Tucows Inc (TCX) 2007 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to Tucows Inc.'s Fourth Quarter and Year-End 2007 Conference Call. I would like to remind everyone that this conference call is being recorded and will now turn the call over to Leona Hobbs. Please go ahead, Leona.

Thank you, operator. Good afternoon and thank you for joining us today. With me is Elliot Noss, our President and Chief Executive Officer, and Michael Cooperman, our Chief Financial Officer.

Earlier this afternoon, Tucows issued a news release reporting our results for the fourth quarter and year-end of fiscal 2007. The news release and other information are available on our website at about.tucowsinc.com by clicking on Investors.

Before we begin today, I would like to point out that the matters we will be discussing include forward-looking statements and, as such, are subject to risks and uncertainties that would cause actual results to differ materially. These risk factors are described in detail in our documents filed with the SEC, specifically the most recent reports on Form 10-K and 10-Q. We urge you to read our securities filings for a full description of the risk factors applicable to our business.

I would now like to turn the call over to Elliot. Elliot?

Thanks, Leona.

Good afternoon and thanks for joining us today. On today's call, I'll begin by reviewing the performance of our business in the fourth quarter and year ended December 31, 2007. Mike will then provide a review of the financial results before returning the call to me for discussion of our growth opportunities.

For 2007, Tucows achieved record revenue, growth in profitability, continued strong generation of cash flow from operations and a record deferred revenue balance, all while lowering our pricing for domain names and rebuilding our e-mail systems.

Revenue for the year grew approximately 15% over 2006 to $74.6 million. Adjusted net income for the year was $8.9 million, compared to $5.8 million 2006, representing a 54% increase.

During the fourth quarter, we generated cash flow from operations of $2.7 million, bringing us to $8.5 million for the year. Revenue for the fourth quarter was $18.2 million, representing a 6% increase over the same quarter of fiscal 2006. Adjusted net income was $0.7 million.

Now, I will review the progress we made in the various parts of our business. First, it is important to note we have decided to change the way we categorize our lines of business. We have made these changes for a number of reasons. First, the emergence of our domain portfolio is an anticipated high-growth area of our business. Second, the importance of e-mail as a key driver of future growth. Third, the increased size of our retail business as a result of recent acquisitions. And fourth, the emphasis of our software libraries. Each of these are trends that have been developing over the last couple of years.

The four main categories that we will now use in all our public disclosures are as follows -- domain registration, domain portfolio, e-mail services and retail. Now, of course, the balance of our product and services will fall under Other.

I will now review the progress we have made during the quarter in each of these lines of business.

First, domain registration. Traditional domain registration encompasses all of our services related to the registration and renewal of domain names. Historically, this has been the largest portion of our business. In addition, domain registration fuels other lines of businesses in two ways. First, it is often the initial service for which a customer will engage us, enabling us to follow on with other services. Second, we are able to add to our domain portfolio by purchasing names registered through us once they expire. As discussed in 2007, we implemented a significant price reduction on domain registration which impacted the growth of this line of business in the short term, but we expect this will pay off and are continuing to see positive signs. While the price drop affected only our smallest customers, it seems to have been a signal of renewed competitiveness to larger potential customers and has already provided some interesting sales leads. Our fourth quarter was the first full quarter with lower pricing, and we are pleased to report we experienced higher transaction numbers, more new customer sign-ups and had our highest renewal rates of the year at nearly 74%.

Next, our domain portfolio. This is the part of the business that has the most significant growth potential. Here, we derive both direct navigation revenue, advertising revenue and revenue from the sale of names from the portfolio. This quarter, we are seeing the positive results of having changed advertising partners. For the last couple of quarters, I noted that we were disappointed with our Google ad yields. In November, as I mentioned on the last call, we switched to a new advertising partner, which led to a revenue increase of over one-third. It is important to note that this increase was primarily the result of better yields. The Gem and surname portions of our domain portfolio have not yet been optimized and, over the coming months, we expect to improve performance there as well.

