested $8.2 million in the previously announced auction cost for the .online gTLD and registry seed capital for the joint venture, as well as in escrow accounts established to fund its previously announced acquisition of 70% ownership of an independent Internet service provider in Charlottesville, Virginia doing business primarily as Blue Ridge InternetWorks (BRI).

Conference Call

Tucows management will host a conference call today, Wednesday, February 11, 2014 at 5:00 p.m. (ET) to discuss the Company's fourth 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 75735101 followed by the pound key. The telephone replay will be available until Wednesday, February 18, 2015 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 13 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. More information can be found on Tucows' corporate website (http://tucows.com).

Tucows Inc.
Consolidated Balance Sheets
(Dollar amounts in U.S. dollars)
     
  December 31, December 31,
  2014 2013
  (unaudited) (unaudited)
     
Assets    
     
Current assets:    
Cash and cash equivalents  $ 8,271,377  $ 12,418,888
Accounts receivable 6,789,685 5,305,403
Inventory 393,774 309,686
Prepaid expenses and deposits 3,697,292 4,309,039
Prepaid domain name registry and ancillary services fees, current portion 44,614,858 44,209,591
Other Assets 8,199,000  
Deferred tax asset, current portion 2,498,196 1,081,526
Income taxes recoverable 997 475,889
Total current assets 74,465,179 68,110,022
     
Derivative instrument asset, long-term portion -- --
Prepaid domain name registry and ancillary services fees, long-term portion 11,764,765 11,838,579
Property and equipment 1,609,787 1,757,836
Deferred tax asset, long-term portion 4,880,423 5,370,037
Intangible assets 14,202,585 15,403,228
Goodwill 18,873,127 18,873,127
Total assets  $ 125,795,866  $ 121,352,829
     
     
Liabilities and Stockholders' Equity    
     
Current liabilities:    
Accounts payable  $ 3,579,920  $ 2,361,481
Accrued liabilities 3,941,549 3,913,034
Customer deposits 4,461,727 4,500,946
Derivative instrument liability, current portion 1,115,805 491,098
Loan payable, current portion -- 6,300,000
Deferred revenue, current portion 55,495,566 54,379,719
Accreditation fees payable, current portion 466,201 473,811
Income taxes payable 473,480 1,024,004
Total current liabilities 69,534,248 73,444,093
     
Deferred revenue, long-term portion 15,610,753 15,638,517
Accreditation fees payable, long-term portion 128,243 135,522
Deferred rent, long-term portion 92,878 75,979
Deferred tax liability, long-term portion 4,787,351 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; 11,329,732 shares issued and outstanding as of December 31, 2014 and 10,907,063 shares issued and outstanding as of December 31, 2013 14,130,059 11,859,267
Additional paid-in capital 29,090,058 28,632,311
Deficit (6,955,283) (13,329,379)
Accumulated other comprehensive income (loss) (622,441) (244,981)
Total stockholders' equity 35,642,393 26,917,218
Total liabilities and stockholders' equity  $ 125,795,866  $ 121,352,829
     
  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 December 31, Year ended December 31,
  2014 2013 2014 2013
  (unaudited) (unaudited)
         
Net revenues  $ 38,802,529  $ 33,139,440  $ 147,667,107  $ 129,934,904
         
Cost of revenues:        
Cost of revenues  26,822,484  23,605,955  101,861,002  92,960,321
Network expenses (*)  1,126,779  1,119,468  4,554,635  4,835,939
Depreciation of property and equipment  170,714  175,262  699,670  627,973
Amortization of intangible assets  --   --   --   83,790
Total cost of revenues 28,119,977 24,900,685 107,115,307 98,508,023
         
Gross profit 10,682,552 8,238,755 40,551,800 31,426,881
         
Expenses:        
Sales and marketing (*)  4,016,364  3,348,945  15,394,065  12,141,036
Technical operations and development (*)  1,067,149  1,061,309  4,305,715  4,158,603
General and administrative (*)  2,211,933  1,937,898  8,505,920  7,204,895
Depreciation of property and equipment  58,905  56,614  226,432  215,447
Amortization of intangible assets  51,330  219,030  596,620  876,120
Impairment of indefinite life intangible assets  --     577,145  
Loss on currency forward contracts  424,947  322,911  1,310,848  676,120
Total expenses 7,830,628 6,946,707 30,916,745 25,272,221
         
Income from operations 2,851,924 1,292,048 9,635,055 6,154,660
         
Other income (expenses):        
Interest expense, net (51) (83,101) (206,730) (354,857)
Total other income (expenses) (51) (83,101) (206,730) (354,857)
         
Income before provision for income taxes 2,851,873 1,208,947 9,428,325 5,799,803
         
Provision for income taxes 992,703 286,052 3,054,229 1,619,339
Net income 1,859,170 922,895 6,374,096 4,180,464
         
