Tucows Reports Continued Strong Financial Performance for Third Quarter Fiscal 2003

TUCOWS REPORTS CONTINUED STRONG FINANCIAL PERFORMANCE FOR THIRD QUARTER FISCAL 2003

Company reports eighth consecutive quarter of positive cash flow from operations and fifth consecutive quarter of profitability

TORONTO, CANADA, November 11, 2003 –

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

Three months ended September 30, 2003 Three months ended September 30, 2002 Nine months ended September 30, 2003 Nine months ended September 30, 2002
Net Revenue $9,316 $8,879* $27,480 $28,286**
Income (Loss) from Operations 13 (150) 543 (1,202)
Net Income 179 596 1,638 481
Net Income/Share 0.00 0.01 0.03 0.01
Cash Flow from Operations 576 1,190 2,086 3,028

*Includes $389,000 in revenue from services that were disposed of during fiscal 2002.

**Includes $2.9 million in revenue from services that were disposed of during fiscal 2002.

Tucows Inc. (OTCBB: TCOW), a leading provider of outsourced Internet services to ISPs and web hosting companies worldwide, today reported its results for the third quarter of fiscal 2003 ended September 30, 2003. The quarter was highlighted by:

  • Net revenue of $9.3 million;
  • Record deferred revenue of $27.5 million;
  • Positive cash flow from operations of $576,000; and
  • Net income of $179,000.

For the third quarter of 2003, net revenue increased 4.9% to $9.3 million from $8.9 million for the third quarter of fiscal 2002. Excluding $389,000 in revenue from services that were disposed of during the third quarter last year, net revenue increased 9.7% from $8.5 million.

Net income for the quarter was $179,000, or $0.00 per share, compared to $596,000, or $0.01 per share, for the third quarter of fiscal 2002. Net income for the current quarter included a loss of $308,000 resulting from the change in fair value of forward contracts and a gain of $128,000 on the disposal of the Company’s registry management services assets in March 2002. Net income for the same quarter of last year included a loss of $530,000 resulting from the change in fair value of forward contracts and a gain on the disposal of the Electric Library subscription assets of $725,000.

Deferred revenue at September 30, 2003, was $27.5 million, an increase of 13.4% from $24.2 million at September 30, 2002, and an increase of 3.2% from $26.6 million at June 30, 2003.

Cash and restricted cash at September 30, 2003, increased to $12.1 million from $11.5 million at June 30, 2003. The increase is primarily the result of positive cash flow from operations for the current quarter of $576,000.

Domain names registered, renewed and transferred-in for the third quarter increased to approximately 785,000 from approximately 690,000 for the same quarter of last year. Total active domain names under management at the end of the third quarter increased to 3.66 million.

For the nine-month period ended September 30, 2003, net revenue was $27.5 million compared to $28.3 million for the same period last year. Excluding $2.9 million in revenue from services that were disposed of during fiscal 2002, net revenue increased 8.3% from $25.4 million. Income from operations for the first nine months of fiscal 2003 was $543,000 compared to a loss from operations of $1.2 million for the corresponding period last year. Net income for the nine-month period ended September 30, 2003, increased to $1.6 million, or $0.03 per share, from $481,000, or $0.01 per share, for the same period last year.

“In the third quarter, we continued our trend of strong operational performance, highlighted by year-over-year revenue growth, our eighth consecutive quarter of positive cash flow from operations and our fifth consecutive quarter of profitability,” said Elliot Noss, president and chief executive officer, Tucows Inc. “Our domain name registration business continues to generate consistent results in an extremely competitive marketplace. The leverage in our business model has allowed us to invest in new services that we believe will contribute, in the long term, to growth of both revenue and earnings. This leverage and our continued focus on maximizing productivity have combined to allow the introduction of new services while still improving income from operations on a year-to-date basis.”

Conference Call

Tucows will host a conference call on Tuesday, November 11, 2003, at 5:00 p.m. (ET) to discuss its third quarter fiscal 2003 results. To access the conference call via the Internet go to www.tucows.com, click on “About Tucows” and then 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 1493067. The telephone replay will be available until Tuesday, November 18, 2003, at midnight. To access the archived conference call via the Internet, go to www.tucows.com and click on “About Tucows” and then on “Investor Relations.”

