Ladies and gentlemen, thank you for standing by. Welcome to the Tucows Incorporated fourth quarter results conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions]. As a reminder, this conference is being recorded today Thursday, February 8th, 2007. And now, I would like to turn the conference over to Ms. Leona Hobbs. Please go ahead.

Thank you, operator. Good afternoon, everyone, and thank you for joining us for today's call. With me is Elliot Noss, our President and Chief Executive Officer; and Michael Cooperman, our Chief Financial Officer. Today, following market close, Tucows issued a news release reporting the Company's results for the fourth quarter and fiscal yearend 2006 ended December 31st, 2006. The news release and other information for investors is available on our website. 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 could 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.

Thank you, Leona. Good afternoon, and thanks for joining us today. Today's call will follow our usual format. I'll begin with an overview of the highlights for the fourth quarter and the fiscal year. Mike will then provide a detailed review of our financial results. And finally, I'll return to talk about a fairly significant evolution that has taken place here at Tucows and in the marketplace over the last year. But first with the financial highlights for the quarter. Our continued strong financial performance in the fourth quarter capped off a year of significant momentum across all aspects of our business. Revenue for the quarter grew to $17.2 million, another record, and a 36% increase over the fourth quarter of 2005. It was our 16th consecutive quarter of revenue growth adjusting for the onetime accounting transaction in the third quarter of 2004. Net income was $200,000, our 18th consecutive quarter of profitability, excluding integration costs that we incurred in the first half following the acquisition of Critical Path. Cash flow from operations for the quarter was also a record at $3.9 million, our 21st consecutive quarter of positive cash flow from operations, excluding our use of cash last quarter to fund changes in working capital. Net deferred revenue, or deferred revenue less prepaid registry fees, increased almost 12% compared to the same point last year. Advertising revenue was almost $1.4 million, an 8% increase quarter-over-quarter and an 80% increase year-over-year as we continue to see strong growth in our direct navigation business. On the cost side, I would like to note that during the fourth quarter we did begin to see some of the cleanup in the operating expenses that we talked about last quarter. Looking at our results for the fiscal year, revenue totaled $65 million, an increase…

Thanks, Elliot. As Elliot explained, we carry the momentum we experienced across all areas of our business throughout 2006 into the fourth quarter, which enabled us to exceed our target of $7 million to $8 million in cash flow from operations to the year. It also contributed to our 16th consecutive quarter of revenue growth as well as another quarter of strong cash flow from operations and continued growth in our deferred revenue balance. Net revenue for the fourth quarter increased 36% to $17.2 million from $12.7 million for the corresponding quarter of 2005. Net revenue from domain registration and other Internet services increased by $3.9 million or 33% to $15.8 million from $11.9 million for the fourth quarter of 2005. Contribution to total revenue from other Internet services for the quarter increased to 24.2%, up 9.3% in points from 14.9% for the fourth quarter of 2005. Revenue from domain registrations, which you will recall as of third quarter excludes demand reg, was up 16% year-over-year, however, accounted for only 67.7% of total revenue, down more than 11 percentage points from 79% for the fourth of last year. The primary driver for the shift in revenue mix from domain registration to other internet services revenue is primarily the result of the contribution from hosted e-mail services. Revenue from other Internet services, excluding Domain Direct, accounted for 18% of revenue compared to 7.6% for same quarter of last year. Revenue from advertising and other content sources for the fourth quarter increased 80% to $1.4 million from $772,000 for the fourth quarter of fiscal 2005. Please remember that advertising and other content source revenues include the contribution of direct navigation revenue, which accounted for $538,000 of this growth. Excluding direct navigation revenue, advertising and other content source revenue grew 10% compared to…

Thanks, Mike. Most important development for Tucows in 2006 was the evolution of hosted email as a clear second pillar for the Company. In fact before 2006, email made an insignificant contribution to the Tucows business. In 2006, the contribution split between domain registration and email was roughly two-thirds, one-third. And certainly, we expect growth in hosted email to continue to exceed growth in domain registration going forward. 2006 saw three acquisitions either directly or indirectly related to our hosted email service. We've developed a new platform that sets up technically for the future we envision. We had important customer wins through the course of the year. And all of that is an addition to the biggest asset that we bring to the table in terms of addressing this market, which is the strongest set of customer relationships with web hosting companies and ISPs in the world. 2006 was a very interesting year for e-mail, in terms of the competitive landscape. It is the case today. The best providers of e-mail in the world are those that provide free e-mail. There are also high-end corporate e-mail services. None of those are delivered with very few exceptions by or through service providers. And service providers are the companies that provide support at the customer level, but the small business and individuals that actually use e-mail. 2006 was a very important year for e-mail as a service more broadly. I’ve been in this industry for over a dozen years now. And for the first time ever, I’ve heard power users -- people that I would consider experts, agree with me and lament that e-mail is in many respects broken. What these people are referring to is a degradation in reliability, a degradation in deliverability and a degradation in the user experience. All of this is caused to a great extent, but the massive increase expand and efficiencies. As well as the huge additional demand put on e-mails systems by today storage requirements and webmail requirements. At the same time, e-mail has become and is by far the most important communications tool in the world today, even more important than the telephone. All of this, our evolution at the company level, the evolution in the competitive landscape. The evolution in peoples’ experience with e-mail combines to create a huge business opportunity that we are uniquely positioned to address over the next couple of years. With that I would like to open the call for questions. Operator?