We have also made great progress in developing tools for evaluating our inventory of domain names which will help us to manage the portfolio more profitably and to increase the number of transactions, as well as improve our ability to have the right sales at the right prices. We believe we have one of the leading portfolios in the world. Please remember, we pick up 6,000 to 8,000 more names each month from expiring domains. We made the decision two years ago to acquire expiring names that we believed had value. Our competitors primarily chose to auction names at the time of expiry. Every quarter that goes by, it becomes clearer that we have made -- that we made the right decision two years ago, as our portfolio increases in quality and value.

In addition, the secondary market for domain names continues to become more efficient, and we believe this will only improve as large companies accelerate their acquisition of high-value domain names as part of their core marketing strategy. At this time, the revenue from domain sales has not been consistent from quarter to quarter, but we expect that, over time, this revenue stream will become much more predictable.

The third line of business under our new disclosure format is our hosted e-mail service. During the quarter, we continued to make progress in migrating customers off of legacy systems to our new platform. This is simply hard work and is progressing as it should. Our webmail client is on par with Yahoo, Google and Hotmail. More importantly, we are focused on making the customer experience superior. People simply do not need more features. They need a better service. They need e-mail to do what they want when they want it. People need help when they have a crisis, and with e-mail, simply not receiving a message or not being able to send an attachment are crises. Tucows and our service provider partners are in a position to provide a far superior user experience than a megaportal. And, as I said on last quarter's call, we have a tremendous sales team in place which is excited to sell this enhanced service into our channels, and I am pleased to report we are seeing customer wins and building a solid pipeline.

Our fourth line of business is retail, which has grown through some of our recent acquisitions. Our retail division sells Tucows' services to consumers and small businesses. We offer retail domain registration and other internet services through Domain Direct. We offer personalized e-mail through NetIdentity. During the quarter, we completed the successful integration of the assets and customer base of IYD. The acquisition closed, I'll remind you, in July. I will go into more on the potential growth of this business -- the retail business -- later in the call.

And with that, I'll turn the call over to Mike for a detailed review of our financial results. Mike?

Thanks, Elliot.

As Elliot discussed at the outset of this call, fiscal 2007 was a year in which we delivered strong financial performance, notwithstanding the unexpected yet critical investment on our e-mail service, as well as the change in the pricing model for our traditional domain registration business.

Revenue for the year grew to a record $74.6 million. Adjusted net income increased by 54% to a record $8.9 million. Cash flow from operations remained strong at $8.5 million. And our deferred revenue balance reached a record at $50.6 million.

During the fourth quarter, we made progress with implementing several initiatives that we believe will take our growth to the next level. With the migration process to our new e-mail platform now well underway, we are now much closer to being able to reap the considerable cost benefits associated with not having to carry multiple systems at our data centers.

Turning to the results for the fourth quarter, net revenue was $18.2 million, up 6% from the fourth quarter last year. Cost of revenues, including network costs for the fourth quarter, increased by 17% to $14.1 million, largely as a result of the impact of the Registry price increase on wholesale domain names and our booking 171,000 of recognized renewal costs in connection with our names portfolio. As a reminder, from an accounting standpoint, when we add names to our portfolio, we defer the renewal cost at the time of purchase and amortize it ratably over the term of the renewal.

Cost of revenues also included an increase in network costs of $662,000 compared to the fourth quarter last year. The bulk of this increase was due to the additional cost burden we have had to carry with multiple systems at our data centers. As I mentioned earlier, over the next few quarters, we expect to see considerable cost savings from current levels as we begin the process of reducing our overall footprint at our data centers.

Gross margin for the fourth quarter was 23%, compared to 30% for the fourth quarter of last year. The decrease in gross margin was the result of a combination of factors, the most important being the effect of network costs in carrying multiple platforms, the increased costs associated with our portfolio of domain names and the impact of the price reduction on wholesale names. As part of our decision to move to disclose our revenue by line of business as Elliot outlined earlier, we believe it will be beneficial to provide some gross margin visibility for each of these lines of business. Please note that for those of you who would like more detail, we included a quarterly breakdown of both revenue and cost of revenue by line of business for the last two years in our fourth quarter press release. My comments here will be limited to the current quarter with the comparative figures from fiscal 2006.

