Executives
Leona Hobbs - Director, Communications
Elliot Noss - President, Chief Executive Officer, Director
Michael Cooperman - Chief Financial Officer
Analysts
Thanos Moschopoulos - BMO Capital Markets
Steven Wolfe - Platinum Partners
Tucows Inc. (TCX) Q3 2007 Earnings Call November 6, 2007 5:00 PM ET
Operator
Good afternoon, ladies and gentlemen. Welcome to Tucows Inc.’s third quarter fiscal 2007 results conference call. (Operator Instructions) I would now like to turn the call over to Leona Hobbs, Director of Communications for Tucows Inc. Please go ahead, Ms. Hobbs.
Leona Hobbs
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.
Earlier this afternoon, Tucows issued a news release reporting the company’s results for the third quarter of fiscal 2007 ended September 30, 2007. The news release and other information for investors is available by going to about.tucows.com and 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 Noss
Thank you, Leona. Good afternoon and thanks for joining us today. For today’s call, I’ll begin with an overview of our performance and some of the highlights from the third quarter. Mike will then provide a detailed review of our financial results, and I’ll close the call with a discussion of the significant growth opportunities in front of us before opening the call up to questions.
Let me begin with the financial highlights for the quarter. Cash flow from operations remains solid at $2.3 million, marking our 24th consecutive quarter in positive territory, subject to the caveats I’ve discussed on previous calls.
At the bottom line, adjusted net income was $1.1 million and we incurred a net loss of $300,000. However, this does not include roughly $250,000 of integration costs following the IYD transaction.
Revenue for the quarter grew 6% to $17.8 million compared to the third quarter of last year. Despite the price decrease in traditional domain names and challenges around advertising revenue, which I will discuss later.
Now, let me dig into the quarter in a little more detail. I’ll begin with our traditional domain registration business. As we discussed last quarter, we made a strategic decision to implement a significant price reduction on wholesale domain names, which we believe was the right thing to do for the business over the long term and that we expect will bring back increased growth, certainly in terms of units, but also likely in terms of dollars.
We knew when we did this that it was something that would be very expensive in the short term but that the return over the long term would be worth it. Early returns on that decision have been positive.
We have seen an increased level of new customer sign-ups. They are up 15% compared to the third quarter of last year and up 55% compared to the second quarter of this year. In addition, our renewal rate was up from a little over 69% to nearly 72%.
Before the price cut, when we would speak to potential customers -- in other words, those doing business with our competitors, they would tell us that they would prefer to be doing business with Tucows because of our focus on service providers and because of the way we handle our customer relationships, but that we simply weren’t competitive enough around price.
We are now much more price competitive and the feedback we have received since we announced the price cut has reinforced our belief that we made the right decision. It is worth noting that even with the price cut, gross margin dollar contribution from domain registrations for the third quarter was still flat year over year.
While it’s tough to identify with precision, we believe that but for the price cut, gross margin would have actually been up in the 10% range year over year and that would land inside our traditional view of 8% to 12%.
We again have started to market our traditional domains offering. We are talking to current and prospective customers about the price cut, the benefits of our cost plus pricing model, and other benefits we provide. Frankly, our position in the market is unique and we’ve got more work to do to educate our existing and prospective customers about these other benefits, and are in the process of doing so. We have undertaken to do a much better job of messaging around this.
All in, we are excited about our ability to re-energize this business and drive growth in the traditional domain registration revenue.
In our non-traditional, or emerging domain names businesses, we are continuing to execute on our plan with three revenue streams from which to drive growth. With respect to direct navigation revenue, our results for the third quarter were somewhat disappointing primarily, as I have lamented in the past, because our Google yields remained depressed.
As many of you know, in August of this year, we brought in a senior resource to head up that line of business and one of his first tasks was to look at our existing suppliers to look at what was available across the industry and to engage in a process to find a much healthier supplier relationship. That process has concluded and we are very pleased with the choices we have made.
We believe these changes can have an immediate short-term impact on our parking revenue, not only through the last month or two of this year but more importantly through the course of 2008 and beyond.
We have chosen to proceed with multiple suppliers and to have more flexibility in our supplier relationships. This is a very dynamic industry and changes are both rapid and difficult to predict, and we felt that this flexibility was critical to allow us to be in a position to take advantage of the best opportunities at the right times.
With respect to agency fees derived from premium names, the third quarter was our first full quarter with this service in the marketplace. We now fully expect that this line of revenue would be growing.