[Operator Instructions]. Our first question comes from the line of Thanos Moschopoulos with BMO Capital Market. Please go ahead.

Hi. Good afternoon.

Hi, Thanos.

Elliot, first on the OpEx size, so to clarify the 500,000 loss per month, the foreign exchange contract that was in the G&A line?

Right.

Okay. So that means on a sequential basis in Q4 relative to Q3 we saw a resizable decline in sales and marketing as well as SG&A taking that out. Would that primarily be due to bit of currency?

You know, when you say that I don't think we passed it out. But there is one such a big move over the back half of the year. You know, I think you're going to see little bit of that coming from currency. But you are also starting to see, you know, just a little bit cleaner operations. You know, I talked in last quarter about the fact that some of the integration cost that hung around.

Right.

And you know some of those are now started to come clean. You know, I think, I mentioned also last quarter. You know, I don't like to kind of hide those up. We said we're going to be through with that in the first two quarters. So we took that in as, you know, kind of a normal operating expense. And I just think you are starting to see some of those benefits there.

Okay. So in the near-term with this source of levels of operating expenditure will be kind of representative of what you would expect?

Yes.

Yes.

Yes. And would be just declining, I mean it's not continuous decline. I think you have to be comfortable that we're going to be getting, you know, that we are seeing that place were, you know, I go back to my old metric of build gross margin growing, a twice the rate of OpEx.

Right. Okay. As far as the new e-mail platform, have you [certainly] got a pause and trying to pursue the large new e-mail opportunities while preparing for the launch of the new platform or has that proceeded being parallel while your doing this?

You know, frankly, we did that through the fourth quarter at least. You know, as we were -- yes, we're pretty pristine with our customer relationships. And as, you know, for us we think the biggest opportunity was this and will continue to be with the huge existing set of customers that we have. So these are people traditionally or you know, in domain that we have relationship with already. And if we didn't have confidence and you know frankly, to fourth quarter we didn't. You know, so we were coming out the other side of this. We were slowing things down and putting them on a pause. And believe me that's a very, very difficult thing for a company to do.

Okay. I'll take some of the usual metrics that you disclose out. What were the -- at yearend the total domain for the management?

I've the -- total domains that we had in the management of end of the year was $5.9 million -- held directly and 1.7…

that's 1.8, 1.7 --1.8…

1.7 or 1.8 for, I'll just look it out.

Indirect…

Or indirect.

Okay. And the number of transactions?

Don't think we've reported that in a bit. Probably, that for the last two or three quarters.

All right. That wasn't the -- okay, I thought I had that consistently give you some of the…

We can price -- bring it up for you. I mean we have not, you know we've not.

Yes.

But if we can, we'll share it.

Okay. And then, Mike, you talked about -- we're seeing some of the ongoing margin compression in the domain registration business. Is that sort of proceeding kind of at the expected rate? Have there been any significant changes competitively or just sort of the ongoing competition we've seen over the past few quarters?

I am -- there's nothing new there. You know, you'll see that the numbers there actually came in towards the top end of -- you know, you'll remember hearing me say, looking at 2006, 12% to 15% in units, kind of 8% to 12% and 1 point or 2 down in margin and 8% to 12% in actual [built] gross margin actually lowers. And I think we came in at 14 and 11, so sort of towards the top end is exactly what we expected. You know, one of the other things that we're seeing there, Thanos, you know, you remember we talked in the past about the way over the last couple of years, we've started to price with our large customers --.

Right.

--which was to make sure that we, you know, loft in the current rate of business and provided a relatively speaking lower transaction cost on incremental business.

Great. That's fine.

That does create [certainty] for us and still capturing some of the upside.

Great.

You know, you're starting to see a number of those deals where we're actually seeing that incremental transactional business, which is much lower than the average margin.

Okay.

Yeah. And we're thrilled to keep it in the door, but its going to bring that blended number down.

Okay. As far as CapEx, I think you talked about how you'd expect '07 CapEx to be less than this year, so is that's all the case?

Yes. Absolutely.