Gross margin from domain registrations for the fourth quarter decreased to $2.9 million from $3.3 million for the same quarter of fiscal 2006 and reflects the competitive nature of the domain registration marketplace. As Elliot mentioned, we are encouraged by the results we achieved in our first full quarter with the new pricing in place and expect to see a steady improvement in the dollar contribution from domain registration.

Gross margin for the domain portfolio business for the fourth quarter increased to $700,000 from $500,000 for the same quarter of fiscal 2006, primarily a result of our larger domain portfolio and a better yield we are receiving from our new advertising partner.

Gross margin for e-mail services was $1.4 million, compared to $1.8 million for the corresponding quarter of fiscal 2006. The decline was primarily the result of our proactive sales effort having been placed on hold while we completed the development of our new platform. As Elliot mentioned, our sales team re-engaged during the fourth quarter and are working towards building a strong sales pipeline.

Gross margin for the retail segment of our business for the fourth quarter increased to $1 million from $600,000 for the same quarter of fiscal 2006. Increase here is primarily due to the acquisition of IYD in July of last year.

The remainder of our gross margin falls into the Other category and, for the fourth quarter, totaled $1.3 million, compared to $1.5 million for the fourth quarter of fiscal 2006.

Total operating expenses for the fourth quarter decreased by 3% to $4.9 million, or 27% of net revenue, from $5 million, or 29% of net revenue, in the same quarter of last year.

Looking at our operating expenses going forward, it is important to bear in mind that a large portion of our operating costs are incurred in Canadian dollars. To give you an idea of the impact this could have, if we assume that the Canadian dollar will remain more or less at parity with the U.S. dollar through 2008, and solely as a result of the appreciation in the Canadian dollar, our 2007 operating expenses in 2008 would increase by roughly $1.5 million.

Core operating expenses, which we define as those costs relating to ongoing sales, marketing, development and administrative costs, decreased slightly to $4.3 million from $4.4 million for the fourth quarter of fiscal 2006. Core operating expenses as a percentage of net revenue decreased to 24% from 26%.

Other operating expenses decreased by $113,000 to $525,000, compared to the fourth quarter of fiscal 2006, the result of a gain of $606,000 in foreign exchange being essentially offset by the following three factors. First, as a result of the acquisition of IYD, we incurred additional transitional costs of $105,000 during the quarter as we continued to transition portions of their platform to our systems. Second, depreciation and amortization increased by $130,000, primarily as a result of higher depreciation related to new computer equipment and higher amortization resulting from the IYD acquisition, as well as the acquisitions we have made in prior years. And third, during the fourth quarter last year, we reversed a contingency for some marketing programs that we had set up in prior periods of $238,000 that was no longer required.

Adjusted net income for the fourth quarter was $660,000, compared to $1 million for the fourth quarter of last year. Net loss for the quarter was $935,000, or $0.01 per share, compared with net income of $156,000, or less than $0.01 per share for the corresponding quarter of last year.

Turning to the balance sheet. Cash, short-term investment and restricted cash at the end of the fourth quarter, compared to the end of the fourth quarter last year, increased by $800,000 to $8.1 million from $7.3 million, and increased by $1.9 million when compared to the third quarter of this year. This increase in cash primarily resulted from our generating $2.7 million in cash flow from operations during the quarter. This was partially offset by investing $315,000 in acquiring additional computer equipment and in our paying $479,000 of our credit facility with the Bank of Montreal in accordance with the term of the loan.

I would also like to note that, outside of a minor use of $133,000 to fund cash flow from operations in the September 2006 quarter, this was our 25th consecutive quarter of positive cash flow from operations.

Deferred revenue at the end of the fourth quarter grew to a record $50.6 million, up 12% from $45.1 million at the end of the fourth quarter of fiscal 2006, and up 2% from $49.8 million at the end of the third quarter of this year. As noted last quarter, I would like to reiterate that the negative impact on deferred revenue that we will experience from the price reduction on wholesale domain names will be partially offset by the additional contribution to deferred revenue from the IYD acquisition.

