Tucows' CEO Discusses Q3 2011- Earnings Call Transcript

Tucows, Inc. ( TCX)

Q3 2011 Earnings Call

November 9, 2011 5:00 pm ET

Executives

Eliot Noss – President, Chief Executive Officer & Director

Michael Cooperman – Chief Financial Officer

Analysts

Analyst for Thanos Moschopoulos – BM Capital Markets

Presentation

Operator

Welcome to Tucows, Inc.’s third quarter 2011 conference call. Earlier this afternoon Tucows issued a news release reporting its financial results for the third 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 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 as well as at Tucows’ website.

Before we begin, let me remind you that matters the company will be discussing including 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 detail in the company’s documents filed with the SEC, specifically the most recent report on Form 10K and Form 10Q. 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 the call over to Tucows’ President and Chief Executive Officer Mr. Elliot Noss. Please go ahead.

Eliot Noss

With me is Michael Cooperman our Chief Financial Officer. Today’s call will follow our usual format. I will begin with a brief overview of the financial and operational highlights for the quarter. 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.

Quarter-after-quarter our financial performance underscores the consistency and reliability of our business combined with our ability to achieve steady growth, and Q3 was no exception. Revenue grew by in excess of 18% year-over-year topping $25 million for the first time. With meaningful growth across all key areas of our business. Notably, YummyNames and Hover had particularly strong quarters as we continue to see the positive results of initiatives we have undertaken to grow these businesses.

In terms of cash generation, cash provided by operating activities for the quarter was a healthy $1.6 million. I’ll walk through the highlights of each of our services groups. In OpenSRS domain services revenue and transaction volumes were each up 19% compared to the third quarter of last year. We processed more than $2.1 million transactions in Q3, the first time we’ve exceeded that threshold and the third consecutive quarter we have surpassed the $2 million mark.

New registrations grew by 15% excluding the impact of the two customers that became registrars earlier this year. Renewals were particularly strong increasing by 24% with the renewal rate continuing to hold steady at a level well above the industry average. Total domains under management at the end of the quarter was up 16% from a year earlier to more than 11.7 million, the result of solid growth in transactions as well as the 400,000 domain names that were added with the acquisition of EPAG which was completed in July.

I will take this opportunity to note that the acquisition of EPAG has progressed very well. As we discussed on our last call, EPAG is one of the leaders in comprehensive top level domain or TLD coverage offering more than 200 TLDs. Integration is going well with the first traunch of more than 100 of these TLDs to be available to our resellers at year end. We plan to roll out the remaining TLDs to our channel in two phases in the first half of next year.

EPAG also bolsters our presence in Germany, Australia and Switzerland, three countries in which we have historically not been a strong as the rest of Europe. With EPAG we added more than 500 resellers expanding our customer base to more than 12,000 active resellers globally. The expansion of our TLD offerings of course extends beyond OpenSRS to our retail business Hover which I’ll discuss in a moment.

Our strong competitive position again, drove a number of key customer wins during the third quarter. Most notably we added two large hosting providers in southeast Asia, both of which were previously with one of our competitors. We’ve also made strong inroads into the Australia market over the past 12 months following our launch of .au the Australian top level domain.

Our OpenSRS email service showed continued momentum in Q3. Revenue was up 10% from the same quarter last year with a number of mailboxes under management increasing on both a year-over-year and sequential basis. Alongside growth in existing services we launched a number of new services to our reseller network in Q2. OpenSRS Offers, our newest service allows resellers to generate promotional control through the control panel or API they choose that they can then pass on to their customers.

A key element to the OpenSRS value proposition is that it enables our customers to be more competitive and Offers further strengthened that by allowing our customers who are too small to do direct deals themselves to stand on equal footing with larger competitors. The initial offering is for Google Adwords’ credits and we will add new promotions from different companies on a regular basis. I will note that this service is unique within our space, further strengthening our competitive position.

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