We have said in the past that the important work for the second half of 2007 and through 2008 is that of driving adoption through our channel. We spent the quarter communicating the opportunity to our larger customers and the feedback has been extremely positive.
We now have to work closely with our customers to help them roll out integration with premium names and to look for ways to make it easier for them to integrate.
In our e-mail business, our new e-mail service is now comfortably in the market and we now have what I believe to be the best sales team we have ever had in the history of Tucows. They are aggressively working at building a pipeline and are starting to experience the first benefits of that work.
We always knew and have talked about that selling hosted e-mail was a 120 to 180-day sales cycle and we are just now starting to come out the back end of that cycle. We are making real progress in migrations from our older e-mail and anti-spam systems to the new systems. This migration serves two purposes that are of importance to investors.
First, of course, the new service provides a much better experience for all of our existing customers, and second, the migrations will allow us to significantly reduce our data center footprint.
For all of this year, we have had to carry the cost burden of multiple systems. Moreover, the largest of these systems reside on old hardware, which is extremely inefficient in its use of power and, as anyone following Google and Microsoft knows, power has become the most important operating variable with respect to data centers.
We expect these migrations to be completed early in 2008 and we then expect to experience benefits at the expense level.
Turning to our retail business, there are two things that I would like to note for the third quarter. First, we successfully integrated the operating assets and customer base from the IYD transaction that closed in July. While we experienced the typical transaction costs that one would encounter in any transaction of this size, the integration went well and was successful.
We believe the integration has set the stage for us to offer affiliate and co-branding offerings, not only to our existing customer base but more importantly, to an additional segment of the market that we have been unable to reach previously.
Second, important progress has been made toward unifying a service offering that right now is split across three separate brands due to our acquisitions. That unified brand will serve as a valuable learning ground.
In addition, the retail business will provide us with an immediate opportunity to both learn from and take advantage of our surnames and premium name offerings.
The one significant disappointment in the quarter was the decline in advertising revenues from the Tucows software libraries. Our redesign has been well received by users. Customer engagement is up, and churn is down. However, the one place that has materially affected revenue is in the money we earn from Google.
We believe that the yield problems that are being experienced industry-wide are part of that, but the majority of the decline is due to the increased usability and navigability of the site, such that now users are not giving up in frustration and clicking on the Google links, either in content or search, but are instead finding what they are looking for.
That being said, these numbers are of concern to us and we have decided to take a hard look at this business to determine the best way to proceed.
I would now like to turn the call over to Mike to review our financial results in more detail. Mike.
Michael Cooperman
Thanks, Elliot. As Elliot discussed earlier, the third quarter was another in which we achieved positive cash flow from operations. It was also one in which our results were dampened by a number of factors, including the impact of the price reduction on wholesale domain names and the declining yields from our Google ad feeds, which as we indicated last quarter, has had a short-term impact on both our top and bottom lines.
Net revenue for the third quarter was $17.8 million, an increase of 6% from $16.9 million for the corresponding quarter of last year. Net revenue from domain names and other Internet services increased by $1.2 million, or 7% to $16.7 million from $15.6 million for the same quarter in 2006.
Revenue from domain registrations increased 9% to $12.3 million, from $11.3 million and accounted for 69% of total revenue compared to 67% for the third quarter of last year.
While growth has been impacted by the price reduction in the short-term, we do believe that we have better positioned this business for longer term growth.
Revenue from other Internet services increased by 3% to $4.4 million from $4.3 million for the third quarter of last year, and represented 25% of total revenue, down marginally from 26% for the third quarter of last year.
Revenue from advertising and other content service sources for the third quarter was $1.1 million compared to $1.3 million for the same quarter last year. As Elliot commented earlier, these results were disappointing and were impacted by the declining yields from our Google ad feeds and, to a lesser extent, the decline in advertising revenue from the Tucows software libraries.
Advertising and other revenue as a proportion of total revenue increased to 6% from 8% for the same quarter last year.
Cost of revenues, including network cost for the third quarter, increased by 19% to $13.4 million from $11.2 million for the third quarter of last year, primarily as a result of higher costs associated with the large volume of domain name registrations and other Internet services of $1 million.
As we have discussed in the past, we have also been steadily building our own portfolio of names and I would like to point out to you that cost of sales for the third quarter of this year also included 144,000 of recognized renewal costs for these names. From an accounting standpoint, we deferred 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 $1 million. As Elliot mentioned, the bulk of the increase in network costs related to the additional cost burden we have had to carry with multiple systems on our data centers. As we continue the process of migrating our customers to our new e-mail platform, we will be able to reduce our overall footprint at our data centers and the associated costs should decline from current levels.
