Tucows Reports Strong Results for Fiscal 2003

Nine consecutive quarters of positive cash flow from operations and six consecutive quarters of profitability

TORONTO, CANADA, February 4, 2004 –

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

Three months ended December 31, 2003 Three months ended December 31, 2002 Year ended December 31, 2003 Year ended December 31, 2002
Net Revenue $9,715 $8,760 $37,195 $37,046*
Income (Loss) from Operations 389 222 932 (980)
Net Income 426 1,385 2,063 1,867
Net Income/Share 0.01 0.02 0.03 0.03
Cash Flow from Operations 1,134 410 3,220 3,438

*Includes $2.9 million in revenue from services that were disposed of during fiscal 2002.

Tucows Inc. (OTCBB: TCOW), today reported its results for the fourth quarter and fiscal year ended December 31, 2003.

Key highlights for the year included:

  • Net revenue of $37.2 million;
  • Income from operations of $932,000;
  • Positive cash flow from operations of $3.2 million; and
  • Net income of $2.1 million.

Key highlights for the fourth quarter included:

  • Net revenue of $9.7 million;
  • Income from operations of $389,000;
  • Positive cash flow from operations of $1.1 million;
  • Net income of $426,000;
  • Record deferred revenue of $28.6 million; and
  • A 29% year-over-year increase in domain name transactions to 853,000 from 662,000.

“Given the intensely competitive environment in which we operate, we are extremely proud to report such strong results,” said Elliot Noss, president and chief executive officer, Tucows Inc. “We grew our business by remaining focused and resolute in our commitment to meeting the expectations of our customers, partners and shareholders. Our efforts to carve out a sustainable, differentiated position have proved successful, as evidenced by our substantial improvement in transaction volumes and income from operations. We continue to work diligently to enhance the richness of the services we offer, while providing a consistently high quality of customer support. Moreover, our core market has just begun to grow again, positioning us to further capitalize on the leverage inherent in our business model.”

For the fiscal year ended December 31, 2003, net revenue increased marginally to $37.2 million from $37.0 million for fiscal 2002. Excluding $2.9 million in revenue from services that were disposed of during fiscal 2002, net revenue increased 9% from $34.1 million. Income from operations for fiscal 2003 was $932,000 compared to a loss from operations of $980,000 for fiscal 2002. Net income for fiscal 2003 was $2.1 million, or $0.03 per share, unchanged from fiscal 2002.

Deferred revenue at December 31, 2003, was a record $28.6 million, an increase of 17% from $24.4 million at December 31, 2002, and an increase of 4% from $27.5 million at September 30, 2003.

Cash and restricted cash at December 31, 2003, increased to $13.0 million from $9.8 million at December 31, 2002. This increase was primarily the result of positive cash flow from operations of $3.2 million and proceeds of $1.0 million received in connection with the company’s sale of Liberty RMS to Afilias, Limited in March 2002 being offset by cash used for the purchase of property and equipment of just under $1.0 million.

For the fourth quarter of fiscal 2003, net revenue increased 10% to $9.7 million from $8.8 million for the fourth quarter of fiscal 2002. Income from operations for the quarter increased to $389,000 from $222,000 for the same period last year. Net income for the quarter was $426,000, or $0.01 per share, compared to $1.4 million, or $0.02 per share, for the fourth quarter of fiscal 2002. Net income for the fourth quarter of fiscal 2002 included a gain of $1.1 million on the disposal of the Electric Library subscription assets.

Domain names registered, renewed and transferred-in for the fourth quarter increased to approximately 853,000 from approximately 662,000 for the same quarter of last year. Total active domain names under management at the end of the fourth quarter increased to 3.83 million.

