Tucows Inc. (TCX)
Q1 2010 Earnings Call
May 12, 2010 5:00 pm ET
Elliot Noss - President and CEO
Michael Cooperman - CFO
Jim Kennedy – Marathon Capital
Previous Statements by TCX
» Tucows, Inc. Q4 2009 Earnings Call Transcript
» Tucows, Inc. Q3 2009 Earnings Call Transcript
» Tucows Inc. Q2 2009 Earnings Call Transcript
Welcome to Tucows, Inc.’s first quarter 2010 conference call. Earlier this afternoon, Tucows issued a news release reporting its financial results for the first quarter of fiscal 2010. The news release and financial statements are available on the company’s website at tucowsinc.com under the Investors heading.
Please note that today’s call is being broadcast live over the Internet and will be archived for replay both by telephone and via the Internet beginning approximately one hour following the completion of this call. Details on how to access the replays are available in today’s news release reporting the first quarter financial results as well as at Tucows website.
Before we begin today, let me remind you that the matters that the company will be discussing include forward-looking statements, and as such, are subject to risks and uncertainties that could cause actual results to differ materially. These risk factors are described in detail in the company’s documents filed with the SEC, specifically the most recent reports on Form 10-K and 10-Q. The company urges you to read its Securities filings for a full description of the risk factors applicable for its businesses.
I would now like to turn the call over to Tucows President and Chief Executive Officer, Mr. Elliot Noss. Please go ahead, sir.
Thank you, operator. Good afternoon, and thanks for joining us today. With me is Michael Cooperman, Tucows Chief Financial Officer.
As per the usual format for our calls, I will begin with a brief overview of our financial performance and some of the operational highlights for the quarter. Mike will review our financial results in more detail and I will return for some concluding comments before opening the call up to questions.
First an overview of the financial results. Q1 marked another quarter of solid financial performance for Tucows with results that continue to demonstrate the consistency and reliability in our business. At a high level, revenue for the first quarter was $20.4 million up about 2% from the first quarter of last year. I would note that this growth is despite the expected impact of the loss of revenue from email and direct navigation sales we have discussed previously. Adjusted cash EBITDA for the first quarter was $2.3 million and we once again generated positive cash flow from operations of $1.4 million.
Turning to some operating highlights, with OpenSRS, I would now like to briefly review those highlights and starting with OpenSRS. The domain service is the foundation of the consistency and reliability in our business. That was evident again in the first quarter of 2010. The domain service saw continued steady growth in transaction volumes. New registrations grew almost 12% compared to the fourth quarter of 2009 and 12% on a year-over-year basis factoring out the special registry promotion in the first quarter of 2009.
Renewals were up 24% from the fourth quarter and 11% on a year-over-year basis. I will note with respect to the sequential growth renewals tend to spike in the first quarter given this was the quarter we first launched our domain registration service in 2000. Our renewal rate, already several points above the industry average, saw a small bump in the first quarter, a result of both the improved economic environment and improved retention in a specific segment of our customer base that we acquired several years ago.
Continued growth in our transaction volumes pushed the number of domains under management to more than 10 million. We are proud to say we are one of only three domain registrars that have reached this milestone. It is a testament to our wholesale business model as well as our strong competitive position. All of this contributed to year-over-year domain service revenue growth of over 8% and we have seen this momentum and growth continue in April.
We are seeing more customers in the pipeline going live as we get better and more efficient at getting our resellers started with us. A number of these new customers are coming from markets outside of North America which are now consistently seeing higher growth. We have always talked about our global footprint and clearly that is having a positive impact. I also note for the first time since the launch of the domain service in 2000 we are seeing consistency in gross margin.
As expected, email service revenue declined somewhat markedly compared to Q1 of last year, the result of the departure of the three large customers at various points throughout 2009 as discussed on previous calls. We have a good base to build from going forward. Our email service is now very solid and extremely strong relative to competition. We are heads down around selling and looking to build our book of business from here.
All of the trends that initially attracted us to email and made us think it was a strong strategic opportunity for Tucows are still present and we are seeing the emergence of new opportunities as privacy and user’s control of their own information, things we strongly believe in, become more of a mainstream issue.
YummyNames, our domain portfolio group, had another solid quarter highlighted by strong performance from individual name sales. The strong momentum in brandable names we have discussed in prior quarters continued through Q1, the result of increased auction activity as well as the increased exposure through our distribution agreements with Name Media and Sedo. We have also increased our promotional efforts around gems.