Tucows CEO Discusses Q4 2010 Results - Earnings Calls Transcript

Tucows, Inc. ( TCX)

Q4 2010 Earnings Call

February 16, 2011 5:00 p.m. ET

Executives

Elliot Noss – President and CEO

Michael Cooperman – Chief Financial Officer

Analysts

Thanos Moschopoulos – BMO Capital Markets

Alex Grassino – Laurentian Bank Securities

Presentation

Operator

Good afternoon, ladies and gentlemen. Welcome to Tucows Incorporated Fourth Quarter Fiscal 2010 Conference Call.

Earlier this afternoon, Tucows issued a news release reporting its financial results for the fourth quarter of fiscal 2010. This news release and financial statements are available on the company’s website at tucowsinc.com under the investor’s 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 fourth quarter financial results as well as at Tucows website.

Before we begin today, let me remind you that matters the company will be discussing include forward-looking statements and as such are subject to risks and uncertainties that could cause the actual results to differ materially. These risk factors are described in details in the company’s documents filed with the SEC. Specifically, the most recent report on Form 10-K and 10-Q. The company urges you to read its security filings a full description of the risk factors applicable for its business.

I would now like to turn them 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 the financial and operational highlights for the fourth quarter and the year. Mike will then review our financial results in more detail and I will return for some concluding comments before opening the call up to questions.

Our financial performance for both the fourth quarter and the year continue to demonstrate the consistency and reliability in our business. Revenue for the quarter grew by 8.6% from the same period of 2009 to $22.1 million, and for the full year grew by 4.5% to 84.6 million, both records.

I will note that each of these was achieved despite the lower contributions from our Email service and Direct Navigation Name sales. And once again, we generated solid cash flow from operations; 2.3 million for the quarter and 6.8 million for the year, up 8% over 2009.

In addition, we had another extremely efficient year for CapEx, which was even lower than the already efficient levels of the previous year.

During the fourth quarter, each of the components of our business continued to perform well. OpenSRS domain services, again experienced year-over-year growth in transaction volumes with total registrations up 11%, renewal transactions up 16%, and new registrations up 2%.

I will note that growth in new registrations was somewhat lower this quarter as a result of two large customers becoming accredited registrar. We continue to do business with each of these customers and there will be a relatively small impact on gross margin dollars.

Outside those two resellers, new registrations continued to reboat the robust year-over-year growth experienced throughout 2010. And again, our renewal rate remains several points above the industry average.

Domains under management were up 5.3% year over year to 10.2 million, another record. All of this resulted in a year-over-year increase in domain service revenue of 13.8%. Our competitive position remains strong and we had a number of significant customer wins during the quarter including two sizable additions.

We also had a couple of notable wins within our OpenSRS email offering and continue to be encouraged by the strength of the pipeline. The migrations of both customers are proceeding well and we expect them to be completed before the end of the month. These wins contributed to a 32% growth in a number of active email boxes from a year earlier. These sizable additions will position email for strong year-over-year growth beginning in Q1.

On last quarter’s call, we announced the imminent launch of our latest reseller offering goMobi, a service that allows website owners to very easily set up a mobile version of their website. As a reminder, a goMobi-enabled website will identify the type of device that a visitor to a site is using and customize the user interface to that particular device.

We launched goMobi towards the end of the quarter and I’m pleased to report that things are progressing well. The offering is gaining traction and feedback from customers has been very positive.

As is typical with any OpenSRS rollout, it will take some time for our resellers to integrate our offering into their businesses. Several of our largest customers and many of our smaller ones have already done so and many more are working on it.

Just as encouraging, is the fact that number of new self-serve service providers, largely web designers are coming to OpenSRS for the first time because they want to offer goMobi to their customers.

As I discussed last quarter, we see mobile computing as the dominate trend in technology today and something that we believe we are positioned to capitalize on in a number of ways.

Our domain portfolio group, YummyNames, continues to perform well. Individual domain name sales, that is, sales of brandable names and gems were up almost 50% compared with the fourth quarter of 2009 reaching their highest level ever. We expect to see strong year-over-year performance for YummyNames in 2011. Although the general decline in syndicated search revenue was still at a slight dampening effect on year-over-year comparisons.

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