Tucows Inc. Q2 2010 Earnings Call Transcript

Tucows Inc. Q2 2010 Earnings Call Transcript
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Tucows Inc. (TCX)

Q2 2010 Earnings Call Transcript

August 11, 2010 5:00 pm ET

Executives

Elliot Noss – President and CEO

Michael Cooperman – CFO

Analysts

Thanos Moschopoulos – BMO Capital Markets

Alex Grassino – Laurentian Bank Securities

Presentation

Operator

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Previous Statements by TCX
» Tucows Inc. Q1 2010 Earnings Call Transcript
» Tucows, Inc. Q4 2009 Earnings Call Transcript
» Tucows, Inc. Q3 2009 Earnings Call Transcript

Good afternoon, ladies and gentlemen, welcome to Tucows Inc. second quarter fiscal 2010 conference call. Earlier this afternoon, Tucows issued a news release reporting its financial results for the second 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 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.

Elliot Noss

Thank you, operator. Good afternoon, and thanks for joining us today. With me is Michael Cooperman, Tucows Chief Financial Officer.

This afternoon’s call will follow our usual format.I will begin with a brief overview of our financial results and operational highlights for the quarter. Mike will then review our financial results in detailand I will return for some concluding comments before opening the call up to questions.

Our second quarter results continue to demonstrate the consistency and reliability that have become the hallmarks of our business.Revenuegrows just over 4% year-over-year to $20.8 million. Again this quarter, this growth was achieved in the face of lower contribution from both our email service and direct navigation name sales that we’ve discussed on previous calls.

Adjusted cash EBITDA for the quarter was $1.7 million and we once again generated positive cash flow from operations, which totaled $1.2 million for the quarter and which I will note was dampened by the use of approximately $800,000 for working capital requirements. Then Mike will discuss this in a more detail in a few minutes.

I would like now to briefly review some of the operating highlights for the second quarter beginning with OpenSRS. The OpenSRS domain service continued to exhibit steady year-over-year growth in transactionvolumes in the second quarter. Total transactions grew by 11% compared to the second quarter of last year, with new registrations growing 9% and renewals growing 12%.

I will note that our renewal rate saw another bump up in the second quarter, again performing above industry average. As a result of continued growth in domain transactions, domains under management at the end of the second quarter grew to well over 10.1 million. All of this contributed to year-over-year growth in domain service revenue of 7%. Our competitive position remains strong and we had several significant customer wins during the quarter. Our competitive position continues to improve both in terms of new customer starting to do business with us and existing customers who use multiple suppliers bring the higher proportion of their business to us.

We are winning business in both respect because we excel at building customer relationships, along with service innovation, like domain look ups. Still with the domain service, subsequent to the end of the quarter, we saw the successful launch of the new .CO TLD or top-level domain.

.CO, the country code top-level domain for Columbia, is now being positioned as the abbreviation for company and an alternative to .com. To-date the .CO launch has been our most successful new TLD launch since .EU in 2007. And since launch has been one of our top selling TLDs. In fact, since its launch .CO has been a number two top level domain for new registrations, topped only by .com.

Turning to Hover, our retail service, we talked last quarter about having redesigned the front page, and that we are ready to reinvigorate the market. In Q2, these efforts started bear fruit and we were able to grow new domain registrations by 31% quarter-over-quarter and so far in Q3, we are holding at these new levels. We are also starting to see strong indications that our competitive positioning is exceeding, transfers in nearly tripled quarter-over-quarter. We think this is a function of some of these efforts exposing us more broadly in the market.

Feedback is that Hover represents a fresh change from some of our competitorservices. We’re excited that our competitive position at retail has been validated by these results. We’ve always said that one of the roles of Hover inside of Tucows is for it to be a laboratory within which we could learn best practices and bring them back to our wholesale customers. We think we have started that learning. We think we’ve learned a little bit around marketing, we think we’ve learned some interesting lessons around customer experience and usability and we have discovered some valuable customer service practices.

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