Tucows Reports Results for First Quarter Fiscal 2002

Company reports its ninth consecutive quarter of revenue growth and its second consecutive quarter of positive operating cash flow

TORONTO, CANADA, May 8, 2002 – Tucows Inc. (OTCBB: TCOW), a leading provider of Internet services to ISPs and Web hosting companies worldwide, today announced its results for the first quarter of fiscal 2002, ended March 31, 2002. The company continued its strong operational and financial momentum, achieving:

  • its ninth consecutive quarter of revenue growth;
  • its second successive quarter of positive operating cash flow;
  • its first quarter of positive EBITDA (earnings before interest, depreciation, taxes and amortization); and,
  • a record number of domain name transactions.

“Tucows continued its trend of strong performance in the first quarter of fiscal 2002,” said Elliot Noss, president and chief executive officer, Tucows Inc. “We improved our cash flow, our operating results and our competitive position.”

Revenue for the first quarter of fiscal 2002 was $9.9 million, an increase of 55% from $6.4 million for the same quarter of fiscal 2001 and a modest increase from $9.8 million in the fourth quarter of fiscal 2001.

Deferred revenue at the end of the first quarter was a record $22.9 million, an increase of 29% from $17.7 million at the end of the first quarter of fiscal 2001. Excluding the impact of the sale of the Company’s wholly owned subsidiary, Liberty Registry Management Services Inc., in March 2002, deferred revenue during the quarter increased by $1.7 million compared to the fourth quarter of fiscal 2001.

Total operating expenses for the first quarter decreased to $4.5 million from $5.8 million for the same quarter of fiscal 2001 and $5.9 million for the fourth quarter of fiscal 2001.

EBITDA for the first quarter was $2.0 million, or $0.03 per share, compared to negative EBITDA of $1.6 million for the first quarter of fiscal 2001 and negative EBITDA of $44,660 in the fourth quarter of fiscal 2001.

Net income for the first quarter of fiscal 2002 was $766,000, or $0.01 per share, compared to a net loss of $3.3 million for the same quarter of fiscal 2001 and a net loss of $2.7 million for the fourth quarter of fiscal 2001. Included in net income for the first quarter is a one-time gain of $2.0 million realized on the March 2002 sale of Liberty Registry Management Services Inc., and certain software technology required to provide registry services, to Afilias, Limited. Excluding this gain, the Company would have incurred a net loss for the quarter of $1.2 million, or $0.02 per share.

“Our balance sheet continues to strengthen as we exited the first quarter with $6.2 million in cash and cash equivalents, up from $4.8 million at the end of the fourth quarter of fiscal 2001,” said Mr. Noss. “Tucows’ operating cash flow of $706,000 contributed significantly to the improvement in our cash position.”

Domain names registered, renewed and transferred-in for the first quarter, excluding 166,000 indirect registrations on behalf of other registrars, totaled 727,000, a record number of transactions in a single quarter. Total active domain names under management at the end of the first quarter, excluding 592,000 indirect registrations, increased to 3.2 million.

“We are very encouraged by the strength of the domain name registration market this quarter,” said Mr. Noss. “Tucows continued to outpace the market in terms of new registrations, a testament to our execution. We continue to succeed by focusing on making money for our customers by allowing them to provide exceptional service to their customers.”

In other developments during the quarter:

  • Tucows captured the number two market share position as reported in the latest edition of SnapNames’ State of the Domain report, ranking ahead of Register.com, Inc. and second only to the former monopoly, VeriSign, Inc.
  • Tucows closed the sale of its wholly owned subsidiary, Liberty Registry Management Services Inc., to Afilias, Limited, the official .INFO registry appointed by ICANN.
  • Tucows began “Sunrise” pre-registrations for .US, the country code top-level domain for the United States, offering individuals, organizations and businesses the opportunity to establish a clear American identity on the Internet.

Conference Call

Tucows will host a conference call on Wednesday, May 8, 2002, at 5:00 p.m. (ET) to discuss its first quarter 2002 results. Participants can access the conference call via the Internet at www.tucows.com by clicking on “About Tucows” and then on “Investor Relations.”