Cost of domain names as a proportion of total cost of revenues, including network costs, were 69% compared to 72% for the same quarter of last year, while the cost of other Internet services as a proportion of costs of revenues was 8% compared to 10%.
Gross margin for the third quarter was 25% compared to 33% for the third quarter of last year and 36% for the second quarter of this year. The decrease in gross margin was the result of a combination of factors, the most important being the effect on network costs that carrying multiple platforms have on our data center costs, the change in sales mix, increased costs associated with our portfolio of domain names, and the impact of the price reduction on wholesale domain names.
Total operating expenses for the third quarter decreased by 9% or $518,000 to $5.1 million, or 29% of net revenue, from $5.6 million, or 33% of net revenue for the same quarter of last year.
Core operating expenses, which we define as those costs relating to ongoing sales, marketing, development, and administrative costs, decreased by $497,000 to $4.7 million from $5.2 million for the third quarter of last year. The decrease was primarily the result of lower people costs as we continued to actively manage our cost structure.
Core operating expenses as a percentage of net revenue decreased to 27% from 31% for the third quarter of last year.
Other operating expenses remained essentially flat compared to the third quarter of last year at roughly $350,000. The result of increases in other operating expenses being offset by a decrease of $398,000 in foreign exchange movements.
The decrease was essentially offset by three factors. First, as a result of our acquisition of IYD, we incurred transitional costs of $244,000 during the quarter, primarily related to transitioning portions of their platform to our systems.
Second, depreciation and amortization increased by $118,000, primarily as a result of the higher depreciation related to our new computer equipment and higher amortization, resulting from the IYD acquisition, as well as the acquisitions we have made in prior years.
And third, our stock-based compensation charge increased by $15,000 when compared to the third quarter of last year.
Adjusted net income for the third quarter was $1.1 million, compared to $1.5 million for the third quarter of last year and included a dividend of $531,000 that we received from Afilias, a company in which we hold a 7% interest. I will note that we do not expect to
receive any additional dividends from Afilias this year.
Net loss for the quarter was $300,000, or less than $0.01 a share, compared to net income of $1.9 million, or $0.03 a share for the corresponding quarter of last year. When comparing profitability between the two periods, it should be noted that the third quarter of this year included the $244,000 transitional costs related to IYD that I mentioned earlier, and the third quarter of last year included other income of $1.9 million related to the contingent consideration associated with the sale in 2002 of patents acquired through the reverse takeover of Infonautics in 2001 that were not repeated.
Turning to the balance sheet, cash, short-term investments, and restricted cash at the end of the third quarter compared to the end of the third quarter last year, increased by $2.4 million to $6.2 million from $3.8 million.
Compared to the second quarter of this year, our cash position was relatively unchanged. This result was due to our investing the $2.3 million of cash flow that we generated from operations, a partial payment of the IYD acquisition. Of this amount, $1.1 million was placed in an escrow account to be held against certain performance contingencies being met by IYD by August 2008.
I would also like to note for you that during the quarter, we entered into a non-revolving reducing credit facility with the Bank of Montreal for $9.6 million that is repayable over five years to partially fund the acquisition of IYD.
Preferred revenue at the end of the third quarter grew to a record $49.8 million, up 11% from $44.7 million at the end of the third quarter of fiscal 2006 and up 2% from $49 million at the end of the second quarter of this year.
Please note that going forward, 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.
In closing, as I have mentioned in the past, I would like to reiterate that our overriding goal for Tucows is to generate long-term growth for the company. It is with this goal in mind that we have taken a number of steps in recent months that, while having an impact on our financial results in the short-term, we believe strongly position us for future long-term growth.
I would now like to turn the call back to Elliot.
Elliot Noss
Thanks, Mike. While we experienced some challenges that have softened our growth in the short-term, when looking at the evolution of our business throughout 2007 and where we are right now, I can’t help but be very optimistic about our future. We have a historical domain registration business that provides us with a good base of revenue, margin, and customer relationships, and we have significant growth opportunities before us in our non-traditional domain names and our hosted e-mail businesses.
As noted in today’s press release, we now expect to generate between $8.5 million and $9 million this year in cash flow from operations. This is due to the softness in traditional domain names in the second quarter, the depressed advertising revenue I mentioned earlier, and the additional costs associated with a more cautious approach to system migrations.
