Tucows Reports Continued Strong Financial Performance for Fourth Quarter and Fiscal Year 2004

Company Achieves Tenth Consecutive Quarter of Profitability and Thirteenth Consecutive Quarter of Positive Cash Flow from Operations

TORONTO – February 10, 2005 - Tucows Inc. (OTCBB: TCOW) today reported strong results for the fourth quarter and fiscal year ended December 31, 2004.
Highlights for the fourth quarter included:

  • A 19% year-over-year increase in net revenue to $11.5 million;
  • Income from operations of $801,000;
  • Cash flow from operations of $1.6 million;
  • Net income of $3.9 million, inclusive of deferred tax recovery of $3.0 million; and
  • The Company’s tenth consecutive quarter of profitability and thirteenth consecutive quarter of positive cash flow from operations.

Highlights for fiscal 2004 included:

  • A 20% year-over-year increase in net revenue to a record $44.7 million;
  • Income from operations of $2.1 million;
  • A 45% increase in cash flow from operations to $4.7 million;
  • A 16% year-over-year increase in deferred revenue to a record $33.3 million; and
  • Net income of $5.5 million, inclusive of deferred tax recovery of $3.0 million.

“The fourth quarter marked a strong finish to 2004 as continued growth in our non-domain Internet services supplemented the strength of our domain name registration business,” said Elliot Noss, President and Chief Executive Officer, Tucows Inc. “Our tenth consecutive quarter of profitability and thirteenth consecutive quarter of positive cash flow from operations are demonstrative of the strong momentum in our business, which has been supported both by our success in diversifying our revenue streams, as well as by our dominant position in the wholesale domain market.”

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

  Three months ended
December 31, 2004
Three months ended
December 31, 2003
12 Months ended
December 31, 2004
12 Months ended
December 31, 2003
Net Revenue $11,522 $9,715 $44,717 $37,195
Income from Operations $801 $389 $2,149 $932
Net Income $3,8652 $426 $5,5002 $2,0631
Net Income/Share $0.062 $0.01 $0.082 $0.03
Cash Flow from Operations $1,578 $1,134 $4,668 $3,220
1 Includes a $1.0 million gain on disposal of Liberty Registry Management Services Inc.

2 Includes a non-cash income tax benefit of $3.0 million or $0.04 per share, resulting from the reduction in our deferred tax asset valuation allowance.

Net revenue for the fourth quarter of fiscal 2004 increased 19% to $11.5 million from $9.7 million for the fourth quarter of fiscal 2003. Income from operations for the fourth quarter of 2004 was $0.8 million (which included a net loss from foreign exchange forward contracts of $0.1 million) compared to $0.4 million (which included a net loss from foreign exchange forward contracts of $0.3 million) for the corresponding quarter last year. Net income for the fourth quarter of fiscal 2004 increased to $3.9 million, or $0.06 per share, (including a non-cash income tax benefit of $3.0 million, or $0.04 per share, resulting from the reduction of the Company’s deferred tax asset valuation allowance) from $0.4 million, or $0.01 per share, for the fourth quarter of fiscal 2003. The income tax benefit resulted from the release of a portion of the deferred tax asset valuation allowance previously established as a result of the Company’s prior years’ net operating losses and other temporary differences related to fixed assets, goodwill and deferred revenue in accordance with Statement of Financial Accounting Standards No. 109.

Deferred revenue at the end of fiscal 2004 was $33.3 million, an increase of 16% from $28.6 million at the end of fiscal 2003 and up marginally from $32.5 million at the end of the third quarter of fiscal 2004.

Cash and restricted cash at the end of fiscal 2004 was $14.4 million compared to $13.0 million at the end of fiscal 2003 and $13.3 million at the end of the third quarter of fiscal 2004. The increase compared to the third quarter of fiscal 2004 is primarily the result of positive cash flow from operations for the fourth quarter of this year of $1.6 million.

For the fiscal year ended December 31, 2004, net revenue increased 20% to $44.7 million from $37.2 million for fiscal 2003. Income from operations for fiscal 2004 more than doubled to $2.1 million from $0.9 million for fiscal 2003. Net income for fiscal 2004 (including the aforementioned non-cash income tax benefit of $3.0 million, or $0.04 per share) increased to $5.5 million, or $0.08 per share, from $2.0 million, or $0.03 per share, for fiscal 2003. Net income for fiscal 2003 included a $1.0 million gain on disposal of Liberty Registry Management Services Inc.

