Tucows Reports Strong Performance for First Quarter Fiscal 2004

Quarter Highlighted by Significant Growth in Revenue, Deferred Revenue and Domain Name Transactions

TORONTO, CANADA, May 5, 2004 –

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

Three months ended March 31, 2004 Three months ended March 31, 2003
Net Revenue $10,175 $8,997
Income (Loss) from Operations 111 618
Net Income 149 880
Net Income/Share 0.00 0.01
Cash Flow from Operations 567 710


Tucows Inc. (OTCBB: TCOW), today reported its results for the first quarter of fiscal 2004 ended March 31, 2004.

Key highlights for the first quarter included:

  • Net revenue of $10.2 million representing a year-over-year increase of 13%;
  • Income from operations of $111,000;
  • Positive cash flow from operations of $567,000;
  • Net income of $149,000;
  • A 22% year-over-year increase in deferred revenue to a record $31.4 million; and
  • A 32% year-over-year increase in domain name transactions to a record 1.0 million.

“Our dominant position in wholesale domain registrations continued to yield strong results in the first quarter of 2004 as significant business wins in the second half of last year contributed to a record number of transactions and bookings that were well ahead of plan, underscoring the continued momentum in our business,” said Elliot Noss, president and chief executive officer, Tucows Inc. “At the same time, the leverage in our business model, combined with our focus on minimizing costs, allowed us to continue to achieve profitability despite the impact of an aggressively competitive environment and the strengthening Canadian dollar.”

Net revenue for the first quarter of fiscal 2004 increased 13% to $10.2 million from $9.0 million for first quarter of fiscal 2003, primarily the result of higher domain name transactions. Income from operations for the first quarter was $111,000, inclusive of the impact of a net loss of approximately $19,000 from foreign exchange forward contracts, compared to $618,000, inclusive of the impact of a net gain of approximately $547,000 from foreign exchange forward contracts, for the corresponding quarter last year. Net income for the quarter was $149,000, or $0.00 per share, compared to $880,000, or $0.01 per share, for the fist quarter last year. The decrease in net income was primarily the result of the forward exchange contracts described above and the impact of a non-recurring payment of approximately $236,000 received during the first quarter of last year.

Deferred revenue at March 31, 2004, was a record $31.4 million, an increase of 22% from $25.8 million at March 31, 2003 and an increase of 10% from $28.6 million at December 31, 2003. Cash and restricted cash at March 31, 2004 increased to $13.7 million from $10.3 million at March 31, 2003 and $13.0 million at December 31, 2003. The increase over December 31, 2003 was primarily the result of positive cash flow from operations of $567,000.

Domain names registered, renewed and transferred-in for the first quarter of fiscal 2004 increased 32% to approximately 1,019,000 from approximately 773,000 for the same quarter of last year. Total active domain names under management at the end of the fourth quarter increased to 4.08 million.

On April 27, 2004, Tucows completed the previously announced acquisition of Boardtown Corporation, a maker of billing, provisioning and customer care software for service providers, for a total consideration of up to $4.0 million. “We have always viewed the wholesale domain registration business as a launching pad to a broader future,” said Mr. Noss. “Adding the Boardtown suite of solutions to our existing digital certificates, email, email defense, blogware and other services sets up the next stage in the company’s evolution. Combined with a strong and growing core domain name business, we expect to deliver sequential growth in revenue in each quarter of 2004.”

Conference Call

Tucows will host a conference call on Wednesday, May 5, 2004, at 5:00 p.m. (ET) to discuss the company’s first 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 3039326. The telephone replay will be available until Wednesday, May 12, 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 wholesaler of Internet services to a global network of more than 6,000 resellers such as ISPs and web hosting companies. Tucows provides a range of outsourced Internet services and products, including: domain name registration and management, digital certificates, managed DNS, and email services. The company is the largest ICANN-accredited wholesale domain name registrar. 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)

   
March 31,
2004

(unaudited)
        
December 31,
2003
 
Assets
Current assets:
Cash and cash equivalents $ 13,656,958  $ 12,912,811 
Restricted cash     132,500 
Accounts receivable   548,957    486,289 
Prepaid expenses and deposits   2,007,943    2,061,948 
Prepaid domain name registry fees, current portion   14,564,254 
  13,204,566 
Total current assets   30,778,112    28,798,114 
 
