5 Questions with Elliot Noss of Tucows (TSX:TC)

Tucows (TSX:TC), originally an acronym for The Ultimate Collection of Winsock Software, has a long and colorful history of dabbling in various businesses that have, at times, confused analysts and shareholders alike. The Company was formed in Flint, Michigan, incorporated in Pennsylvania and headquartered in Toronto.

If you noticed Tucows, it was probably in the 90’s when its website directory of shareware, freeware, and demo software was everywhere. The Company is now into domain registration, where it is the third largest ICANN-accredited registrar in the world, domain sales and advertising (In one private transaction in 2007, Tucows sold more than 25000 domain names from its portfolio of domain names for US$3.0 million), and building and maintaining content such as ButterScotch.com, a website with video tutorials that explain technology. Consistently profitable, Tucows has grown its revenue from (US) $74 million in 2007 to more than $84 million in 2010.

Cantech Letter talked to Tucows CEO Elliot Noss.

Tell us a bit about your business. How do you make money?

We provide Internet services like domain registration, email and
security services on a wholesale basis to web hosting companies,
ISPs, website designers and other VARs of such services. Our
customers are able to outsource the complex business processes
associated with these services, like domain renewal management or spam filtering, which allows them to concentrate on what they do best,
whether it be building or hosting their customer’s websites or
managing their customer’s whole IT infrastructure.

Is your space growing? How are you positioned to benefit?

The Internet is obviously experiencing strong secular growth. The
use of all of the services we supply is growing and should continue
to grow for the foreseeable future. Almost everything we do is
subscription-based with high renewal rates. As the Internet grows in
penetration, we experience unit growth. As the Internet grows in
richness and complexity, we have the opportunity to sell additional
services.

What is the most most common misconception about your company or its business?

Probably that our business is somehow subject to fad or fashion.
This is still a bit of a hangover from the dotcom boom AND from the
types of Internet companies which generate headlines. We have a
very consistent, reliable and stable business that generates solid cash flow with nice growth opportunities. We operate in the guts of
the Internet making a small amount of money on many millions of
transactions. We have grown revenue for 15 consecutive years and
generated positive cash flow for the last eight consecutive years.

What’s your financial situation like?

We are a solid cash generator with very low capital requirements and
are able to launch new services, and therefore new growth
opportunities, without the need for additional capital. Because of
this we like to return capital to shareholders and have a demonstrated history of doing so. Not surprisingly, we have very little debt.

What is your key competitive advantage?

We are the only company in the world that focuses on service
providers like web hosting companies and ISPs as its most important
customers. Others service them, but we really focus on them and
deeply understand their needs. This is why we have been able to
build a base of more than 11,000 customers in more than 130
countries, and growing.

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