Other comprehensive loss, net of tax        
Unrealized loss on hedging activities (401,214) (399,150) (1,004,115) (470,779)
Net amount reclassified to earnings 188,762 62,457 626,655 181,694
         
Other comprehensive loss net of tax of $110,668 and $175,387 for the three months ended December 31, 2014 and December 31, 2013, and $196,623 and $150,587 for the twelve months ended December 31, 2014 and December 31, 2013 (212,452) (336,693) (377,460) (289,085)
         
Comprehensive income for the period  $ 1,646,718  $ 586,202  $ 5,996,636  $ 3,891,379
         
Basic earnings per common share  $ 0.16  $ 0.08  $ 0.57  $ 0.40
         
Shares used in computing basic earnings per common share 11,310,469 10,900,842 11,220,874 10,468,250
         
Diluted earnings per common share  $ 0.16  $ 0.08  $ 0.54  $ 0.37
         
Shares used in computing diluted earnings per common share 11,763,744 11,538,283 11,730,398 11,281,409
         
         
(*) Stock-based compensation has been included in expenses as follows:        
Network expenses  $ 8,541  $ 8,851  $ 30,938  $ 31,664
Sales and marketing  $ 39,074  $ 36,302  $ 143,514  $ 129,302
Technical operations and development  $ 26,536  $ 21,634  $ 85,904  $ 78,800
General and administrative  $ 51,541  $ 35,233  $ 282,382  $ 191,137
         
         
  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 December 31, Year ended December 31,
  2014 2013 2014 2013
Cash provided by: (unaudited) (unaudited)
Operating activities:        
         
Net income for the period   $ 1,859,170  $ 922,895  $ 6,374,096  $ 4,180,464
Items not involving cash:        
Depreciation of property and equipment  229,619  231,876  926,102  843,420
Amortization of intangible assets  51,330  219,030  596,620  959,910
Impairment of indefinite life intangible assets  --   --   577,145  -- 
Deferred income taxes (recovery) (127,877) (169,268) (935,568) (247,371)
Excess tax benefits on share-based compensation expense 101,653 (34,157) (148,902) (1,090,171)
Deferred rent  2,687  4,081  16,899  21,829
Disposal of domain names  7,301  8,221  26,878  52,513
(Gain) loss on change in the fair value of forward contracts  30,633  134,561  50,624  496,207
Stock-based compensation  125,692  102,020  542,738  430,903
         
Changes in non-cash operating working capital:        
Accounts receivable  125,005  (435,937)  (1,484,282)  (892,138)
Inventory  (2,748)  28,424  (84,088)  277,418
Prepaid expenses and deposits  624,939  (67,637)  611,747  772,369
Prepaid fees for domain name registry and ancillary services fees  1,516,718  1,785,439  (331,453)  1,440,720
Income taxes recoverable/payable  718,357  (63,695)  (75,744)  1,023,638
Accounts payable  21,490  (170,657)  1,152,042  529,537
Accrued liabilities  (1,016,351)  725,821  28,515  1,390,805
Customer deposits  392,395  428,621  (39,219)  (454,725)
Deferred revenue  (1,871,865)  (1,972,072)  1,088,083  (982,115)
Accreditation fees payable  (20,711)  (25,188)  (14,889)  (49,106)
Net cash provided by operating activities 2,767,437 1,652,378 8,877,344 8,704,107
         
Financing activities:        
Proceeds received on exercise of stock options 93,108 37,919 1,478,924 1,492,174
Excess tax benefits on share-based compensation expense 133,422 34,157 1,888,734 1,090,171
Repurchase of common stock  --   --   (1,181,857)  (6,537,616)
Proceeds received on loan payable  --   --   --   5,200,000
Repayment of loan payable  --   (600,000)  (6,300,000)  (2,600,000)
Net cash provided by (used in) financing activities 226,530 (527,924) (4,114,199) (1,355,271)
         
Investing activities:        
Additions to property and equipment  (112,836)  (255,514)  (711,656)  (1,345,627)
Acquisition of other assets  (8,199,000)  --   (8,199,000)  -- 
Net cash used in investing activities (8,311,836) (255,514) (8,910,656) (1,345,627)
         
Increase in cash and cash equivalents (5,317,869) 868,940 (4,147,511) 6,003,209
         
Cash and cash equivalents, beginning of period  13,589,246  11,549,948  12,418,888  6,415,679
Cash and cash equivalents, end of period  $ 8,271,377  $ 12,418,888  $ 8,271,377  $ 12,418,888
         
Supplemental cash flow information:        
Interest paid  $ 143  $ 83,370  $ 207,777  $ 372,853
         
Supplementary disclosure of non-cash investing activity:        
Property and equipment acquired during the period not yet paid for  $ 66,397  $ --   $ 66,397  $ -- 
         

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.

CONTACT: Lawrence Chamberlain
         TMX Equicom
         (416) 815-0700 ext. 257
         lchamberlain@tmxequicom.com
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