Tucows Inc. reports financial results for the third quarter of 2009

TORONTO, Nov. 11 – Tucows Inc. (NYSE AMEX:TCX, TSX:TC), a global provider of domain names, email and other Internet services, today reported its financial results for the third quarter of 2009 ended September 30, 2009. All figures are in U.S. dollars.

                          Summary Financial Results
         (Numbers in Thousands of US Dollars, Except Per Share Data)

    -------------------------------------------------------------------------
                 3 Months Ended 3 Months Ended 9 Months Ended 9 Months Ended
                 Sept. 30, 2009 Sept. 30, 2008 Sept. 30, 2009 Sept. 30, 2008
                   (unaudited)    (unaudited)    (unaudited)    (unaudited)
    -------------------------------------------------------------------------
    Net Revenue          20,496         20,147         60,610         59,309
    -------------------------------------------------------------------------
    Net Income
     (Loss)               5,051            (71)        10,495          1,056
    -------------------------------------------------------------------------
    Net Income
     (Loss)/Share          0.07          (0.00)          0.15           0.01
    -------------------------------------------------------------------------
    Cash Flow from
     Operations              82           (102)         3,586          2,595
    -------------------------------------------------------------------------


         Summary of Revenue and Cost of Revenue before Network Costs
                     (Numbers in Thousands of US Dollars)

    -------------------------------------------------------------------------
                             Revenue                  Cost of Revenue
    -------------------------------------------------------------------------
                 3 Months Ended 3 Months Ended 9 Months Ended 9 Months Ended
                 Sept. 30, 2009 Sept. 30, 2008 Sept. 30, 2009 Sept. 30, 2008
                   (unaudited)    (unaudited)    (unaudited)    (unaudited)
    -------------------------------------------------------------------------
    OpenSRS:
    -------------------------------------------------------------------------
    Domain Services
     (Traditional
     Domain
     Registration)       15,098         13,680         12,326         11,016
    -------------------------------------------------------------------------
    Email Services          842          1,517            103            162
    -------------------------------------------------------------------------
    Other Services        1,109          1,104            412            403
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total OpenSRS
     Services            17,049         16,309         12,841         11,581
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    YummyNames (Domain
     Portfolio Services)  1,782          1,265            218            183
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Hover (Retail
     Services)            1,204          2,071            493            558
    -------------------------------------------------------------------------
    Butterscotch
     (Content Services)     461            502             26              5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total                20,496         20,147         13,578         12,327
    -------------------------------------------------------------------------

“Throughout 2009, we have consistently delivered solid financial results, driven by the strong performance of our OpenSRS wholesale business, the initiatives we have undertaken to improve other components of our business, and the success of our efforts to improve our cost structure,” said Elliot Noss, President and CEO of Tucows. “Fundamentally, our business is strong and we are performing very well operationally. Amidst a weakening Internet services environment, our strong competitive position, supported by continuing improvements to our OpenSRS platform, has enabled us to grow new registrations in excess of industry performance. All of this continues to position us well for the remainder of 2009 and beyond.”

Net revenue for the third quarter of 2009 was $20.5 million compared with $20.1 million for the third quarter of 2008.

Net income for the third quarter of 2009 was $5.1 million, or $0.07 per share, compared with a net loss of $71,000, or less than $0.01 per share, for the third quarter of 2008. Net income for the third quarter of 2009 benefitted from other income of $1.9 million generated by receipt of the third and final payment related to the sale of the Company’s equity stake in Afilias, as well as a gain on foreign exchange of $1.9 million (inclusive of a mark-to-market gain of $1.9 million) compared to a loss on foreign exchange of $0.7 million (inclusive of a mark-to-market loss of $0.5 million) for the third quarter of 2008. In addition, because the Company is no longer subject to state taxes in certain jurisdictions, it has amended its tax rate payable in connection with its deferred tax liability resulting in an income tax recovery of $0.4 million in the third quarter of 2009.

Deferred revenue at the end of the third quarter of fiscal 2009 was $56.5 million, an increase of 4% from $54.4 million at the end of the third quarter of fiscal 2008 and a slight decrease from $56.9 million at the end of the second quarter of fiscal 2009.

Cash and cash equivalents at the end of the third quarter of fiscal 2009 were $8.2 million compared with $2.7 million at the end of the third quarter of fiscal 2008 and $7.4 million at the end of the second quarter of fiscal 2009. This increase in cash compared with the second quarter of 2009 is primarily the result of the receipt of the $2.0 million payment related to the sale of the Company’s equity stake in Afilias last year, which was partially offset by the repayment of $479,000 of the Company’s bank loan and the use of $570,000 for the repurchase of shares under the Company’s second modified “Dutch auction” tender offer, which concluded in July of this year. Cash flow from operations for the quarter was $82,000 and was impacted by a change in non-cash working capital related to the timing of payables and receivables of $1.5 million, the result of the receipt of $0.5 million in receivables shortly after quarter end and the payment of $1.0 million in certain payables to comply with changes in the Company’s relationships with certain suppliers.