This is not what we had hoped. This business is, the Tucows business is and has historically been very predictable and very reliable. We believe this is still the case and that the future holds great promise.
With traditional domain names, we talked about some of the positive indications we are seeing from our recent actions. I truly believe that this is the best that I have felt about the traditional domain name business and our ability to make gains going forward since 2002 or 2003. It is the case that we are starting to play offense again and doing so with a very clear understanding as to how the traditional domain name business feeds the two high growth areas in the company.
With respect to non-traditional domains, we have only recently been provided with the opportunity to start to engage additional potential sources of supply. Some of you may have noticed that one of our partners, NameMedia, filed for an IPO last year. Their filing provides investors with a better look and a deeper understanding of the business of selling premium domain names. Investors will now be able to appreciate the opportunity and to think about how to get involved.
It is very important to note that while estimates are that anywhere for one quarter to one-half of the dot-com name space, the most lucrative name space in premium names, is held for resale but only a tiny fraction of those names are actually priced in a way that would allow them to be sold as one would expect in an efficient market.
In fact, even in our current [permutation] of premium names, it effectively only deals with names in the $1,000 to $5,000 price range, thus massive segments of this market are still to evolve and be developed.
And I repeat something that I have said before -- what the Internet is most effective at is bringing efficiency to inefficient markets. With this efficiency, every small business looking for a domain name, which means every small business starting out, becomes a much more lucrative opportunity for us and our resellers.
In terms of selling names from our portfolio, we are making progress with respect to pricing more and more of our portfolio so that it can be sold through the premium name service.
Obviously we would rather get 100% of the sale from a name in our own portfolio than 10% or 20% of the sale from selling a third party’s name and we are getting a much better handle on the contents of our inventory. Where that distinction is especially important is in thinking about next year.
Through the course of 2008, as was the case in 2007, on a monthly basis we will be increasing our inventory of premium names in the range of thousands per month. What we will be formalizing through 2008 is a very clear view and process around the rate at which we turn our inventory.
In summary there, we are very excited about the opportunities for non-traditional domain name revenues in 2008 and if 12 months ago I could have seen where we are today, I would have been extremely pleased. In fact, I am very comfortable in saying where we are today has exceeded my expectations for the year.
It’s important to note here that the strategic decisions we made to build our own inventory as opposed to monetizing on a monthly basis through auctions has proven to be the right choice.
With hosted e-mail, we believe the competitive landscape is favorable and our view, which is that our hosted e-mail offering is the one that best allows service providers to compete effectively with Google, Yahoo!, and Microsoft, while providing e-mail without advertising and with a high level of customer service, is properly placed in the market.
This view is strongly validated by Yahoo!’s acquisition of Zimbra for $350 million. Anyone paying attention to what is being talked about in terms of Internet business these days would see so much about Facebook, about Google, and about the battle between those two that has clearly shaped up in just the last couple of weeks with Google’s announcement of it’s open social standards. What these companies are observing and responding to is a significant validation of the way we view the world as it relates to the importance of hosted e-mail to service providers.
The Internet continues to provide greater and greater utility to its users and, at the same time, it continues to be more and more complex, meaning users have a great need for someone to help them.
It is still the case that the center of people’s Internet world is e-mail and that service providers are in the best position to deliver it integrated with the rest of users’ Internet existence. All of this feeds directly into the potential for our hosted e-mail service and our surname offering to be big winners. We think that our place in the market and the assets at our disposal make us uniquely positioned to take advantage of it.
In closing, we have had to deal with some short-term operational challenges. We believe we have identified them, have dealt with or are in the process of dealing with them, and we feel extremely confident in our long-term growth prospects. The momentum we are experiencing in premium names is clear and we expect to start experiencing similar momentum in hosted e-mail.
We believe that both premium names and hosted e-mail are fantastic opportunities that we fully expect will reward investors in 2008.
With that, I would like to open the call to questions. Operator.
Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Thanos Moschopoulos of BMO Capital Markets. Please go ahead.
Thanos Moschopoulos - BMO Capital Markets
Good afternoon. You talked about how customer sign-ups were up 15% year over year following the price reduction. What would it look like on a transaction basis?
Elliot Noss
You wouldn’t see it there because customers would sign up and we wouldn’t have parsed that for, you know, what other transactions that those new customers have done. That would just be a slice of the data we wouldn’t have this early in terms of the results.