I would now like to turn the call back to Elliot.

Thanks, Mike.

As I said before, we are extremely pleased with the progress we made during the fourth quarter. While we experienced some challenges during 2007, our business is solid, and we made a number of strategic decisions to better position the company for continued long-term growth. And even with those challenges, we were able to deliver record revenue and cash generation. We believe, in 2008, all of these positives will accelerate these trends.

Our growth plan is simple. We plan to unlock the value already present in our business. Our goal is to drive growth from within the business. Through a variety of new initiatives in our four key lines of business, we believe we can drive increased revenue per user within our current customer base. In addition, of course, we will continue to add new customers based on our unparalleled knowledge of services providers in industry-leading customer service.

I will now go over in more detail how we plan to do this in 2008 and beyond.

Domain registration continues to provide us with a strong base of revenue, and as I've mentioned before, is a great driver of new customer relationships. In 2008, we expect this business to continue to grow and feed into our other businesses. Using IYD as a model, we expect to launch a hosted storefront option that will make us much more attractive with very small resellers looking for simple and easy options for selling Tucows' services. We also plan on making fundamental enhancements to the user experience for our customers and their end-users alike.

As I said before, we see tremendous value in our domain portfolio. First, we believe we will see accelerated growth driven by higher ad yields on our growing inventory of direct navigation names and our relaunched Parked Pages Program.

Second, our new tools which allow us to grade and segment our inventory of domain names will enable smarter decisions in domain transactions and, therefore, more and more profitable transactions.

Third, we are seeing traction in the sales of our brandable names at higher prices, often in excess of $10,000. We are not breaking out the sales of this type at this time, but the traction is there and we believe it will continue.

Finally, we expect to continue the sale of domain assets in bundles that we commenced last year. We are very focused on increasing the number of transactions across all of these segments. We expect the domain portfolio to be our fastest-growing line of business and to grow as a percentage of our total business.

In our e-mail business, we expect our recent and coming enhancements and a high level of customer service provided, in combination with our resellers, to drive increased adoption. As we all know, e-mail remains the most important web service. When our resellers outsource their e-mail to Tucows, they're able to avoid the headaches that come from managing their own e-mail service and are then able to focus on other elements that are truly important to their customers. In addition, the headache of managing their own e-mail service becomes greater every quarter as storage, anti-spam and webmail demands from their users increase. As I said before, we have a strong sales pipeline, and our sales force is energized. Just this week, we relaunched our anti-spam service and will again be offering this on a stand-alone basis. We expect this to be an important gateway offering for service providers who are not yet ready to outsource their complete e-mail systems.

Later this quarter, we expect to launch our Personal Names service, based on the surname portfolio we acquired from NetIdentity. We believe this will take our e-mail business to the next level. The internet continues to become a more central part of people's lives. Things like online banking, Facebook and Google maps have fundamentally changed the role that the Web plays for people, yet the way people use domain names and e-mail is essentially the same. In 2008, this will start to change and Personal Names will be an important part of this.

In the retail business, we are working on enhancing and unifying the three existing retail sites, two of which have come to us through acquisitions. In 2008, we will bring all of these customers under a single brand with a much-improved customer experience. We will be taking three older properties and benefiting from current tools and technologies to improve retention and new customer sign-ups, leading to improved growth and profitability.

In regard to our other de-emphasized businesses, such as our content business, we are exploring strategic alternatives to maximize their value to the company and to the shareholders and will discuss developments in this regard as appropriate.

In summary, just as the internet is always progressing and growing, so is Tucows. We continue to enhance and improve all of our services to build growth from within our current customer base, as well as to grow that customer base. We expect 2008 to provide solid growth over 2007 as our many new initiatives gain traction and our e-mail system investment is finalized. We will continue to be innovative with our domain portfolio and in pushing the boundaries of this emerging market. All of this is with an eye towards increasing our cash generation. We will look to use our cash to pay off debt as well as buy back our shares, as we believe our stock represents tremendous values at current values.