Conference Call

Tucows will host a conference call today, Wednesday, November 11, 2009 at 5:00 p.m. ET to discuss the Company’s third quarter fiscal 2009 results. To access the conference call via the Internet, go to http://tucowsinc.com/investors.

For those unable to participate in the conference call at the scheduled time, it will be archived for replay both by telephone and via the Internet beginning approximately one hour following completion of the call. To access the archived conference call by telephone, dial 416-640-1917 or 1-877-289-8525 and enter the pass code 4171862 followed by the pound key. The telephone replay will be available until Wednesday, November 18, 2009 at midnight. To access the archived conference call as an MP3 via the Internet, go to http://tucowsinc.com/investors.

About Tucows

Tucows is a global Internet services company. OpenSRS manages over 9 million domain names and millions of email boxes through a reseller network of over 9,000 web hosts and ISPs. Hover is the easiest way for individuals and small businesses to manage their domain names and email addresses. YummyNames owns premium domain names that generate revenue through advertising or resale. Butterscotch.com is an online video network building on the foundation of Tucows.com. More information can be found at http://tucowsinc.com.

This news release contains, in addition to historical information, forward-looking statements related to such matters as our business, including the price per share at which Tucows will purchase shares and the level of under subscription. Such statements are based on management’s current expectations and are subject to a number of uncertainties and risks, which could cause actual results to differ materially from those described in the forward-looking statements. Information about potential factors that could affect Tucows’ business, results of operations and financial condition is included in the Risk Factors sections of Tucows’ filings with the Securities and Exchange Commission. All forward-looking statements included in this document are based on information available to Tucows as of the date of this document, and except to the extent Tucows may be required to update such information under any applicable securities laws, Tucows assumes no obligation to update such forward-looking statements. TUCOWS is a registered trademark of Tucows Inc. or its subsidiaries. All other trademarks and service marks are the properties of their respective owners.


                                 Tucows Inc.
                         Consolidated Balance Sheets
                       (Dollar amounts in U.S. dollars)


                                                  September 30, December 31,
                                                      2009         2008
                                                  ------------  ------------
                                                  (unaudited)   (unaudited)

    Assets

    Current assets:
      Cash and cash equivalents                   $  8,154,455  $  5,427,467
      Accounts receivable                            3,929,882     3,200,362
      Prepaid expenses and deposits                  2,743,505     2,274,043
      Derivative instrument assets                   1,927,475             -
      Prepaid domain name registry and ancillary
       services fees, current portion               31,513,882    29,212,610
      Deferred tax asset, current portion              590,000       590,000
                                                  ------------  ------------
        Total current assets                        48,859,199    40,704,482

    Prepaid domain name registry and ancillary
     services fees, long-term portion               12,143,175    11,855,971
    Property and equipment                           2,148,509     3,072,958
    Deferred financing charges                          49,300        78,500
    Deferred tax asset, long-term portion            2,410,000     2,410,000
    Intangible assets                               19,041,083    20,206,996
    Goodwill                                        17,990,807    17,990,807
    Investment                                               -       200,000
                                                  ------------  ------------
      Total assets                                $102,642,073  $ 96,519,714
                                                  ------------  ------------
                                                  ------------  ------------

    Liabilities and Stockholders' Equity

    Current liabilities:
      Accounts payable                            $  1,373,068  $  1,633,830
      Accrued liabilities                            1,888,427     2,000,146
      Customer deposits                              3,764,320     3,319,241
      Derivative instrument liabilities                      -     1,974,919
      Loan payable, current portion                  3,698,685     2,624,242
      Deferred revenue, current portion             40,303,458    37,985,821
      Accreditation fees payable, current portion      508,180       510,548
                                                  ------------  ------------
        Total current liabilities                   51,536,138    50,048,747

    Deferred revenue, long-term portion             16,198,501    16,201,804
    Accreditation fees payable, long-term portion      187,285       187,374
    Loan payable, long-term portion                          -     3,235,125
    Deferred tax liability, long-term portion        4,899,000     5,396,000

