Tucows Reports Continued Strong Financial Performance for Third Quarter Fiscal 2004

Quarter Highlighted by Record Revenue and the Company’s Ninth Consecutive Quarter of Profitability

TORONTO, CANADA, November 2, 2004 –



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

3 Months Ended September 30, 2004 3 Months Ended September 30, 2003

9 Months Ended September 30, 2004 9 Months Ended September 30, 2003
Net Revenue 12,381* 9,316 33,195 27,480
Income from Operations 614 13 1,349 543
Net Income 821* 179 1,635 1,638
Net Income/Share 0.01 0.00 0.02 0.03
Cash Flow from Operations 1,127 576 3,090 2,086


*Includes recognition of $1.1 million of deferred revenue as current revenue as a result of a domain name reseller becoming an accredited registrar customer and that customer’s registrations being transferred from Tucows’ tag to the customer’s own tag such that Tucows was no longer accountable for those registrations. Included in cost of revenue is $0.8 million previously deferred against these names in prepaid domain name registry fees.

Tucows Inc. (OTCBB: TCOW) today reported its results for the third quarter of fiscal 2004 ended September 30, 2004.

Key highlights for the quarter included:

  • A 33% year-over-year increase in net revenue to a record $12.4 million;
  • Income from operations of $614,000;
  • Positive cash flow from operations of $1.1 million;
  • Net income of $821,000;
  • An 18% year-over-year increase in deferred revenue to a record $32.5 million;
  • A 10% year-over-year increase in domain name transactions to 865,000; and
  • Gross margin from non-domain Internet services increased to 36% from 27% for the third quarter last year.

    “The momentum inherent in our business continued to drive growth in both the top and bottom lines in the third quarter. I’m particularly pleased that our ongoing efforts to diversify our revenue streams are proving successful while we continue to maintain our dominant market position and ability to consistently win new business in the wholesale domain market,” said Elliot Noss, President and Chief Executive Officer, Tucows Inc. “The fundamentals of our business remain strong as we achieved record revenue and our ninth consecutive quarter of profitability.”

    Net revenue for the third quarter of fiscal 2004 increased 33% to $12.4 million from $9.3 million for the third quarter of fiscal 2003. The increase was primarily the result of a higher number of domain name transactions, as well as higher revenue from services other than domain name registrations. In addition, during the third quarter of this year, $1.1 million in deferred revenue was recognized as current revenue as the result of the change in status of a customer from a high-volume reseller to an accredited registrar customer. Excluding this amount, third quarter revenue increased 21% on a year-over-year basis.

    “We pride ourselves on having the flexibility to address the changing needs of our customers. Our service bureau pricing model allows high-volume customers to take advantage of our services and avoid the cost and complexity of building their own system,” said Mr. Noss. “Not only does this strengthen our customer relationships, it provides significant opportunity to sell them additional Internet services.”

    Income from operations for the third quarter was $614,000 (which included a net gain from foreign exchange forward contracts of $98,000) compared to $13,000 for the corresponding quarter last year (which included a net loss from foreign exchange forward contracts of $308,000). Net income for the quarter was $821,000, or $0.01 per share, compared to $179,000, or $0.00 per share, for the third quarter last year.

    Deferred revenue at the end of the third quarter of fiscal 2004 was $32.5 million, an increase of 18% from $27.5 million at the end of the third quarter of fiscal 2003 and down marginally from the end of the second quarter of this year. The decrease in deferred revenue compared to the end of the second quarter of this year is a reflection of the aforementioned conversion of a high-volume reseller to an accredited registrar customer.

    Cash and restricted cash at the end of the third quarter of fiscal 2004 was $13.3 million compared to $12.1 million at the end of the third quarter of fiscal 2003 and $12.3 million at the end of the second quarter of this year. The increase compared to the second quarter of fiscal 2004 is primarily the result of positive cash flow from operations for the third quarter of this year of $1.1 million.

    Domain names registered, renewed and transferred-in for the third quarter of fiscal 2004 increased 10% to 865,000 from 785,000 for the same quarter of last year. Total active domain names under management at the end of the second quarter increased to 4.27 million.

    Conference Call

    Tucows will host a conference call on Tuesday, November 2, 2004, at 5:00 p.m. (ET) to discuss the company’s third quarter 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 3108001. The telephone replay will be available until Tuesday, November 9, 2004, 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.

    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,
    2004

    (unaudited)
    December 31,
    2003
    Assets
    Current assets:
    Cash and cash equivalents $ 13,132,599 $ 12,912,811
    Restricted cash 212,500 132,500
    Accounts receivable 1,021,235 486,289
    Prepaid expenses and deposits 2,076,208 2,061,948
    Prepaid domain name registry fees, current portion 14,965,313
    13,204,566
    Total current assets 31,407,855 28,798,114
    Prepaid domain name registry fees, long-term portion 6,302,125 5,136,194
    Property and equipment 780,276 1,048,400
    Intangible assets 1,301,280 -
    Goodwill 964,467 -
    Investments 353,737 353,737
    Cash held in escrow 1,000,000 -
    Total assets $
    42,109,740
    $
    35,336,445
    Liabilities and Stockholders’ Equity
    Current liabilities:
    Accounts payable $ 1,344,361 $ 1,632,294
    Accrued liabilities 2,731,033 2,088,235
    Customer deposits 2,005,901 2,160,601
    Deferred revenue, current portion 23,085,010
    20,715,191
    Total current liabilities 29,166,305 26,596,321
    Deferred revenue, long-term portion 9,420,767 7,874,001
    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 as of September 30, 2004 and 64,626,429 shares issued and outstanding as of December 31, 2003 9,541,277 8,540,687
    Additional Paid-in Capital 49,992,129 49,992,129
    Deferred stock-based compensation - (20,593)
    Deficit (56,010,738)
    (57,646,100)
    Total stockholders’ equity 3,522,668
    866,123
    Total liabilities and stockholders’ equity $ 42,109,740
    $ 35,336,445