Conference Call

Tucows will host a conference call on Wednesday, February 4, 2004, at 5:00 p.m. (ET) to discuss the company’s fourth quarter and fiscal 2003 results. To access the conference call via the Internet go to www.tucows.com, click on “About Tucows” and then 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 1522165. The telephone replay will be available until Wednesday, February 11, 2004, 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 third-party Internet services. Through an expanding global network of more than 5,000 active resellers, ISPs, and web hosting companies, Tucows provides a range of outsourced Internet services and products. Tucows is now the second largest ICANN-accredited domain name registrar in the world, offering domain name services for generic and country code top-level domains, plus digital certificates, managed DNS, and email services. Tucows also distributes software and other digital content through its network of affiliates and offers more than 30,000 software titles in libraries located around the world. For more information, please visit: http://www.tucows.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

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Tucows Inc.
Consolidated Balance Sheets
(Dollar amounts in U.S. dollars)
December 31, 2003 December 31, 2002
Assets
Current
assets:
Cash
and cash equivalents
$ 12,912,811  $ 8,844,829 
Restricted
cash (note 1)
132,500  937,500 
Accounts
receivable
486,289  338,697 
Prepaid
expenses and deposits
2,061,948  1,951,086 
Prepaid
domain name registry fees, current portion
13,204,566  11,145,187 
Total
current assets
28,798,114  23,217,299 
Prepaid
domain name registry fees, long-term portion
5,136,194  3,700,340 
Property
and equipment
1,048,400  1,581,321 
Investments 353,737  353,737 
Total
assets
$ 35,336,445  $ 28,852,697 
Liabilities
and Stockholders’ Equity (Deficiency)
Current
liabilities:
Accounts
payable
$ 1,632,294  $ 1,605,630 
Accrued
liabilities
2,088,235  2,288,412 
Customer
deposits
2,160,601  1,957,657 
Deferred
revenue, current portion
20,715,191  18,431,100 
Total
current liabilities
26,596,321  24,282,799 
Deferred
revenue, long-term portion
7,874,001  5,929,917 
Stockholders’
equity (deficiency):
Preferred
stock – no par value, 1,250,000 shares authorized; none issued and
outstanding
Common
stock - no par value, 250,000,000
shares authorized; 64,626,429 shares issued and outstanding at December 31,
2003 and December 31, 2002
8,540,687  8,540,687 
Additional
paid-in capital
49,992,129  49,992,129 
Deferred
stock-based compensation
(20,593) (183,297)
Deficit (57,646,100) (59,709,538)
Total
stockholders’ equity (deficiency)
866,123  (1,360,019)
Total
liabilities and stockholders’ equity (deficiency)
$ 35,336,445  $ 28,852,697 
Note
1:
In November
2003, the Company entered into a series of forward exchange contracts,
whereby amounts of

U.S.$400,000 or U.S.$650,000 are converted
into Canadian dollars on a semi-monthly basis from January 2004 until

the end of March 2004. As margin security against these contracts,
the Company placed $132,500 into secured

term deposits, which mature on a
monthly basis in line with the contracts.

In June 2002, the Company entered into a series of forward exchange contracts, whereby an
amount

of U.S.$375,000 was converted into Canadian
dollars on a semi-monthly basis from June 2002 until the
end of December
2003. As margin security against these contracts, the
Company placed $1,196,000
into secured term deposits, which matured on a
monthly basis in line with the contracts.

The outstanding
margin security in the amount of $132,500 (2002: $937,500) is reflected as
restricted cash
on the balance sheet.