Conference Call

Tucows will host a conference call on Thursday, February 10, 2005, at 5:00 p.m. (ET) to discuss the company’s fourth quarter and year end fiscal 2004 results. To access the conference call via the Internet go to www.tucowsinc.com, and click on “Investor Relations.”

For those unable to join 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 1-800-408-3053 or 416-695-5800 and enter the pass code 3138425. The telephone replay will be available until Thursday, February 17, 2005, at midnight. To access the archived conference call via the Internet, go to www.tucowsinc.com and click on “Investor Relations.”

About Tucows

Tucows Inc. is a leading provider of wholesale Internet services and back office solutions to a global network of more than 6,000 web hosting companies, ISPs and other service providers. As the largest ICANN-accredited wholesale domain name registrar, Tucows offers a suite of complementary Internet services including domain name registration and management, digital certificates, email services and web publishing services. Tucows’ back office products, including billing, provisioning and customer care solutions, enable service providers to automate and enhance their service offerings. Tucows also distributes software and other digital content through its global network of affiliates offering more than 40,000 software titles. For more information, please visit: www.tucowsinc.com

Contact:
Hilda Kelly
Investor Relations Resource
Tucows Inc.
416-538-5493
ir@tucows.com


This news release contains, in addition to historical information, forward-looking statements that involve risks and uncertainties. These forward-looking statements include statements regarding the continued growth and success of Tucows’ business, the ability to further develop and achieve commercial success for the company’s business strategy and the deployment of the company’s resources. Such statements are based on management’s current expectations and are subject to a number of uncertainties and risks that could cause actual results to differ materially from those described in the forward-looking statements. More information about potential factors that could affect Tucows 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 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.

This page prints out best in landscape format Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows


Tucows Inc.

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

   
December 31,
2004
        
December 31,
2003
 
Assets
Current assets:
Cash and cash equivalents $ 13,914,988  $ 12,912,811 
Restricted cash (note 1)   460,398    132,500 
Accounts receivable   1,111,082    486,289 
Prepaid expenses and deposits   2,156,702    2,061,948 
Prepaid domain name registry fees, current portion   15,601,786    13,204,566 
Deferred tax asset, current portion   1,000,000 
 
Total current assets   34,244,956 
  28,798,114 
 
Prepaid domain name registry fees, long-term portion   6,471,916    5,136,194 
Property and equipment   1,017,237    1,048,400 
Deferred tax asset, long-term portion   2,000,000   
Intangible assets   1,242,240   
Goodwill   964,467   
Investments   353,737    353,737 
Cash held in escrow   1,009,650   
Total assets $
47,304,203 
$
35,336,445 
     
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 1,483,543  $ 1,632,294 
Accrued liabilities   2,688,738    2,088,235 
Customer deposits   2,247,262    2,160,601 
Deferred revenue, current portion   23,648,381    20,715,191 
Accreditation fees payable, current portion   144,483 
 
Total current liabilities   30,212,407    26,596,321 
     
Deferred revenue, long-term portion   9,602,599    7,874,001 
Accreditation fees payable, long-term portion   31,816   
 
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; 66,817,250 shares issued and outstanding at December 31, 2004 and 64,626,429 shares issued and outstanding at December 31, 2003   9,541,277    8,540,687 
Additional Paid-in Capital   50,061,866    49,992,129 
Deferred stock-based compensation     (20,593)
Deficit   (52,145,762)
  (57,646,100)
Total stockholders’ equity   7,457,381 
  866,123 
Total liabilities and stockholders’ equity $ 47,304,203 
$ 35,336,445 
 
Note 1:
Of the restricted cash, $310,000 represents margin security against a series of forward exchange contracts, and $150,398 represents security against 2 letters of credit.

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

  Three months ended
December 31,
Year ended
December 31,
  2004
2003
2004
2003
Net revenues   $ 11,521,955    $ 9,714,774    $ 44,717,155    $ 37,194,747 
Cost of revenues   6,907,776 
  5,923,054 
  27,566,066 
  22,990,227 
Gross profit   4,614,179 
  3,791,720 
  17,151,089 
  14,204,520 
Operating expenses:
Sales and marketing (*)   1,351,649    1,058,830     5,067,841    3,850,081 
Technical operations and development   1,289,486    1,067,963    4,549,368    3,935,061 
General and administrative(*)   811,985    953,166    4,107,981    3,998,073 
Depreciation of property and equipment   301,259    323,230    1,118,734    1,489,570 
Amortization of intangible assets   59,040      157,760   
Total operating expenses  
3,813,419  
 
