Tucows Reports Continued Strong Results

Company Achieves Eleventh Consecutive Quarter of Profitability

TORONTO – May 4, 2005 - Tucows Inc. (OTCBB: TCOW) today reported strong results for the first quarter of fiscal 2005, ended March 31, 2005.

Highlights for the first quarter included:

  • A 16% year-over-year increase in net revenue to $11.8 million, the Company’s second highest quarterly revenue;
  • Income from operations of $0.2 million;
  • Cash flow from operations of $0.7 million;
  • Net income of $0.4 million, the Company’s eleventh consecutive quarter of profitability; and
  • A 14% year-over-year increase in deferred revenue to a record $35.8 million.

“Our strong operational performance in the first quarter of fiscal 2005, highlighted by a record number of domain name registration transactions and non-domain Internet services provided an increased contribution to both revenue and gross margin. The result is our second best quarter ever in terms of revenue, our fourteenth consecutive quarter of positive cash flow from operations and our eleventh consecutive quarter of profitability,” said Elliot Noss, President and Chief Executive Officer, Tucows Inc. “Our continued momentum underscores the success of our approach to the Internet services market. By offering a broad range of services to a specific customer set, we forge strong, deep customer relationships. We believe these relationships are a significant competitive advantage for Tucows and a substantial barrier to entry for potential competitors. Looking ahead, with the fundamentals in place and our business performing well, we are focused on maximizing the revenue and profitability derived through our business model.”

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

Three months ended
March 31, 2005
Three months ended
March 31, 2004
Net Revenue 11,802 10,175
Income from Operations 214 111
Net Income 443 149
Net Income/Share 0.01 0.00
Cash Flow from Operations 655 567

Net revenue for the first quarter of fiscal 2005 increased 16% to $11.8 million from $10.2 million for the first quarter of fiscal 2004, the result of both a higher number of domain name registrations and a higher contribution from non-domain Internet services. Income from operations for the first quarter was $0.2 million (which included a net loss on the value of foreign exchange forward contracts of $0.1 million). Net income for the first quarter of fiscal 2005 increased to $0.4 million, or $0.01 per share from $0.1 million, or $0.00 per share, for the first quarter of fiscal 2004.

Deferred revenue at the end of the first quarter of fiscal 2005 was $35.8 million, an increase of 14% from $31.4 million at the end of the first quarter of fiscal 2004 and an increase of 8% from $33.3 million at the end of the fourth quarter of fiscal 2004.

Cash and restricted cash at the end of the first quarter of fiscal 2005 was $15.0 million compared to $13.7 million at the end of the first quarter of fiscal 2004 and $14.4 million at the end of the fourth quarter of fiscal 2004. The increase compared to the fourth quarter of fiscal 2004 is primarily the result of positive cash flow from operations for the first quarter of this year of $0.7 million.

Conference Call

Tucows will host a conference call on Wednesday, May 4, 2005, at 5:00 p.m. (ET) to discuss the company’s first quarter fiscal 2005 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 3151037. The telephone replay will be available until Wednesday, May 11, 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)

   
March 31,
2005

(unaudited)
        
December 31,
2004
 
Assets
Current assets:
Cash and cash equivalents $ 15,007,050  $ 13,914,988 
Restricted cash     460,398 
Accounts receivable   1,262,679    1,111,082 
Prepaid expenses and deposits   1,721,738    2,156,702 
Prepaid domain name registry and ancillary fees, current portion   17,082,065    15,601,786 
Deferred tax asset, current portion   1,000,000 
  1,000,000 
Total current assets   36,073,532    34,244,956 
 
Prepaid domain name registry and ancillary fees, long-term portion   6,993,852    6,471,916 
Property and equipment   976,272    1,017,237 
Deferred tax asset, long-term portion   2,000,000    2,000,000 
Intangible assets   1,183,200    1,242,240 
Goodwill   964,467    964,467 
Investment   353,737    353,737 
Cash held in escrow   1,013,366    1,009,650 
Total assets $
49,558,426 
$
47,304,203 
     