In short, we are focusing on unlocking the value of our business for shareholders.

With that, I would like to turn the call over to the operator for questions. Operator?

Thank you. Ladies and gentlemen, we will now conduct the question-and-answer session. (OPERATOR INSTRUCTIONS.) Your first question comes from Thanos Moschopoulos from BMO Capital Markets. Please go ahead.

Hi. Good afternoon.

Hi, Thanos.

Hi, Elliot. Just starting off with a question on the revised segmentation. The Other category -- is that almost entirely the content business, or is -- what else would be in there?

No. There's also the search business and the SSL business --

Right.

The billing business and then a few odds and ends.

Okay. Would -- it would be fair to say, though, that the majority of that would be the content business? Or not even?

No.

No?

Would you say the majority -- it'd be a big chunk of it, but -- no. Both the search business and the billing business are seven-figure businesses. The reason that we are putting them in there is because we really want to make it easier for investors to kind of focus on the key lines of business. When we originally sort of used that categorization of Other Internet Services starting three, four years ago now -- and probably back in 2003 -- we had a view that -- certainly that it was important to diversify away from domain registration revenue and that that diversification would come from a number of different services. As it's evolved, really that's primarily e-mail, especially when you take domain portfolio and retail and look at them separately. So it's really just to sort of try and make it easier for folks like you to follow the business.

Okay. And [I appreciate that]. You [appreciate] the increased data specifically, too, on the cost of goods side. I guess on the premium domain side of things, how do we think about growth as far as -- sequentially, should that be sort of linear, or is it going to be just very lumpy as some of your initiatives kick in? I guess it's probably very hard from a (inaudible) perspective, but if you can provide any color around how you think that might evolve?

Yes. So I think there's probably two comments I'd make there. One, certainly for the next, I'd say, four to six quarters, I would try and look almost at a trailing four quarters number.

Okay.

There -- I think that'll be an easier way to follow it rather than kind of a quarter-on-quarter, or even a quarter to the previous year. And the reason I say that is if you have that $3 million sale like we did in the second quarter of last year, it's going to skew that analysis. So we're really very focused in turning those $3 million lumpy sales into much more repeatable sales. And, by the way, the buyers in the industry are quite open to that. But both us and the buyers are blazing new trails, so that's going to take some time to play out. So I think, certainly for the next four quarters, that's probably the way I'll look at it, and I think we're all motivated to have this be a little bit more smooth.

Okay. And would you say that a sale of that magnitude would not be an aberration, that we would -- we could be looking potentially at other sales of that size in one bundle?

I would tell you my preference would be to have the absolute levels over the course of a year certainly higher than that. But boy, I'd probably rather have three separate million-dollar sales than one $3 million sale, just from a smoothness perspective. I'd like to get -- and we're trying to and working, again, to just get some pretty regular rigor into this stuff. The buyers on the other side here, Thanos, tend to be -- it's not sort of typical domainers. It tends to be professional money. And, as you know, professional money likes rigor probably more than we do.

Right.

So we think folks are open to that approach.

Okay. I missed the number that Mike gave earlier as far as the renewal costs in the quarter?

Say that again?

The renewal costs on the -- your domain portfolio. Was that $171,000 or was it?

That's right.

Okay. Okay. As far as -- one-time cost in the quarter was essentially the $606,000 ForEx gain and the $105,000 traditional cost -- would that be it as far as one-time costs?

Yes. That's pretty much it. You've -- I think you hit on all of them. Yes.

Okay. And then from a foreign exchange perspective, what does your forward position look like at this point?

At this stage, we do not have any contract in place and we're evaluating that as we speak.

Okay.

I think it's a pretty dynamic situation and maybe off-line you'll give us your views.

Okay. So that would imply, though, that since the [forwards] came off, we're going to see a sequential increase in OpEx just reflecting what the current spot rate is?

Yes. That's why I made that --

Yes.

(Inaudible) on the Canadian dollar. I wanted you to be cognizant of it.

Right. Okay. As far as the relaunched anti-spam service --

Yes?

