Tucows, Inc. ( TCX)

Q1 2011 Earnings Call

May 11, 2011 5:00 p.m. ET

Executives

Elliot Noss - President, CEO

Michael Cooperman - Chief Financial Officer

Analysts

Thanos Moschopoulos – BMO Capital Markets

Presentation

Operator

Good afternoon, ladies and gentlemen. Welcome to Tucows First Quarter Fiscal 2011 Conference Call.

Earlier this afternoon, Tucows has issued a news release reporting its financial results for the first quarter of fiscal 2011. The 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 first quarter financial results as well as Tucows website.

Before we begin today, let me remind you that the matters 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 report on Form 10-K and 10-Q. The company urges you to read its security filings for 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. For our call today, I’ll begin with a brief overview of the financial and operational highlights for the first quarter of the year. Mike will then review our financial results in more detail and I will return with some concluding comments before opening the call up to questions.

Our financial performance for the first quarter of 2011 was again demonstrative of the consistency and reliability in our business. Revenue grew by just over 10% from Q1 of last year to a record $22.6 million. Once again, we generated solid cash flow from operating activities at $1.6 million.

Each of the components of our business continued to perform well in the first quarter. Year-over-year growth in OpenSRS domain transaction volumes was 6% excluding the impact of the customers discussed last quarter, new registrations were up almost 15% and renewal registrations were up 10%, with our renewal rate remaining solidly above the industry average.

Domains under management grew almost 10% from Q1 of last year to just shy of $11 million and subsequent to the end of the quarter crossed the $11 million name threshold. All of this, contributed to year-over-year growth in domain services revenue of 14%.

Again this quarter we continued to win business. Our company-wide focus on wholesale continues to benefit us as does our persistence. One of these customer wins has been in the pipeline for nearly four years proving how this business is all about building and keeping relationships. The recent momentum in email, including the customer wins that I discussed on our last call, contributed to the strongest quarter for this service offering in more than a year, highlighted by year-over-year revenue growth of 7.4% and sequential revenue growth of 29%. We have also now had a customer launch email for the first time and grow organically from nothing to over 10,000 mailboxes another very positive sign.

Based on a strong pipeline, we expect this momentum to continue in 2011. There is a one customer win during the quarter, but although small is worth noting for its strategic relevance. A European hosting vendor, who is building a global wholesale business in hosting shows our OpenSRS email and platform because the breadth of languages supported in our Web Mail interface and the breadth of our country code domain coverage, exactly the kind of healthy relationship we like.

Our retail offering Hover was the strongest performing business unit. In fact, by some measures, this was the best quarter for our retail business ever. New transactions which include new domains, transfers in, domain email accounts and personal name email accounts increased 30% over Q4 last year and 52% over Q3 last year. Last quarter I noted that the number of transfers in was up 85% sequentially. And the transfers in now outpace transfers out 2 to 1. In Q1 transfers in grew another 75% sequentially and the ratio climbed to 3 to 1.

Customer growth remained strong, with new additions in Q1 more than doubling the already very good numbers in Q4 last year. I will note that renewal rates for both domain names and email, already above the industry norm also increased a few points from Q4 2010 levels. Year-over-year growth has been solid, please note, the deferral of revenue is actually hiding some of the underlying momentum in this business. We expect that momentum to continue throughout the remainder of the year with the year-over-year comparisons starting to look even better in Q2 as we start to see some increases in renewals which is 80% of the retail business.

In short, the results this quarter again confirm the strength of the Hover value proposition as a simple, no hassle domain registration management tool and email service and we expect the momentum to continue. Q2 has started off just as strong. It will see the launch of the new Hover control panel and with the control panel work behind us we’ll also see a renewed attention paid through our personal name services, which as many of you know is one I believe holds much latent value.

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