    Stockholders' equity:
      Preferred stock - no par value, 1,250,000
       shares authorized; none issued and outstanding        -             -
      Common stock - no par value, 250,000,000 shares
       authorized; 67,865,096 shares issued and
       outstanding as of September 30, 2009 and
       73,073,782 shares issued and outstanding as of
       December 31, 2008                            14,187,313    15,198,358
      Additional paid-in capital                    47,601,377    48,714,676
      Deficit                                      (31,967,541)  (42,462,370)
                                                  ------------  ------------
        Total stockholders' equity                  29,821,149    21,450,664
                                                  ------------  ------------
    Total liabilities and stockholders' equity    $102,642,073  $ 96,519,714
                                                  ------------  ------------
                                                  ------------  ------------


                                 Tucows Inc.
                    Consolidated Statements of Operations
                       (Dollar amounts in U.S. dollars)

                            Three months ended          Nine months ended
                               September 30,               September 30,
                             2009          2008         2009         2008
                         ------------ ------------ ------------ ------------
                              (unaudited)                (unaudited)

    Net revenues         $ 20,496,129 $ 20,147,195 $ 60,609,673 $ 59,308,731

    Cost of revenues:
      Cost of
       revenues(*)       14,770,868   13,981,247   42,942,314   40,794,276
      Depreciation of
       property and
       equipment              475,445      795,445    1,416,834    2,437,542
      Amortization of
       intangible
       assets                  29,199       29,199       87,597      134,597
                         ------------ ------------ ------------ ------------
    Total cost of
     revenues              15,275,512   14,805,891   44,446,745   43,366,415
                         ------------ ------------ ------------ ------------

    Gross profit            5,220,617    5,341,304   16,162,928   15,942,316

    Expenses:
      Sales and
       marketing(*)       1,568,727    1,705,512    4,261,070    5,132,380
      Technical operations
       and development(*) 1,142,331    1,527,237    3,421,825    4,666,832
      General and
       administrative(*)  1,145,951    1,714,563    4,608,173    4,805,853
      Depreciation of
       property and
       equipment               64,704       57,386      230,336      177,317
      Loss on disposition
       of property and
       equipment               40,369      498,529       40,369      498,529
      Amortization of
      intangible assets       360,540      360,540    1,081,620    1,122,655
      (Gain) / loss in
      fair value of
      forward exchange
      contracts            (1,878,230)     525,571   (3,902,394)     555,364
                         ------------ ------------ ------------ ------------
    Total expenses         2 ,444,392    6,389,338    9,740,999   16,958,930
                         ------------ ------------ ------------ ------------
    Income from
     operations             2,776,225   (1,048,034)   6,421,929   (1,016,614)

    Other income
     (expenses):
    Interest income
     (expense), net           (52,887)     (90,859)    (178,669)    (467,264)
    Other income            1,880,000    1,098,245    4,493,190    2,631,010
                         ------------ ------------ ------------ ------------
      Total other income
       (expenses)           1,827,113    1,007,386    4,314,521    2,163,746
                         ------------ ------------ ------------ ------------

    Income before
     provision for
     income taxes           4,603,338      (40,648)  10,736,450    1,147,132

    Income tax
     (recovery)
     expense                 (447,455)      30,000      241,621       91,134
                         ------------ ------------ ------------ ------------
    Net income (loss)
     for the period      $  5,050,793 $    (70,648)$ 10,494,829 $  1,055,998
                         ------------ ------------ ------------ ------------
                         ------------ ------------ ------------ ------------

    Basic earnings
     (loss) per
     common share        $       0.07 $      (0.00)$       0.15 $       0.01
                         ------------ ------------ ------------ ------------
                         ------------ ------------ ------------ ------------

    Shares used in
     computing basic
     earnings per
     common share          68,008,871   73,923,542   69,841,981   73,903,998
                         ------------ ------------ ------------ ------------
                         ------------ ------------ ------------ ------------

    Diluted earnings
     (loss) per
     common share        $       0.07 $      (0.00)$       0.15 $       0.01
                         ------------ ------------ ------------ ------------
                         ------------ ------------ ------------ ------------

    Shares used in
     computing diluted
     earnings per
     common share         68,874,517    74,817,244   70,156,521   75,245,047
                         ------------ ------------ ------------ ------------
                         ------------ ------------ ------------ ------------

    (*)Stock-based
     compensation has
     been included in
     expenses as
     follows:
      Cost of
       revenues          $      3,860 $      5,500 $     12,227 $     14,600
      Sales and
       marketing         $     12,807 $     17,200 $     42,764 $     48,500
      Technical
       operations and
       development       $     12,395 $     13,100 $     34,116 $     41,800
      General and
       administrative    $     70,748 $     52,500 $    142,641 $    128,600


