Tucows Reports Continued Strong Results for Second Quarter of Fiscal 2004

Quarter Highlighted by Record Revenue and Significant Growth in Deferred Revenue

TORONTO, CANADA, August 12, 2004 –

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

3 Months Ended
June 30, 2004
3 Months Ended
June 30, 2003
6 Months Ended
June 30, 2004
6 Months Ended
June 30, 2003
Net Revenue $10,639 $9,167 $20,814 $18,164
Income (Loss) from Operations 623 (88) 735 530
Net Income 666 578 815 1,458
Net Income/Share 0.01 0.01 0.01 0.02
Cash Flow from Operations 1,396 800 1,963 1,510


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

Key highlights for the quarter included:

  • An 16% year-over-year increase in net revenue to $10.6 million;
  • Income from operations of $623,000;
  • Positive cash flow from operations of $1.4 million;
  • Net income of $666,000;
  • A 24% year-over-year increase in deferred revenue to a record $33.0 million;
  • A 23% year-over-year increase in domain name transactions to 941,000;
  • Completion of the acquisition of Boardtown Corporation.

    “Our strong results for the second quarter are indicative of the ability of our business model to consistently deliver strong financial performance over the long term,” said Elliot Noss, President and CEO, Tucows Inc. “This is our eleventh consecutive quarter of positive cash flow from operations and our eighth consecutive quarter of profitability. We look forward to building on our success to date by continuing to strengthen our leadership position in the wholesale domain registration market, driving adoption of our complementary Internet services portfolio, enhancing our service providers’ back-office automation with powerful billing, provisioning and customer care software solutions and launching additional offerings to simplify complex business processes for service providers.”

    Net revenue for the second quarter of fiscal 2004 increased 16% to a record $10.6 million from $9.2 million for the second quarter of fiscal 2003, the result of a higher number of domain name transactions, as well as higher revenue from services other than domain name registrations. Income from operations for the second quarter was $623,000, which included a net gain of $110,000 from foreign exchange forward contracts, compared to a loss from operations for the corresponding quarter last year of $88,000, which included a net gain of $337,000 from foreign exchange forward contracts. Net income for the quarter was $666,000, or $0.01 per share, compared to $578,000, or 0.01 per share, for the second quarter last year.

    Deferred revenue at June 30, 2004 was a record $33.0 million, an increase of 24% from $26.6 million at June 30, 2003 and an increase of 15% from $28.6 million at December 31, 2003. Cash and restricted cash, at June 30, 2004 was $12.3 million compared to $11.5 million at June 30, 2003 and $13.7 million at March 31, 2004. The decrease from March 31, 2004 was primarily the result of a cash outflow of $2.0 million related to the acquisition of Boardtown Corporation, which was partially offset by positive cash flow from operations for the second quarter of this year of $1.4 million.

    Domain names registered, renewed and transferred-in for the second quarter of fiscal 2004 increased 23% to 941,000 from 784,000 for the same quarter of last year. Total active domain names under management at the end of the second quarter increased to 4.23 million.

    Conference Call

    Tucows will host a conference call on Thursday, August 12, 2004, at 5:00 p.m. (ET) to discuss the company’s second 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 3086612. The telephone replay will be available until Thursday, August 19, 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)

       
    June 30,
    2004

    (unaudited)
            
    December 31,
    2003
     
    Assets

    Current assets:
    Cash and cash equivalents $ 11,918,720  $ 12,912,811 
    Restricted cash   361,250    132,500 
    Accounts receivable   638,604    486,289 
    Prepaid expenses and deposits   2,047,274    2,061,948 
    Prepaid domain name registry fees, current portion   15,309,091 
      13,204,566 
    Total current assets   30,274,939    28,798,114 
     
    Prepaid domain name registry fees, long-term portion   6,327,869    5,136,194 
    Property and equipment   824,195    1,048,400 
    Intangible assets   2,324,787   
    Investments   353,737    353,737 
    Cash held in escrow   1,000,000   
    Total assets $
    41,105,527 
    $
    35,336,445 
         
    Liabilities and Stockholders’ Equity
    Current liabilities:
    Accounts payable $ 1,283,037  $ 1,632,294 
    Accrued liabilities   2,062,852    2,088,235 
    Customer deposits   2,173,090    2,160,601 
    Deferred revenue, current portion   23,554,350 
      20,715,191 
    Total current liabilities   29,073,329    26,596,321 
         
    Deferred revenue, long-term portion   9,411,802    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; 66,597,688 shares issued and outstanding as of June 30, 2004 and 64,626,429 shares issued and outstanding as of December 31, 2003   9,459,696    8,540,687 
    Additional Paid-in Capital   49,992,129    49,992,129 
    Deferred stock‚Äìbased compensation     (20,593)
    Deficit   (56,831,429)
      (57,646,100)
    Total stockholders’ equity   2,620,396 
      866,123 
     
    Total liabilities and stockholders’ equity $ 41,105,527 
    $ 35,336,445 
     

    Tucows Inc.