About Tucows

Tucows Inc. is a leading provider of outsourced Internet services to ISPs and web hosting companies worldwide. An ICANN-accredited registrar, Tucows provides domain name registration services for generic and country code top-level domains (TLDs), plus digital certificates and email services. Tucows also distributes software and other digital content through its integrated network of affiliates and offers more than 30,000 software titles in libraries located around the world. For more information, please visit: http://www.tucows.com.

Contact:
Joanna Becket
Investor Relations
Tucows Inc.
416-538-5442
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.

Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows


Tucows Inc.

Consolidated Balance Sheets
(Dollar amounts in U.S. dollars)
   
September 30,
2003
(unaudited)
        
December 31,
2002

      Assets
Current assets:
  Cash and cash equivalents $ 11,824,783  $ 8,844,829 
  Restricted cash (note 1)   262,612    937,500 
  Accounts receivable   412,175    338,697 
  Prepaid expenses and deposits   1,855,956    1,951,086 
  Prepaid domain name registry fees, current portion   12,478,496 
  11,145,187 
      Total current assets   26,834,022    23,217,299 
         
Prepaid domain name registry fees, long term portion   4,839,643    3,700,340 
Property and equipment   1,195,855    1,581,321 
Investments   353,737    353,737 
 
Total assets $
33,223,257 
$
28,852,697 
     
Liabilities and Stockholders’ Equity (Deficiency)
Current liabilities:
  Accounts payable $ 1,304,822    1,605,630 
  Accrued liabilities   2,006,955    2,288,412 
  Customer deposits   2,034,310    1,957,657 
  Deferred revenue, current portion   20,006,309 
  18,431,100 
      Total current liabilities   25,352,396    24,282,799 
 
Deferred revenue, long term portion   7,471,600    5,929,917 
 
Stockholders’ equity (deficiency):        
  Preferred stock – no par value, 1,250,000 shares
  authorized; none issued and outstanding
   
  Common stock – no par value, 250,000,000 shares

  authorized; 64,626,429 shares issued and

  outstanding at September 30, 2003 and

  December 31, 2002
  8,540,687    8,540,687 
  Additional Paid-in Capital   49,992,129    49,992,129 
  Deferred stock‚Äìbased compensation   (61,605)   (183,297)
  Deficit   (58,071,950)
  (59,709,538)
      Total stockholders’ equity (deficiency)   399,261 
  (1,360,019)
 
Total liabilities and stockholders’ equity (deficiency) $ 33,223,257 
$ 28,852,697 
 
Note 1:
The Company has entered into a series of forward exchange contracts, whereby an
amount of U.S.$375,000 is converted into Canadian dollars on a semi-monthly basis
from June 2002 until the end of December 2003. As margin security against these
Contracts, the Company placed $1,196,000 into secured term deposits, which mature
on a monthly basis in line with the Contracts. The outstanding margin security
in the amount of $262,612 is reflected as restricted cash on the balance sheet.


Tucows Inc.
Consolidated Statements of Operations
(Dollar amounts in U.S. dollars)
(unaudited)
  Three months ended
September 30,
Nine months ended
September 30,
  2003     
2002     
2003     
2002     
Net revenues   $ 9,315,760    $ 8,879,281    $ 27,479,973    $ 28,286,001 
Cost of revenues   5,807,808 
  5,413,730 
  17,067,173 
  17,645,243 
Gross profit   3,507,952    3,465,551    10,412,800    10,640,758 
Operating expenses:
  Sales and marketing (*)   922,028    926,098    2,791,251    2,831,851 
  Technical operations and development   1,016,404    866,061    2,867,098    2,883,770 
  General and administrative(*)   1,266,708    1,444,629    3,044,907    3,631,082 
  Depreciation of property and equipment   289,424    378,913    1,166,340    2,273,587 
  Amortization of intangible assets  
 
 
  222,222 
      Total operating expenses   3,494,564 
  3,615,701 
  9,869,596 
  11,842,512 
   
Income (loss) from operations   13,388    (150,150)   543,204    (1,201,754)
 
Other income (expenses)  
   Interest income, net   37,888    21,299    94,384    60,164 
   Write down of investment in bigchalk.com         (1,013,335)
   Gain on disposal of Electric Library
   subscription assets
    725,237      725,237 
   Gain on disposal of Liberty Registry
   Management Services Inc.
  128,110      1,000,000    1,955,443 
   Loss on disposal of Eklektix Inc.         (44,304)
      Total other income (expenses)  