Thanos Moschopoulos - BMO Capital Markets
And the reduced pricing wouldn’t necessarily drive -- it wouldn’t change end customer transaction volumes because your partners would keep pricing the same, [you would just get] the benefit, presumably?
Elliot Noss
Well, we do think that this may have been one of the things that positively impacted on renewal rates. So in other words, the -- our working model is that some of our customers did choose to get a little more aggressive on price and hopefully there lose less customers to some of the competition.
Thanos Moschopoulos - BMO Capital Markets
Okay, but in terms of actual transaction volumes, what did that do year over year?
Elliot Noss
We’ll dig that up for you.
Thanos Moschopoulos - BMO Capital Markets
Okay. I guess while you’re digging that up, can you elaborate a bit further about the strategic changes you’ve made on the ad business as far as bringing on new suppliers? I mean, is it a situation where basically we can expect the yields to keep declining and you’ve managed to reduce the slope at which that occurs? Or do you think they might stabilize now? Might there be actually some upside now that you’ve got some new partners on board?
Elliot Noss
I want to make sure that I separate two things there. One is the ad revenue around direct navigation and the other is the ad revenue around the traditional Tucows.com software libraries.
When we’re talking about new suppliers, that’s as it relates to direct navigation. So there, one of the things that we were not able to take advantage of fully in our previous relationship was the ability to optimize. And we will immediately -- and we have very, very early returns and they are quite positive. So we are now seeing click-throughs increase materially and that drives revenue.
We’ll convert that into yield data again probably at month-end. The new relationship started in November, but when I’m talking about those depressed Google yields, those are something we are seeing across the industry with smart pricing and quality scores, and you may have heard that discussed in some other forums.
For us, as it relates to the direct navigation business, I want to make sure that I separate these two things, we think that the new supplier relationships will lead to a near-immediate turnaround and a return to growth.
With respect to the historical Tucows.com business, we really need to take a step back and figure out what next steps to take.
Again, I’m very encouraged on the direct navigation side.
Thanos Moschopoulos - BMO Capital Markets
Okay, and presumably -- so as far as the existing Tucows business, that the yields wouldn’t go up there under new suppliers, just as a function of how that operates?
Elliot Noss
No, because when we’re looking for new suppliers, that’s in the direct navigation business. Remember that what those people are experts at is at optimizing a parked page, a direct navigation page. When you are dealing with something on the content side, that’s the straight AdSense for search or AdSense for content feed. It’s just a typical, kind of ads by Google box you see on a page.
Thanos Moschopoulos - BMO Capital Markets
I guess it’s kind of early to say, given that it happened fairly recently, but what impacts if any are you seeing from the recent increase in ICANN fees?
Elliot Noss
Sorry, could you repeat it?
Thanos Moschopoulos - BMO Capital Markets
The recent increase in the registrar fees, what impact if any are you seeing as far as the transaction volumes and so forth? Has that had an impact on the industry?
Elliot Noss
You know, I’ll be very interested. I’ll be with a bunch of people in the industry next week at an event. We got out -- from our perspective, we got out in front of that. We insulated ourselves with both the change -- with both the drop in price and the change in pricing methodology, so for us, thankfully that was business as usual. Now, you know that we did kind of pay the price for that and we’ve talked lots about that, but we do think that we are now insulated from that going forward.
I’ll be very interested to hear next week what others in the industry are saying.
Transactions, Q306 about 1.2 million; Q307, up to 1.4 million.
Thanos Moschopoulos - BMO Capital Markets
Okay. And I guess turning to something topical, the Canadian dollar, can you talk about -- remind us of your current forward position and then I guess heading into ’08, how are you going to deal with the big increase we’ve had in the currency?
Elliot Noss
We were hedged -- we are hedged through the end of ’07. That’s a hedge we put in place in November of ’06, and so it was very fortuitous. I think us, like a lot of Canadian exporters, are going naked into ’07. I think that what that’s led us to do -- you know, this isn’t news and we’ve seen this coming, obviously, for the last number of months, and so we’ve had to be a lot smarter in the way we think about op-ex. We think that it’s led to a lot of really good thinking and we don’t think it’s going to stand in the way of achieving real growth next year. We’re naked.
Thanos Moschopoulos - BMO Capital Markets
Okay. But I guess -- does that mean that heading into next year, are you going to have to do some cost rationalization or just kind of focus on growing while maintaining a very tight leash on your existing costs?
Elliot Noss
Well, I think that we -- we have already thought through those issues and I think that if you look at our op-ex lines, they are pretty impressive in terms of cost control. We think that that is not only going to continue but get better through next year.