3,403,189 
 
15,001,684 
 
13,272,785 
Income from operations   800,760    388,531    2,149,405    931,735 
Other Income:  
Interest income, net   64,216    37,319    200,501    131,703 
Gain on disposal of Liberty Registry Management Services Inc.         1,000,000 
Total other income  
64,216 
 
37,319 
 
200,501 
 
1,131,703 
Income before provision for income taxes   864,976    425,850    2,349,906    2,063,438 
Provision for (recovery of) income taxes   (3,000,000)
 
  (3,150,432)
 
Net income for the year   $ 3,864,976 
  $ 425,850 
  $ 5,500,338 
  $ 2,063,438 
   
Basic and diluted income per share   $ 0.06 
  $ 0.01 
  $ 0.08 
  $ 0.03 
   
Shares used in computing basic earnings per common share   66,817,250 
  64,626,429 
  66,079,104 
  64,626,429 
 
Shares used in computing diluted income per common share   68,893,918 
  70,858,586 
  68,051,579 
  64,725,929 
 
 
(*) Stock-based compensation has been included in operating expenses as follows:
Sales and marketing   $   $ 27,708    $ 16,835    $ 109,926  
Technical operations and development   $ 69,737    $   $ 69,737    $
General and administrative   $   $ 13,304    $ 3,759    $ 52,778 


Tucows Inc.
Consolidated Statements of Cash Flows
(Dollar amounts in U.S. dollars)
  Three months ended
December 31,
Year ended
December 31,
  2004
2003
2004
2003
Cash provided by (used in):  
Operating activities:  
Net income for the year   $ 3,864,976    $ 425,850    $ 5,500,338    $ 2,063,438 
Items not involving cash:  
Depreciation of property and equipment   301,259    323,230    1,118,734    1,489,570 
Amortization of intangible assets   59,040      157,760   
Unrealized change in the fair value of forward contracts   100,032    297,296    (88,743)   (279,174)
Stock-based compensation   69,737      69,737   
Amortization of stock-based compensation     41,012    20,593    162,704 
Deferred taxes   (3,000,000)     (3,000,000)  
Gain on disposal of Liberty Registry Management Services Inc.         (1,000,000)
Change in non-cash operating working capital:  
Accounts receivable   (89,847)   (74,114)   (546,762)   (147,592)
Prepaid expenses and deposits   (180,526)   (503,288)   (1,333)   (91,977)
Prepaid domain name registry fees   (806,264)   (1,022,621)   (3,732,942)   (3,495,233)
Accounts payable   139,182    327,472    (148,751)   26,664 
Accrued liabilities   (42,295)   81,280    403,404    60,112 
Customer deposits   241,361    126,291    77,772    202,944 
Deferred revenue   745,203   1,111,283    4,661,788    4,228,175 
Accreditation fees payable   176,299
 
  176,299 
 
Cash provided by operating activities   1,578,157 
  1,133,691 
  4,667,894  
  3,219,631 
 
Financing activities:  
Proceeds received on exercise of stock options  
 
  726,050 
 
Cash provided by financing activities  
 
  726,050 
 
 
Investing activities:  
Additions to property and equipment   (538,220)   (175,775)   (1,034,709)   (956,649)
Decrease (increase) in restricted cash – being margin security against forward exchange contracts   (247,898)   130,112    (327,898)   805,000 
Acquisition of Boardtown Corporation, net of cash acquired       (2,019,510)  
Increase in cash held in escrow   (9,650)     (1,009,650)  
Proceeds on disposal of Liberty Registry Management Services Inc., net of cash disposed  
 
 
  1,000,000 
Cash provided by (used in) investing activities   (795,768)
  (45,663)
  (4,391,767)
  848,351 
 
Increase in cash and cash equivalents   782,389    1,088,028    1,002,177    4,067,982 
Cash and cash equivalents, beginning of year   13,132,599 
  11,824,783 
  12,912,811 
  8,844,829 
Cash and cash equivalents, end of year   $ 13,914,988 
  $ 12,912,811 
  $ 13,914,988 
  $ 12,912,811 
 
Supplemental cash flow information:  
Interest paid   $   $ 113    $ 166    $ 383 
 
Supplemental disclosure of non-cash investing and financing activities:  
Common stock issued on the acquisition of Boardtown Corporation   $   $   $ 274,540    $
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