Tucows, Inc. (TCX) 1Q 2012 Earnings Call 5:00 p.m. ET May 8, 2012 Executives Elliott Noss – President, CEO and Director Michael Cooperman – CFO Analysts Brett Hoselton – KeyBanc Capital Markets Saul Ludwig – NorthCoast Research Ravi Shanker – Morgan Stanley Pat Nolan - Deutsche Bank Securities Presentation Operator
Elliott NossThank you, Operator. With me is Michael Cooperman our Chief Financial Officer. I'll begin today with a brief overview of the financial and operational highlights for the quarter. Mike will then review our financial results in more detail. Then I will return with some concluding comments before opening the call up to questions. Q1 was another solid quarter for Tucows and our results again, underscore the growth consistency and reliability in our business. We saw growth across all the areas of our business and generated strong cash flow from operations. We recorded our 8th consecutive quarter of record revenue at $27.5 million, up 22% from the same quarter of last year. Cash provided by operating activities was $2.1 million, up significantly, from $0.8 million for Q1 last year. While already a strong quarter, I will note that Q1 did benefit from items that while typical in the course of a year stand out in the course of a quarter. An unusually high level of sales of gems from our domain portfolio and marketing funds we receive from domain registries that were front-end loaded. Importantly, Q1 was quarter in which you can really see the leverage in our business. Growth in revenue and gross margin far exceeded growth and operating expenses. Typically, we look, for at least $0.50 of every of incremental dollar in billed gross margin to drop to the bottom line. This year, our leverage was much better. Before I walk through more highlights of the quarter, I will note, that we changed the way in which we classify the different sources of revenue in our disclosure. Beginning this quarter, we are breaking up revenue and gross margin by wholesale, retail, and portfolio. We believe this realignment better reflects the manner in which revenue is generated and the way in which management currently assesses the business.
More specifically wholesale, which includes the OpenSRS Domain Service and other value-added services, which are, email, digital certificates and ISP billing software. Also, now includes revenue generated from the Domain Name Expiry Stream. These were previously included in YummyNames.Retail includes Hover, as well as the current Ting offering. Portfolio includes the resale names from our domain names portfolio and advertising revenue from those names. Both of which, were previously included under YummyNames, as well as our two advertising supported websites, which were previously discussed as Butterscotch. Beginning with wholesale, Q1 was another solid quarter for domain service transactions which up 21% from Q1 of last year to another record at more than $2.4 million. Domain service revenues increased 19% year over year. Growth in, both, new registrations and renewed registrations, was strong, at 24% and 21%, respectably. We, also, saw healthy sequential growth in overall transactions volume at 15%. Renewal rates continue to be strong and take up slightly at 76%, remaining above the industry average. Total domains under management at the end of Q1 were up 9% from the same point last year and surpassed the 12 million mark for the first time. As I mentioned a moment ago, revenue generated by sales and advertising from our Domain Expiry Stream, is now being included in our wholesale numbers. Our Expiry Stream business had a very good quarter in Q1. Sales of bulk direct-navigation names almost doubled from Q1 of last year, benefiting from the addition of a secondary partner. Advertising revenue from park domains, from both expiry and portfolio, continue to improve. Moving to retail, Hover revenue increased more than 30% year-over-year and almost 10% sequentially. Hover continues to show excellent customer growth and strong renewal performance. New transactions, which include new domains, transfers and email accounts experienced solid growth of 30% year over year and 27% sequentially. Renewal rates continue to impress. Our great support and simple, useful website are both amplified by our customers through social media.
We continue to attract new customers away from our competitors. The ratio of transfers-in to transfers-out climbed even higher then Q4, reaching well over 5 to 1. Given our role as the largest wholesaler, we well understand how impressive that transfer ratio is.Read the rest of this transcript for free on seekingalpha.com