165,998 

 
746,536 
 
1,094,384 
 
1,683,205 
   
Income before provision for income taxes   179,386    596,386    1,637,588    481,451 
Provision for income taxes        
         
Net income for the period   $ 179,386 
  $ 596,386 
  $ 1,637,588 
  $ 481,451 
   
Basic and diluted earnings per share   $ 0.00 
  $ 0.01 
  $ 0.03 
  $ 0.01 
   
Shares used in computing basic earnings per common share    64,626,429 
   64,626,429 
   64,626,429 
   64,626,429 
Shares used in computing diluted earnings per common share    64,726,663 
   64,626,429 
   64,677,776 
   64,626,429 
 
 
(*) Stock-based compensation has been included in operating expenses as follows:
    Sales and marketing   $ 27,707    $ 27,707    $ 82,218    $ 82,218 
    General and administrative   $ 13,303    $ 13,302    $ 39,474    $ 39,474 


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

  Three months ended
September 30,
Nine months ended
September 30,
  2003     
2002     
2003     
2002     
Cash provided by (used in):  
Operating activities:  
   Net Income (loss)

   for the period
  $ 179,386    $ 596,386    $ 1,637,588    $ 481,451 
   Items not involving cash:  
      Depreciation of property

      and equipment
  289,424    378,913    1,166,340    2,273,587 
      Amortization of intangible

      assets
        222,222 
      (Gain) loss on change in fair

      value of forward contracts
  307,758    530,381    (576,470)   400,488 
      Write down of investment in

      bigchalk.com
        1,013,335 
      Stock-based compensation   41,010    41,009    121,692    121,692 
      Gain on disposal of Electric

      Library subscription assets
    (725,237)     (725,237)
      Gain on disposal of Liberty

      Registry Management

      Services Inc.
  (128,110)     (1,000,000)   (1,955,443)
      Loss on write-off of

      Eklektix Inc.
        44,304 
Change in non-cash operating working capital:  
    Accounts receivable   (107,592)   (51,270)   (73,478)   271,613 
    Prepaid expenses and

    deposits
  414,888    296,718    411,311    233,754
    Prepaid domain name

    registry fees
  (803,976)   (481,381)   (2,472,612)   (2,321,352)
    Accounts payable   (90,237)   (192,794)   (300,808)   (371,943)
    Accrued liabilities   (317,806)   387,166    (21,168)   (354,102)
    Customer deposits   (65,056)   (224,762)   76,653    84,455 
    Deferred revenue   856,702    634,973    3,116,892    3,609,422 
  Cash provided by operating activities  

576,391 
 

1,190,102 
 

2,085,940 
 

3,028,246 
Financing activities:  
    Repayments of obligations

    under capital leases
    (65,588)     (111,160)
    Cash used in financing

    activities
 


 

(65,588)
 



 

(111,160)
 
Investing activities:  
    Additions to property and

    equipment

  (160,252)   (160,710)   (780,874)   (608,767)
    (Increase)/Decrease in

    restricted cash – being margin

    security against

    forward exchange contracts

  224,888    131,250    674,888    (1,064,750)
    Net proceeds on disposal of

    Electric Library

    subscription assets

    455,649      455,649 
    Proceeds on disposal of

    Liberty Registry

    Management Services Inc.,

    net of cash disposed

  128,110      1,000,000    938,889 
    Proceeds on disposal of

    Eklektix Inc.,

    net of cash disposed
        (30,628)
    Cash provided by (used in) investing activities  

192,746 
 

426,189 
 

894,014 
 


(309,607)

   
Increase in cash and cash equivalents   769,137    1,550,703    2,979,954    2,607,479 
Cash and cash equivalents, beginning of period    11,055,646     5,870,965     8,844,829     4,814,189 
Cash and cash equivalents, end of period   $
11,824,783 
  $
7,421,668 
  $
11,824,783 
  $
7,421,668 
   
Supplemental cash flow information:  
       Interest paid   $ 39    $ 12,304    $ 355    $ 23,932 
   
Supplemental disclosure of non-cash investing and financing activities:  
    Promissory note receivable on

    disposal of Electric Library

    subscription assets
      1,121,480        1,121,480 
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