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

    Three months ended
    September 30,
    Nine months ended
    September 30,
    2004
    2003
    2004
    2003
    Net revenues $ 12,381,326 $ 9,315,760 $ 33,195,200 $ 27,479,973
    Cost of revenues 7,654,475
    5,807,808
    20,658,290
    17,067,173
    Gross profit 4,726,851 3,507,952 12,536,910 10,412,800
    Operating expenses:
    Sales and marketing (*) 1,370,932 922,028 3,716,192 2,791,251
    Technical operations and development 1,107,590 1,016,404 3,259,882 2,867,098
    General and administrative(*) 1,388,421 1,266,708 3,295,996 3,044,907
    Depreciation of property and equipment 187,158 289,424 817,475 1,166,340
    Amortization of intangible assets 59,040 - 98,720 -
    Total operating expenses
    4,113,141

    3,494,564

    11,188,265

    9,869,596
    income from operations 613,710 13,388 1,348,645 543,204
    Other Income
    Interest income, net 56,549 37,888 136,285 94,384
    Gain on disposal of Liberty Registry Management Services Inc. - 128,110 - 1,000,000
    Total other income
    56,549

    165,998

    136,285

    1,094,384
    Income before provision for income taxes 670,259 179,386 1,484,930 1,637,588
    Provision for (recovery of) income taxes (150,432) - (150,432) -
    Net income for the period $ 820,691
    $ 179,386
    $ 1,635,362
    $ 1,637,588
    Basic and diluted earnings per common share $ 0.01
    $ 0.00
    $ 0.02
    $ 0.03
    Shares used in computing basic earnings per common share 66,800,369
    64,626,429
    65,831,258
    64,626,429
    Shares used in computing diluted earnings per common share 68,477,632
    64,726,663
    67,728,525
    64,677,776
    (*) Stock-based compensation has been included in operating expenses as follows:
    Sales and marketing $ - $ 27,707 $ 16,834 $ 82,218
    General and administrative $ - $ 13,303 $ 3,759 $ 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,
    2004
    2003
    2004
    2003
    Cash provided by:
    Operating activities:
    Net income for the period $ 820,691 $ 179,386 $ 1,635,362 $ 1,637,588
    Items not involving cash:
    Depreciation of property and equipment 187,158 289,424 817,475 1,166,340
    Amortization of intangible assets 59,040 - 98,720 -
    (Gain) loss on change in the fair value of forward contracts (97,512) 307,758 (188,775) (576,470)
    Stock-based compensation - 41,010 20,593 121,692
    Gain on disposal of Liberty Registry Management Services Inc. - (128,110) - (1,000,000)
    Change in non-cash operating working capital:
    Accounts receivable (382,631) (107,592) (456,915) (73,478)
    Prepaid expenses and deposits 68,578 414,888 179,193 411,311
    Prepaid domain name registry fees 369,522 (803,976) (2,926,678) (2,472,612)
    Accounts payable 61,324 (90,237) (287,933) (300,808)
    Accrued liabilities 668,181 (317,806) 445,699 (21,168)
    Customer deposits (167,189) (65,056) (163,589) 76,653
    Deferred revenue (460,375)
    856,702
    3,916,585
    3,116,892
    Cash provided by operating activities 1,126,787
    576,391
    3,089,737
    2,085,940
    Financing activities:
    Proceeds received on exercise of stock options 81,581
    -
    726,050
    -
    Cash provided by financing activities 81,581
    -
    726,050
    -
    Investing activities:
    Additions to property and equipment (143,239) (160,252) (496,489) (780,874)
    (Increase) decrease in restricted cash – being margin security against forward exchange contracts 148,750 224,888 (80,000) 674,888
    Acquisition of Boardtown Corporation, net of cash acquired - - (2,019,510) -
    Increase in cash held in escrow - - (1,000,000) -
    Proceeds on disposal of Liberty Registry Management Services Inc., net of cash disposed -
    128,110
    -
    1,000,000
    Cash provided by (used in) investing activities 5,511
    192,746
    (3,595,999)
    894,014
    Increase in cash and cash equivalents 1,213,879 769,137 219,788 2,979,954
    Cash and cash equivalents, beginning of period 11,918,720
    11,055,646
    12,912,811
    8,844,829
    Cash and cash equivalents, end of period $ 13,132,599
    $ 11,824,783
    $ 13,132,599
    $ 11,824,783
    Supplemental cash flow information:
    Interest paid $ 113 $ 39 $ 166 $ 355
    Supplemental disclosure of non-cash investing and financing activities:
    Common stock issued on the acquisition of Boardtown Corporation $ - $ - $ 274,540 $ -
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