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

      Three months ended
    June 30,
    Six months ended
    June 30,
      2004
    2003
    2004
    2003
    Net revenues   $ 10,638,965    $ 9,167,299    $ 20,813,874    $ 18,164,213 
    Cost of revenues   6,558,400 
      5,682,722 
      13,003,815 
      11,259,365 
    Gross profit   4,080,565    3,484,577    7,810,059    6,904,848 
    Operating expenses:
    Sales and marketing (*)   1,124,726    956,887    2,345,260    1,869,223 
    Technical operations and development   1,140,870    1,018,925    2,152,292    1,850,694 
    General and administrative(*)   834,503    1,155,219    1,907,575    1,778,199 
    Depreciation of property and equipment   317,331    441,951    630,317    876,916 
    Amortization of intangible assets   39,680      39,680   
    Total operating expenses  
    3,457,110 
     
    3,572,982 
     
    7,075,124 
     
    6,375,032 
       
    income from operations   623,455    (88,405)   734,935    529,816 
     
    Other Income  
    Interest income, net   42,103    30,047    79,736    56,496 
    Gain on disposal of Liberty Registry Management Services Inc.     636,277      871,890 
    Total other income  
    42,103 
     
    666,324 
     
    79,736 
     
    928,386 
       
    Income before provision for income taxes   665,558    577,919    814,671    1,458,202 
    Provision for income taxes        
             
    Net income for the period   $ 665,558 
      $ 577,919 
      $ 814,671 
      $ 1,458,202 
       
    Basic and diluted earnings per common share   $ 0.01 
      $ 0.01 
      $ 0.01 
      $ 0.02 
       
    Shares used in computing basic earnings per common share   65,991,867 
      64,626,429 
      65,341,377 
      64,626,429 
    Shares used in computing diluted earnings per common share   72,370,411 
      64,674,737 
      72,144,584 
      64,652,926 
     
     
    (*) Stock-based compensation has been included in operating expenses as follows:
    Sales and marketing   $   $ 27,406    $ 16,834    $ 54,511 
    General and administrative   $   $ 13,158    $ 3,759    $ 26,171 


    Tucows Inc.

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

      Three months ended
    June 30,
    Six months ended
    June 30,
      2004
    2003
    2004
    2003
    Cash provided by:  
    Operating activities:  
    Net income for the period   $ 665,558    $ 577,919    $ 814,671    $ 1,458,202 
    Items not involving cash:  
    Depreciation of property and equipment   317,331    441,951    630,317    876,916 
    Amortization of intangible assets   39,680      39,680   
    Gain on change in the fair value of forward contracts   (110,148)   (337,358)   (91,263)   (884,228)
    Stock-based compensation     40,564    20,593    80,682 
    Gain on disposal of Liberty Registry Management Services     (636,277)     (871,890)
    Change in non-cash operating working capital:  
    Accounts receivable   (11,616)   (38,260)   (74,284)   34,114 
    Prepaid expenses and deposits   75,495    2,262    110,615    (3,577)
    Prepaid domain name registry fees   (1,259,188)   (709,212)   (3,296,200)   (1,668,636)
    Accounts payable   26,192    (9,148)   (349,257)   (210,571)
    Accrued liabilities   32,939    479,410    (222,482)   296,638 
    Customer deposits   50,481    143,523    3,600    141,709 
    Deferred revenue   1,569,497 
      844,488 
      4,376,960 
      2,260,190 
     
    Cash provided by operating activities   1,396,221 
      799,862 
      1,962,950 
      1,509,549 
     
    Financing activities:  
    Proceeds received on exercise of stock options   491,407 
     
      644,469 
     
    Cash provided by financing activities   491,407 
     
      644,469 
     
     
    Investing activities:  
    Additions to property and equipment   (245,106)   (152,425)   (353,250)   (620,622)
    (Increase) decrease in restricted cash – being margin security against forward exchange contracts   (361,250)   225,000    (228,750)   450,000 
    Acquisition of Boardtown Corporation, net of cash acquired   (2,019,510)     (2,019,510)  
    Increase in cash held in escrow   (1,000,000)     (1,000,000)  
    Proceeds on disposal of Liberty Registry Management Services Inc., net of cash disposed  
      636,277 
     
      871,890 
     
    Cash provided by (used in) investing activities   (3,625,866)
      708,852
      (3,601,510)
      701,268
     
    (Decrease) increase in cash and cash equivalents   (1,738,238)   1,508,714    (994,091)   2,210,817 
    Cash and cash equivalents, beginning of period   13,656,958 
      9,546,932 
      12,912,811 
      8,844,829 
     
    Cash and cash equivalents, end of period   $ 11,918,720 
      $ 11,055,646 
      $ 11,918,720 
      $ 11,055,646 
     
    Supplemental cash flow information:  
    Interest paid   $ 53    $ 144    $ 53    $ 316 
     
    Supplemental disclosure of non-cash investing and financing activities:  
    Common stock issued on the acquisition of Boardtown Corporation   $ 274,540    $   $ 274,540    $
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