                                 Tucows Inc.
                    Consolidated Statements of Cash Flows
                       (Dollar amounts in U.S. dollars)

                            Three months ended          Nine months ended
                               September 30,               September 30,
                             2009          2008         2009         2008
                         ------------ ------------ ------------ ------------
                              (unaudited)                (unaudited)
    Cash provided by
     (used in):
    Operating activities:

    Net income (loss)
     for the period      $  5,050,793 $    (70,648) $10,494,829   $ 1,055,998
    Items not involving
     cash:
      Depreciation of
       property and
       equipment              540,149      852,831    1,647,170    2,614,859
      Loss on disposition
       of property and
       equipment               40,369      498,529       40,369      498,529
      Amortization of
       deferred financing
       charges                  9,100       12,200       29,200       38,400
      Amortization of
       intangible assets      389,739      389,739    1,169,217    1,257,252
      Gain on disposal
       of investment in
       Afilias             (1,880,000)           -   (3,890,395)           -
      Gain on sale of
       customer
       relationships                -     (921,384)           -   (2,042,449)
      Reduction of
       deferred tax
       liability             (497,000)           -     (497,000)           -
      Disposal of
       domain names               649        4,705        2,596        4,705
      Unrealized
       (gain)/loss in the
       fair value of
       forward contracts   (1,878,230)     525,571   (3,902,394)     555,364
      Stock-based
       compensation            99,810       88,300      231,748      233,500
    Change in non-cash
     operating working
     capital:
      Accounts receivable    (465,454)    (518,310)    (729,520)    (234,387)
      Prepaid expenses
       and deposits           419,761      641,629     (469,462)     536,392
      Prepaid fees for
       domain name registry
       and ancillary services
       fees                    33,425     (775,955)  (2,588,476)  (4,482,752)
      Accounts payable       (977,967)    (480,839)    (597,560)    (231,770)
      Accrued liabilities    (115,362)    (177,701)    (111,719)    (868,765)
      Customer deposits       592,612     (167,691)     445,079     (148,692)
      Deferred revenue       (398,657)      (9,699)   2,314,334    3,767,955
      Accreditation fees
       payable                (46,762)       6,245       (2,457)      40,365
      Income taxes payable   (835,398)           -            -            -
                         ------------ ------------ ------------ ------------
    Net cash provided by
     (used in) operating
     activities                81,577     (102,478)   3,585,559    2,594,504
                         ------------ ------------ ------------ ------------

    Financing activities:
      Proceeds received
       on exercise of
       stock options                -            -       25,422        9,450
      Repurchase of common
       stock                 (570,335)           -   (2,381,514)           -
      Repayment of loan
       payable               (478,561)    (478,561)  (2,160,682)  (8,435,681)
                         ------------ ------------ ------------ ------------
      Net cash used in
       financing
       activities          (1,048,896)    (478,561)  (4,516,774)  (8,426,231)
                         ------------ ------------ ------------ ------------

    Investing activities:
      Cost of domain
       names acquired               -            -       (5,900)      (8,944)
      Additions to property
       and equipment         (281,282)    (627,024)    (426,292)  (1,922,764)
      Sale of customer
       relationships                -      921,384            -    2,343,114
      Proceeds on
       disposition of
       property and
       equipment                    -       66,039            -       66,039
      Proceeds on disposal
       of investment in
       Afilias              1,980,000            -    4,090,395            -
      Decrease in cash
       held in escrow               -       (5,396)           -      (18,161)
                         ------------ ------------ ------------ ------------
      Net cash provided
       by investing
       activities           1,698,718      355,003    3,658,203      459,284
                         ------------ ------------ ------------ ------------

    Increase (decrease)
     in cash and cash
     equivalents              731,399     (226,036)   2,726,988   (5,372,443)

    Cash and cash
     equivalents,
     beginning of period    7,423,056    2,947,069    5,427,467    8,093,476
                         ------------ ------------ ------------ ------------
    Cash and cash
     equivalents, end of
     period              $  8,154,455 $  2,721,033 $  8,154,455 $  2,721,033
                         ------------ ------------ ------------ ------------
                         ------------ ------------ ------------ ------------

    Supplemental cash
     flow information:
      Interest paid      $     52,983 $    100,060 $    181,012 $    552,298

    Supplementary
     disclosure of
     non-cash investing
     activity:
      Property and
       equipment acquired
       during the period
       not yet paid for  $    343,777 $    117,733 $    343,777 $    117,733

For further information: Lawrence Chamberlain, The Equicom Group for Tucows Inc., (416) 815-0700 ext. 257, lchamberlain@equicomgroup.com.

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