Thanos Moschopoulos - BMO Capital Markets
Okay. Now, Google a few months back entered your space as far as providing services to service providers. Have you been seeing them at all or are they not really pursuing it in a big way from your perspective?
Elliot Noss
We have been seeing little tiny bits around the margins. So we have seen them in one or two customers poking at it, but frankly in the last three or four months, we haven’t seen much. We really think that their big push there will be at enterprise. Believe me, we are keeping our ear to the ground and our eyes peeled, but at the end of the day, they would be much more effective working through somebody like us than against us.
Thanos Moschopoulos - BMO Capital Markets
Okay, and can you dig a bit more deeply on the e-mail business? You talked about how there are long sales cycles there, you are now getting towards the tail end of it. As you start to close business there, is it going to be a slow and steady ramp or is it a situation where you have some large deals in the pipe and it might be sort of lumpy growth, a step function as you sign some of these?
Elliot Noss
There’s always a couple of large opportunities in the pipe, but we certainly are planning around slow and steady growth. We’ve started to write some business now. We’ve started to deal with incoming new customers. There’s a new spring in the step around the sales group.
I think that they have been, as I’ve talked in the past, to a great extent parked in the garage for a long period of time and they are quite happy to be out there hitting it again. And it shows.
It is just -- I mean, it’s a pleasure to see and so I think we will get back to growth and we fully expect ’08 to be a very good year for growth in hosted e-mail.
Thanos Moschopoulos - BMO Capital Markets
Okay. All right. Thank you. I’ll pass the line.
Operator
Your next question comes from Steven Wolfe of Platinum Partners. Please go ahead.
Steven Wolfe - Platinum Partners
I wanted to get your thoughts on some of the new business opportunities, certainly e-mail and premium names being the first real quarter that you’ve seen some of that business now. Can you give us a little bit of insight as to qualitatively, what you saw in the quarter and what your thoughts are for the next couple of quarters in that business?
Elliot Noss
Sure, and again, I think e-mail, I’d repeat what I just said where the guys are out pitching again. They have started to write business, bringing home some meat back to the cave and I think that’s what sales guys love to do, especially good ones. And you know, they are much happier because of it and of course, we are too, so we are feeling like we are on our way there.
In terms of premium names, it’s really -- it’s exceeding expectations. We are seeing all phases of this market evolve and evolve rapidly. Steven, I know you would like to dig into detail. I’d really encourage you to go check out the NameMedia filing. There’s a lot of juicy information in there and it’s really the first time publicly that people have been able to see some of that information.
There’s just great little stories on a weekly basis. Additions to our inventory, this quarter we for the first time sold some of our own names through the premium marketplace. We are working with customers around their integrations there and around driving look-ups. There’s just a ton of learning going on there. It’s become a very real part of this business and one that’s really sprung from whole cloth if you go back to 2006.
Steven Wolfe - Platinum Partners
Certainly asset wise, I mean, you have 8 million domain names under management. How does that compare with some of the other folks in the industry?
Elliot Noss
There we’re -- I think we’re still slightly in fourth, maybe starting to chase third there, but what’s important is that the folks that are bigger than us there generally, and I think it’s true for most of the top six or eight registrars, they have chosen to monetize their expiry stream through auctions.
Now, that choice will always make you more money in the short run because what you have is essentially wholesalers, people like NameMedia, looking through those options for buying opportunities that they can then sell at retail. In other words, sell to a small business who is looking to start up and get a domain name.
We are now seeing the opportunities around selling to some of those business start-ups directly and it’s -- the difference between selling at wholesale and selling at retail is three and four and sometimes 10 times. So we think that the asset that we have, as far as registrars go, is unique, at least in terms of the way that people talk about their policies.
Some people may have been doing some things surreptitiously that we wouldn’t know about and maybe their customers don’t know about, but to the best of our knowledge, we’re the only ones who have built up this asset.
Steven Wolfe - Platinum Partners
All right, well, great.
Elliot Noss
I should note, remember that’s on top of the asset contained in our surname portfolio and in the premium names that we picked up in the NetIdentity transaction.
Steven Wolfe - Platinum Partners
Understood. Well, great. Thanks for the call.
Operator
(Operator Instructions) Mr. Noss, there are no further questions at this time. Please continue.
Elliot Noss
Thank you, Operator and I look forward to speaking with all of you again on our next call.
Operator
Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. Please disconnect your lines.
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