And then your comment that you'll be relaunching the surname business, can you provide just a bit of color as to what's new there?

Sure. So you may or may not remember that back around the second quarter, we had some problems in the anti-spam business, and frankly, it was something we were all unhappy with and embarrassed about. We pulled back from there and we said, "You know what? Let's just do this right." And we had built -- if you went back to kind of late '06, we had actually built a nice little anti-spam business, and we, again, as I discussed in the second quarter of last year, pretty much blew that up, and it was a real shame. So what we have now done is we've relaunched it. We launched it appropriately. It's beautifully integrated with the new e-mail platform so that if you're an anti-spam customer, you're actually using a virtually identical interface -- web interface -- to check your junk folder -- to check if there's false positives that are report [things], etc., which makes the move from kind of that anti-spam to becoming an e-mail customer very, very easy and very painless. You'll be in a very familiar environment. So we really like what we've done there. And the filtering is performing very well. When it comes to the surnames, that wasn't a relaunch; that's a launch. So this is the first time when we do this -- which should be this quarter -- that we'll be making those surnames -- the first name @ last name.com e-mail address or first name.last name.com webspace available at a wholesale level.

Okay.

So we're really, and always have been, very excited about making that available across all of our customers.

Okay. So that's the launch to the channel. Okay. Gotcha.

Yes.

Okay. I think the only other question I have. The ICANN rules -- the change in domain [casing] --

Yes?

No real impact to you guys, is there?

No.

I didn't think so.

No. None. And we kind of applaud that move. I'll be down in India next week and I'll be very public about my support for it.

Okay. Thank you. I'll pass the line.

Thanks.

Your next question comes from Aram Fuchs from Fertilemind Capital. Please go ahead.

Yes. I was wondering if you'd talk -- e-mail tends to be very sticky, which is a good thing for customer retention but a bad thing for sales. How do you really overcome the fact that the switching costs are pretty high, especially to your customer and to the end customer?

Yes. So remember that for us, when we're going to be replacing an in-house e-mail system, there really is no new customer to win. So for the bulk of our customers, they're providing e-mail today, they're giving it away to their customers as part of a bundle and their customers are not using it. So all we're doing is we're putting them in a position -- we think at least sort of cost parity, and often, it'll be even less expensive to outsource to us than to run it themselves -- that we'll put our customers -- the service providers -- back in a position to get the end-users to actually be using their e-mail again. So there's no -- the switching there -- it's -- somebody's running an in-house system, Aram, and we're actually migrating it. So if they have IMAP stores, they are migrated. Their users go to sleep one night, they wake up one morning and it's new webmail and it's all the same IMAP store. So that is relatively painless. We don't need that kind of -- because you're right. At an end-user level, it's a very difficult thing. And we also think that -- five years ago, six year ago, boy, I remember really clearly the first deck I ever kind of spoke to investors about with domain registration -- I'm going back now to March of 2000. I remember one of the questions I would get would be, "Who's going to buy all these domain names? Where's all this growth going to come from?" and I would show people that there were businesses -- there were lots of them in 2000 -- who would be -- real professional businesses who would buy a full-page ad in Time Magazine or some other very expensive piece of advertising. At the bottom of the ad would be companyname@hotmail.com. And I would pull that ad out and I would say, "This is embarrassing to me today, and I promise you that two, three, four years ago, no self-respecting company will ever have something like this on an ad." I think that we're going to see the same kind of migration around people and personal use. And I think that five years from now, individuals will have that same identity on the internet that we saw that company migration happen. And boy, all that's going to change the way that e-mail's used.

Right.

I hope that wasn't too long an answer for the question, Aram.

No, it's not. And your optimism, based on your strategy -- I'm curious about your optimism on the strategy of owning the domains. The market -- public markets -- have really not given credence to the strategy, either with Tucows or you can look at Marchex that's just about selling below its cost on its massive domain portfolio. So one, I'm wondering why you're so optimistic, and two -- it's something I brought up in the past. It'd be great if you could give -- I'd appreciate the detail on the business line items. It'd be great for you to give detail on the balance sheet -- the main portfolio that you own, beyond the surnames.