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 1,526,505  $ 1,483,543 
Accrued liabilities   1,677,947    2,688,738 
Customer deposits   2,169,135    2,247,262 
Deferred revenue, current portion   25,493,236    23,648,381 
Accreditation fees payable, current portion   303,891 
  144,483 
Total current liabilities   31,170,714    30,212,407 
 
Deferred revenue, long term portion   10,263,233    9,602,599 
Accreditation fees payable, long term portion   43,265    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; 67,297,465 shares issued and outstanding at March 31, 2005 and 66,817,250 shares issued and outstanding at December 31, 2004   9,722,300    9,541,277 
Additional Paid-in Capital   50,061,866    50,061,866 
Deficit   (51,702,952)
  (52,145,762)
Total stockholders’ equity   8,081,214 
  7,457,381 
 
Total liabilities and stockholders’ equity $ 49,558,426 
$ 47,304,203 
 


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

(unaudited)

         Three months ended March 31,
  2005     
2004     
 
Net revenues   $ 11,801,706    $ 10,174,909 
Cost of revenues   7,221,205 
  6,445,415 
Gross profit   4,580,501 
  3,729,494 
   
Operating expenses:
Sales and marketing (*)   1,352,454    1,220,534 
Technical operations and development   1,322,785    1,011,422 
General and administrative(*)   1,390,762    1,073,072 
Depreciation of property and equipment   241,873    312,986 
Amortization of intangible assets   59,040 
 
Total operating expenses   4,366,914 
  3,618,014 
   
Income from operations   213,587    111,480 
 
Other income  
Interest income, net   77,248    37,633 
Total other income  
77,248 
 
37,633 
   
Income before provision for income taxes   290,835    149,113 
Provision for (recovery of) income taxes   (151,975)  
     
Net income for the period   $ 442,810 
  $ 149,113 
   
Basic and diluted earnings per share   $ 0.01 
  $ 0.00 
   
Shares used in computing basic earnings per common share    66,883,487 
   64,690,887 
   
Shares used in computing diluted earnings per common share    71,604,368 
   66,989,744 
 
 
(*) Stock-based compensation has been included in operating expenses as follows:
Sales and marketing   $   $ 16,834 
General and administrative   $   $ 3,759 


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

         Three months ended March 31,
  2005
2004
 
Cash provided by:  
Operating activities:  
Net Income for the period   $ 442,810    $ 149,113&nbsp
Items not involving cash:        
Depreciation of property and equipment   241,873    312,986 
Amortization of intangible assets   59,040   
Loss on change in the fair value of forward contracts   107,628    18,885 
Stock-based compensation     20,593 
Change in non-cash operating working capital:  
Accounts receivable   (151,597)   (62,668) 
Prepaid expenses and deposits   327,336    35,120
Prepaid domain name registry fees   (2,002,215)   (2,037,012)
Accounts payable   42,962    (375,449)
Accrued liabilities   (1,010,791)   (255,421)
Customer deposits   (78,127)   (46,881)
Deferred revenue   2,505,489    2,807,463 
Accreditation fees payable   170,857 
 
Cash provided by operating activities   655,265 
 

566,729 

 
Financing activities:  
Proceeds received on exercise of stock options   181,023 
  153,062 
Cash provided by financing activities   181,023 
  153,062 
 
Investing activities:  
Additions to property and equipment   (200,908)   (108,144)
Decrease in restricted cash – being margin security against forward exchange contracts   460,398    132,500 
Increase in cash held in escrow   (3,716)
 
 
Cash provided by investing activities   255,774 
  24,356 
 
Increase in cash and cash equivalents   1,092,062    744,147 
Cash and cash equivalents, beginning of period    13,914,988 
   12,912,811 
Cash and cash equivalents, end of period   $ 15,007,050 
  $ 13,656,958 
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