Tucows' CEO Discusses Q2 2011 Results - Earnings Call Transcript

Tucows Inc. ( TCX)

Q2 2011 Earnings Conference Call

August 10, 2011 17:00 ET

Executives

Ken Schafer – Executive Vice President of Products

Elliot Noss – President and Chief Executive Officer

Michael Cooperman – Chief Financial Officer

Analysts

Thanos Moschopoulos – BMO Capital

Alex Grassino – Laurentian Bank Securities

Presentation

Operator

Good afternoon ladies and gentlemen and welcome to Tucows Inc. Second Quarter 2011 Conference Call. Earlier this afternoon, Tucows issued a news release reporting its financial results for the second quarter. The news release and the financial statements are available on the company’s website at www.tucowsinc.com under the Investor Heading.

Please note that today’s call is being broadcast live over the internet and will be archived for both replay by the 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 as well as at Tucows website.

Before we begin 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. The 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 Form 10-Q. The company urges you to read their securities filings for a full description of the risk factors applicable for its business.

I would now like to turn the call over to Tucows’ Executive Vice President of Products, Mr. Ken Schafer. Please go ahead Mr. Schafer.

Ken Schafer – Executive Vice President of Products

Thank you, operator. Good afternoon. Thanks for joining us. With me is Michael Cooperman, our Chief Financial Officer and unfortunately due to a family matter our President and CEO, Elliot Noss is not able to be with us today. I’ll be taking his place.

Despite that this call will follow the usual format. I’ll begin with a brief overview of the financial and operational highlights for the quarter and then Mike will review our financial results in more detail. After that I’ll return with some concluding comments before opening up the call to questions.

Second quarter 2011 was another very solid quarter that was again indicative of the consistency and reliability in our business within the context of growth. Revenue grew by almost 11% for Q2 – sorry, from Q2 of last year to $22.6 million which was another record and cash provided by operating activities was $1.4 million after adjustments for non-cash working capital items. To discuss OpenSRS, we continued to perform well with an overall growth in revenue of 15%.

Total domain transaction volume for the quarter were up 15% to just over two million and that’s the second consecutive quarter that we topped the $2 million – sorry, two million mark in domains. New registrations were up 21% if we exclude the impact of two customers that became registrars on their own earlier this year. Renewals were up 15% and our renewal rate held steady at a level that remains well above the industry average. This growth in transaction push domains under management at the end of the quarter up 10% for the same period last year exceeding $11 million names for the first time.

The OpenSRS email service continue to experience the momentum that we’ve discussed in the last several calls. Revenue was up 8% year-over-year and mail boxes under management grew on both the year-over-year and sequential basis. We believe our overall competitive position is strengthening primarily due to our unwavering focus on wholesale relationships with service providers. And Q1 once again bore this out with a number of key competitive wins for OpenSRS. This week at HostingCon we announced the partnership with Parallels who is a leader in the hosting and cloud services space. The partnership integrates OpenSRS services directly into Parallels platform allowing for easy provisioning and management of their sorry of our services by Parallels customers from within Parallels control panels.

Hover also continued its momentum this quarter. New transactions which include new domains, transfers in and email accounts increase 90% over sorry 96% over Q2 of last year and 8% over Q1 of this year. The number of transfers in for Q2 through more than 5.5 times over the same period last year underscoring Hover’s value proposition as a simple no hassle domain registration management tool and email service. In fact transfers in are driving approximately half of the growth in new transaction. In addition, transfer in continue to steadily outpace transfers out at a pace of over three to one. Renewal rates also remain strong. All of this contributed to a 15% year-over-year increase in Hover revenue and I would remain you that the underlying performance in this business is somewhat massed by the deferral of revenue.

On our last call, Elliot talked about the impending launch of our new control panel for Hover, during the quarter we completed the migration of all customers to these new domain email management tools. The new control panel further strengthens Hover’s value to customers and the initial feedback from it’s been excellent. YummyNames our domain portfolio group, saw increased sales of individual domain names contribute to another solid quarter note that while we brought consistency to YummyNames on annual basis, there is still some from quarter-to-quarter. Sales of domains, the reclassify as brandable or gem names through 7% from q2 of last year. The average selling price remain healthy during the quarters and we had a number of individual name sales priced in the five figure range.

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