For those unable to participate in 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 416-695-5800 and enter the pass code 1138987. The telephone replay will be available until Wednesday, May 15, 2002, 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 Internet services to ISPs and Web hosting companies worldwide. An ICANN-accredited registrar, Tucows provides outsourced domain name registrations for generic and country code top-level domains (TLDs), plus web certificates. Tucows also distributes software and other digital content through its integrated network of resellers. Tucows offers more than 30,000 software titles in libraries located around the world and operates search and reference media sites including eLibrary, Encyclopedia.com, and NewsDirectory.com. 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 may include statements regarding, for example, the growth of the domain name market, 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)
December 31,
2001
March 31, 2002
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 4,814,189 $ 6,203,412
Accounts receivable 817,990 437,252
Prepaid expenses and deposits 2,041,927 1,873,855
Prepaid domain name registry fees, current portion 10,034,413
10,344,232
Total current assets 17,708,519 18,858,751
Prepaid domain name registry fees, long term portion 2,599,962 2,917,275
Property and equipment 3,691,390 2,620,320
Intangible assets 222,222 55,556
Investments 1,367,072
1,367,072
Total assets $ 25,589,165
$ 25,818,974
Liabilities and Stockholders’ Deficiency
Current liabilities:
Accounts payable $ 1,958,744 1,576,801
Accrued liabilities 2,242,858 1,779,548
Customer deposits 1,951,336 2,009,938
Obligations under capital lease 58,772 46,000
Deferred revenue, current portion 18,444,280
17,996,933
Total current liabilities 24,655,990 23,409,220
Deferred revenue, long term portion 4,270,341 4,948,194
Obligations under capital lease, net of current portion 52,387 45,383
Capital stock 58,532,816 58,532,816
Deferred stock–based compensation (346,000) (305,882)
Deficit (61,576,369)
(60,810,757)
Total stockholders’ deficiency (3,389,553)
(2,583,823)
Total liabilities and stockholders’ deficiency $ 25,589,165
$ 25,818,974

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

Three months ended March 31,
2001
2002
Net revenues $ 6,391,648 $ 9,926,533
Cost of revenues 3,917,300
6,594,525
Gross profit 2,474,348 3,332,008
Operating expenses:
Sales and marketing 1,951,078 1,104,856
Technical operations and development 1,246,084 1,058,929
General and administrative 844,359 1,034,832
Amortization of property and equipment 864,955 1,130,098
Amortization of intangible assets 925,860
166,666
Total operating expenses 5,832,336
4,495,381
Loss from operations (3,357,988)
(1,163,373)
Other income (expenses)
Interest income 26,437 17,846
Gain on disposal of Liberty Registry

Management Services Inc.
1,955,443
Loss on disposal of Eklektix, Inc.
(44,304)
26,437
1,928,985
Net (loss) income before provision for income taxes $ (3,331,551) $ 765,612
Provision for income taxes

Net (loss) income for the period $ (3,331,551)
$ 765,612
Basic and diluted (loss) earnings per share $ (0.78)
$ 0.01
Shares used in computing basic and diluted

(loss) earnings per common share
4,291,500
64,626,429

Tucows Inc.

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

Three months ended
March 31,
2001
2002
Cash provided by (used in):
Operating activities:
Net (loss) income for the period $ (3,331,551) $ 765,612
Items not involving cash:
Amortization of property and equipment 864,955 1,130,09
Amortization of intangible assets 925,86 166,666
Stock–based compensation
Gain on disposal of Liberty Registry

Management Services Inc.
(1,955,443)
Loss on write–off of Eklektix Inc. 44,304
Change in non–cash operating working capital: (1,145,030)
514,757
Cash (used in) provided by operating activities (2,645,648)
706,112
Financing activities:
Proceeds on rights issue 2,999,973
Proceeds received on common stock to be issued 24,396
Repayment of obligations under capital leasess
(19,776)
Cash provided by (used in) financing activities 3,024,369
(19,776)
Investing activities:
Additions to property and equipment (1,154,759) (205,374)
Proceeds on disposition of Liberty Registry Management Services Inc., net of cash disposed 938,889
Proceeds on disposition of Eklektix Inc., net of cash disposed (30,628)
Deferred acquisition costs (313,098)

Cash (used in) provided by investing activities (1,467,857)
702,887
(Decrease) increase in cash and cash equivalents (1,089,136) 1,389,223
Cash and cash equivalents, beginning of period 2,170,194
4,814,189
Cash and cash equivalents, end of period $ 1,081,058
$ 6,203,412
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