I don't understand that last bit. Are you saying to provide some visibility into the portfolio?

Yes. We want to know what properties you actually -- what domains you own.

No. So let me kind of -- I'll take the second one first. I agree and we will.

Okay.

Let me make that real simple.

Okay.

And happy to kind of get with you offline and talk about what you'd like to see.

Okay.

You said why so optimistic? Markets don't seem to be rewarding. What I think that -- I'll speak to both of those issues. You talked about us; you talked about Marchex. I think with Marchex, I don't believe that that is about valuing the portfolio. I don't want to -- I think that their positioning was very much around a bunch of other things other than their portfolio, and I -- boy, I'm not familiar enough to -- with it to say it's valued or not, but I definitely -- I haven't seen their positioning as being portfolio-centric at all. I think it's very much kind of advertising-centric and much broader in the way they're positioning it than kind of their direct navigation revenue. And with us, I just don't think people know what we own, Aram. And I think that goes to your second point. But I -- you -- what hasn't the market given us any credit? Because I don't think the market realizes (inaudible). And that's a big part of what we're trying to change here with the change in reporting, with the change in disclosure and with the way that I'm talking about it.

And -- but the optimism -- is it based on cash flow you're seeing from that portfolio?

At the end of the day, we're going to be judged by the cash we generated, and I think these things are incredibly lucrative.

Right. Okay. And then the strategic alternatives for the -- to the content business. How far along -- I know you're limited on what you can say, but maybe just give us a little more color on what you -- with what you feel comfortable with.

I think that the Tucows software library's still the second largest distributor of software on the internet. A great bold property with some fantastic search engine juice, a bunch of other things, loyal customer base. Great assets there. And just where the business is -- we just think that they're probably more valuable in somebody else's hands than in ours. And that's the way that things evolve. How far along are we in the process? I think I'd say, "Boy, not a year has gone by when I haven't had interest in the property from any number of people -- sometimes the same people over and over." So I'm very focused on unlocking value. I think that -- when I talk about unlocking value, I think we have assets, not just the content business, that not only are unrealized but that the market doesn't give us credit for, and I'm really, really head down around dealing with that.

Great. Thanks for your time.

Thanks.

Your next question comes from Warren Derilak from Morgan Keegan & Company.

Hi, Elliot.

Hi, Warren.

I guess in listening to that [list], the best way of quantifying some of these hidden valleys is, I guess, by just some of these things occurring, and you're highlighting sometime in '08, some of these -- we'll get more visibility on those types of transactions.

When you're on my side of the table, you always wish it was yesterday. When -- and like anything, we're -- it's about a right match between buyer and seller. I think I'd be disappointed if nothing happened with these assets in '08. I'm pretty comfortable that's not something I'm going to have to worry about. At the end of the day, I'd also be really clear, though, that we are in a great position as far as seller goes. We've got some valuable things that we don't have a gun to our head around selling. We don't need to sell them to in any way fund the business or to deal with our debt or -- so there's no -- we're doing it because it's about unlocking shareholder, value not because we need the cash. So if we can't find the right buyers, we won't do anything. All that being said, I'd be surprised and a little disappointed if something didn't happen this year.

And can you give any guidance in the line of revenue, earnings, cash flow for '08, specific to the first quarter and beyond? I think last year, you gave some general guidance that helped -- or are you not emphasizing those areas to look at as much as some of these more tangible values that you're trying to realize?

It's less about that. I think that reason -- we've never given guidance historically, and the only reason that I did last year was because I wanted to kind of do a little bit of the math for people around some of the acquisitions we made. The only guidance I'll give you here around revenue, cash flow and -- what was the third thing?

Earnings.

Earnings. They'll all be up. So I'm real comfortable going there. At this point, we're not saying anymore. I think you'll be happy with all of those.

Thank you.

Thanks, Warren.

(OPERATOR INSTRUCTIONS.)

Thanks very much, operator. We'll see you all again next quarter.

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. Please disconnect your lines.