Tucows' CEO Discusses Q2 2012 Results - Earnings Call Transcript

Tucows Inc. (TCX)

Q2 2012 Earnings Call

August 13, 2012 5:00 p.m. ET

Executives

Elliott Noss – President, CEO

Michael Cooperman – CFO

Analysts

Rami Nasser - BMO Capital Markets

Jim Kennedy - Marathon Capital Management

Aaron Fuchs - Fertilemind Capital

Presentation

Operator

Good afternoon ladies and gentlemen. Welcome to Tucows second quarter 2012 conference call. Earlier this afternoon Tucows issued a news release reporting its financial results for the second quarter. That news release and the financial statements are available on the company's website at tucowsinc.com under the investors 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 1 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. These risk factors are described in detail in the company's documents filed with the SEC. Specifically, the most recent reports on Form 10-K and Form 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 the call over to Tucows’ President and Chief Executive Officer, Mr. Elliot Noss. Please go ahead Mr. Noss.

Elliott Noss

Thank you, operator. With me is Michael Cooperman, our Chief Financial Officer. For our usual format, I'll begin today’s call with a brief overview of the financial and operational highlights for the quarter. Mike will then review our financial results in detail. Then I will return with some concluding comments before opening the call up to questions.

The second quarter once again shows the growth, consistency and leverage in our business. We continued to see meaningful growth across each of our service categories, with overall revenue for the quarter increasing 22% year over year to $28.2 million, our ninth consecutive quarter of revenue growth.

We continued to generate cash flow from operations with in Q2 we used to repurchase additional shares and to take advantage of the new generic top level domain opportunity that I have discussed on past calls. I will now review the highlights for each of the three components of our business: wholesale, retail and portfolio.

Wholesale which I will remind you includes our OpenSRS domain service and other value added services had another solid quarter. Domain service transactions were up 12% compared with Q2 of last year to more than 2.3 million and domain service revenue was up 19%.

Renewal registrations grew a very healthy 27% year over year. New registrations were more or less unchanged from Q2 last year. However I will note that growth was held down by two factors. First, several large resellers launched one-time promotions in Q2 last year. And second, one large reseller this year was acquired by one of our registrar customers who shifted their registrations on to their accreditation on our platform.

Outside of these events, new registrations grew 16% year over year. Transfers-in were up 28% after factoring other large one-time bulk transfer-in during Q2 of last year. Renewal rates remained above the industry average and have increased slightly to 75%.

Total domains under management at the end of the quarter were 13.9 million, up 24% from the end of Q2 last year and up 15% from the end of the first quarter of this year. The jump from Q1 was primarily the result of the acquisition of a reseller by one of our customers who then shifted new registrations to its accreditation on our platform. Q2 was also another good quarter for our domain name expiry stream which saw revenue more than doubled from the second quarter of last year.

Our retail business which includes Hover and Ting continued a strong performance in Q2. I will note the Ting revenue is still dominated by zero margin or low margin device sales, and accordingly, we will talk about Hover and Ting separately when talking about retail.

Hover revenue grew 28% year over year and 7% sequentially, and we continued our trend of strong customer growth. New transactions which include new domains, transfers and email account grew 29% year over year and renewals grew 14% year over year. Renewal rates ticked up slightly from an already high level as a result of our great customer service and customer experience. Transfers-in remained strong in Q2 growing 34% year over year with transfers-in exceeding transfers-out by a ratio of 5 to 1 which is an incredible performance in this competitive space.

Ting is the other component of retail services. Q2 was the first full quarter of operations for Ting. As of the end of June, Ting has been in the market for over four months and things continued to go quite well. We were extremely pleased with the way of the services being received both by customers and by the broader technology, telecom and mobile communities. We’ve clearly been identified as a thought leader in the MVNO space.

Most importantly, customers are saving even more money than we anticipated, and we are thrilled with the customer experience. Again, I pointed to the Ting Facebook page and the Ting blog. If you are interested in following Ting’s progress, those are the two best places to understand the amazing level of customer engagement we are seeing.

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