Prepaid domain name registry fees, long-term portion   5,813,518    5,136,194 
Property and equipment   843,558    1,048,400 
Investments   353,737    353,737 
Total assets $
37,788,925 
$
35,336,445 
     
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 1,256,845  $ 1,632,294 
Accrued liabilities   1,832,814    2,088,235 
Customer deposits   2,113,720    2,160,601 
Deferred revenue, current portion   22,595,093 
  20,715,191 
Total current liabilities   27,798,472    26,596,321 
     
Deferred revenue, long-term portion   8,801,562    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; 65,039,717 shares issued and outstanding as of March 31, 2004 and 64,626,429 shares issued and outstanding as of December 31, 2003   8,693,749    8,540,687 
Additional Paid-in Capital   49,992,129    49,992,129 
Deferred stock‚Äìbased compensation     (20,593)
Deficit   (57,496,987)
  (57,646,100)
Total stockholders’ equity   1,188,891 
  866,123 
 
Total liabilities and stockholders’ equity $ 37,788,925 
$ 35,336,445 
 


Tucows Inc.
Consolidated Statements of Operations

(Dollar amounts in U.S. dollars)
(unaudited)

         Three months ended March 31,
  2004     
2003     
 
Net revenues   $ 10,174,909    $ 8,996,914 
Cost of revenues   6,445,415 
  5,576,643 
Gross profit   3,729,494    3,420,271 
   
Operating expenses:
Sales and marketing (*)   1,220,534    912,336 
Technical operations and development   1,011,422    831,769 
General and administrative(*)   1,073,072    622,980 
Depreciation of property and equipment   312,986 
  434,965 
Total operating expenses   3,618,014 
  2,802,050 
   
Income from operations   111,480   618,221 
 
Other income  
Interest income, net   37,633    26,449 
Gain on disposal of Liberty Registry Management Services Inc.     235,613 
Total other income  
37,633
 


262,062 

   
Income before provision for income taxes   149,113    880,283 
Provision for income taxes    
     
Net income for the period   $ 149,113
  $ 880,283 
   
Basic and diluted earnings per share   $ 0.00    $ 0.01 
   
Shares used in computing basic earnings per common share    64,690,887 
   64,626,429 
   
Shares used in computing diluted earnings per common share    72,098,757 
   64,626,429 
 
 
(*) Stock-based compensation has been included in operating expenses as follows:
Sales and marketing   $ 16,834    $ 27,105 
General and administrative   $ 3,759    $ 13,013 


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

         Three months ended March 31,
  2004
2003
 
Cash provided by:  
Operating activities:  
Net Income for the period   $ 149,113    $ 880,283&nbsp
Items not involving cash:        
Depreciation of property and equipment   312,986    434,965 
Loss (gain) on change in the fair value of forward contracts   18,885    (546,870)
Stock-based compensation   20,593    40,118 
Gain on disposal of Liberty Registry Management Services Inc.     (235,613)
Change in non-cash operating working capital:  
Accounts receivable   (62,668)   72,374 
Prepaid expenses and deposits   35,120    (5,839)
Prepaid domain name registry fees   (2,037,012)   (959,424)
Accounts payable   (375,449)   (201,423)
Accrued liabilities   (255,421)   (182,772)
Customer deposits   (46,881)   (1,814)
Deferred revenue   2,807,463    1,415,702 
Cash provided by operating activities  


566,729 

 
709,687 
Financing activities:  
Proceeds received on exercise of stock options   153,062 
 
Cash provided by financing activities   153,062 
 
 
Investing activities:  
Additions to property and equipment   (108,144)   (468,197)
Decrease in restricted cash – being margin security against forward exchange contracts   132,500    225,000 
Proceeds on disposal of Liberty Registry Management Services Inc., net of cash disposed     235,613 
Cash provided by (used in) investing activities   24,356 
  (7,584)
 
Increase in cash and cash equivalents   744,147    702,103 
Cash and cash equivalents, beginning of period    12,912,811 
   8,844,829 
Cash and cash equivalents, end of period   $ 13,656,958 
  $

9,546,932 

   
Supplemental cash flow information:  
Interest paid   $   $ 172 
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