Okay. And as far as the buyback, should we take that as an indicator that maybe in the near term, you're less focused in acquisition opportunities or you're still actually looking at things?

You know, I think no more or less active than we've being historically. You know, you've heard me say a couple of times that certainly with the two bigger acquisitions in 2006, those were things that we had been keeping an eye on in form or another for years.

That's great.

So I'm answering the phone when people are calling and they always are. But it is the case that, you know, we take integration serious. We definitely want to be simplifying operations, you know, after picking up some complexity last year. And you know, there is not a lot of value out there. You know, we think that on a relative basis, the buybacks looks to be just capital.

Okay. Fair enough. That's all. Thanks, guys.

Great. Thanks, Thanos.

[Operator Instructions] Our next question comes from the line of Madhu Kodali from Fertilemind Capital. Please go ahead.

Hi. This is actually Aram Fuchs from Fertilemind Capital. I was wondering if you can talk about your e-mail offering in the context of the competition from Google's Gmail and Google's web AppSphere demand --?

Sure.

And maybe if you can also talk about the calendar acquisition that you gave and where that fits in? Thanks.

Sure. I think that the way you want to think about relative to email, you know, you heard me say on the call, that in my view, the best providers of email currently in the market are some of the biggest, I certainly put are some of the biggest free services. And I certainly put Gmail in that category. You know, I don’t believe that there is a comparable service coming today, from the hosting or ISP market. That’s exactly where we want to take this. Now, you’ll always see a distinction between what Gmail is doing for instance. You know, as an example, same thing about Yahoo mail or Hotmail. And what we’re doing in, you know, the primary differentiator is going to be, that those are and will continue to be as supportive, unless you’re paying for it. For us, you know, we’ve reviewed that at a, you know, at a very reasonable price are included in a bundle services. The people are already paying for it. Today, they would prefer not to have advertising around their email. In addition the second, you know, I’ll have to say how it is important differentiator, is when it’s being delivered end-to-ends through our customer for the end-user. You’re also going to be able to make recourse to support. And people need help using internet services. And that is something again, that the Google's, the yahoo's, the Microsoft's in the world just don't do. I mean, it's not part of there business model, it's going to knock on them. And I don't want you to hear me saying that, you know, there is no room for free email services there of course, will continue to be a huge portion of the market serviced by those services. And I think there is much more room than is being experienced today for commercial e-mail services. You know, I think, with respect to the calendar, you know, that's one of the additional kind of usability and better user experienced developments that you have to see through the year. So, you know, we've now had some time to digest that. We get pretty deeply through the code. We know we want it to look like, I don't think you will see it in the first iteration. And that's just because we think that there is lower hanging fruit, you know, that we need to get to first. But we absolutely think calendaring is a really important part of that e-mail and communications experience.

Okay. Great, thanks you. And just one follow-up question. Is there any push, do you feel any push to integrate wireless plus e-mail onto your conventional corporate e-mail business?

I think that -- I'll speak of the user first. And I'll tell you that, you know, I don't like having multiple e-mail boxes that I access using multiple ways. For me -- as a user, my goal in communications would be to have a single means of access in all of my communications. So you know, I think that as it relates to the product development path, naturally it would make sense to me that there is something at a mobile level. It's what I would want as a user, and we try to be responsive to what users' needs are.

And then actually an unrelated question. There has been some M&A activity in the domain auction space and you have a service there. And I was wondering if you can comment on looking back on the development of the auction to what do you think we did right and wrong and what the prospects are of Tucows' auctions?

One of the things -- and if I recall correctly, you and I chatted something about this. You know, we felt really that auction specifically was not going to be the most important part of what we were doing in the secondary market going forward. You know, we really think the biggest opportunity for Tucows is in facilitating what I would call a more efficient to be in the marketplace. You know, we're now through [with all the] subsidiary a fairly large holder of names. We also feel most importantly here that we have, you know, if not the best, certainly one of the two or three best what I would call demand streams from small businesses for domain names. And a small business is looking for domain name. They are not necessarily looking for only a name that is available for registration for the first time. They are looking for a name. And we think there is a huge opportunity in bringing a lot of efficiency to that market. And it's -- you know, it's not one where we're going out and trying to conquer the world or really even go outside of our world. You know, we think that inside of the existing Tucows distribution network, there is a huge amount of small business demand for domain names in the primary and the secondary market. And we think if we do nothing more than fulfill the demand of sitting in our distribution channel, we'll be accomplishing some pretty big things.

Great. Thanks for your time.

Thanks.

Thank you. And at this time, it appears there are no further questions.

Thank you, operator, and look forward to speaking to all again next quarter.

Thank you. Ladies and gentlemen, that concludes our conference for today. Thank you for your participation. And have a great day. You may now disconnect.