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Tucows Inc.
Consolidated Statements of Operations
(Dollar amounts in U.S. dollars)
Three months ended Year ended
December 31, December 31,
2003 2002 2003 2002
Net
revenues
$ 9,714,774  $ 8,760,374  $ 37,194,747  $ 37,046,375 
Cost
of revenues
5,923,054  5,462,628  22,990,227  23,107,871 
Gross
profit
3,791,720  3,297,746  14,204,520  13,938,504 
Operating
expenses:
Sales
and marketing (*)
1,058,830  939,062  3,850,081  3,770,913 
Technical
operations and development
1,067,963  842,196  3,935,061  3,725,966 
General
and administrative (*)
953,166  892,232  3,998,073  4,523,314 
Depreciation
of property and equipment
323,230  402,249  1,489,570  2,675,836 
Amortization
of intangible assets
222,222 
Total
operating expenses
3,403,189  3,075,739  13,272,785  14,918,251 
Income
(loss) from operations
388,531  222,007  931,735  (979,747)
Other
income:
Interest
income, net
37,319  41,893  131,703  102,057 
Gain
on disposal of Electric Library subscription assets
1,121,480  1,846,717 
Gain
on disposal of Liberty Registry Management Services Inc.
1,000,000  1,955,443 
Loss
on disposal of Eklektix Inc.
(44,304)
Write-down
of investment in bigchalk.com
(1,013,335)
Total
other income
37,319  1,163,373  1,131,703  2,846,578 
Income
before provision for income taxes
425,850  1,385,380  2,063,438  1,866,831 
Provision
for income taxes
Net
income for the period
$ 425,850  $ 1,385,380  $ 2,063,438  $ 1,866,831 
Basic
and diluted earnings per share
$ 0.01  $ 0.02  $ 0.03  $ 0.03 
Shares
used in computing basic earnings per common share
64,626,429  64,626,429  64,626,429  64,626,429 
Shares
used in computing diluted earnings per common share
70,858,586  64,626,429  64,737,429  64,626,429 
(*)
Stock-based compensation has been included in operating expenses as follows:
Sales
and marketing
$ 27,708  $ 27,708  $ 109,926  $ 109,926 
General
and administrative
$ 13,304  $ 13,303  $ 52,778  $ 52,777 
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Tucows Inc.
Consolidated Statements of Cash Flows
(Dollar amounts in U.S. dollars)
Three months ended Year ended
December 31, December 31,
2003 2002 2003 2002
Cash
Provided by (used in):
Operating
activities:
Net
income for the period
$ 425,850  $ 1,385,380  $ 2,063,438  $ 1,866,831 
Items
not involving cash:
Depreciation
of property and equipment
323,230  402,249  1,489,570  2,675,836 
Amortization
of intangible assets
222,222 
(Gain)
loss on change in the fair value of forward contracts
297,296  (140,199) (279,174) 260,289 
Gain
on disposal of Liberty RMS
(1,000,000)
Write-down
of investment in bigchalk.com
1,013,335 
Stock-based
compensation
41,012  41,011  162,704  162,703 
Gain
on disposal of Electric Library subscription assets
(1,121,480) (1,846,717)
x:str="Gain on disposal of Liberty Registry Management Services ">Gain on
disposal of Liberty Registry Management Services 
(1,955,443)
Loss
on write-off of Eklektix Inc.
44,304 
Change
in non-cash operating working capital:
Accounts
receivable
(74,114) 35,338  (147,592) 306,951 
Prepaid
expenses and deposits
(503,288) (314,026) (91,977) (80,272)
Prepaid
domain name registry fees
(1,022,621) (167,032) (3,495,233) (2,488,384)
Accounts
payable
327,472  356,274  26,664  (15,669)
Accrued
liabilities
81,280  (125,796) 60,112  (479,898)
Customer
deposits
126,291  (63,540) 202,944  20,915 
Deferred
revenue
1,111,283  121,993  4,228,175  3,731,415 
Cash
provided by operating activities
1,133,691  410,172  3,219,631  3,438,418 
Financing
activities:
Repayment
of obligations under capital leases
(111,160)
Cash
used in financing activities
(111,160)
Investing
activities:
Additions
to property and equipment
(175,775) (235,741) (956,649) (844,508)
(Increase)
decrease in restricted cash – being margin security against forward exchange
contracts
130,112  127,250  805,000  (937,500)
Net
proceeds on disposal of Electric Library subscription assets
1,121,480  1,577,129 
Proceeds
on disposal of Liberty Registry Management Services Inc. , net of cash
disposed
1,000,000  938,889 
Proceeds
on disposal of Eklektix Inc., net of cash disposed
(30,628)
Cash
provided by investing activities
(45,663) 1,012,989  848,351  703,382 
Increase
in cash and cash equivalents
1,088,028  1,423,161  4,067,982  4,030,640 
Cash
and cash equivalents, beginning of period
11,824,783  7,421,668  8,844,829  4,814,189 
Cash
and cash equivalents, end of period
$ 12,912,811  $ 8,844,829  $ 12,912,811  $ 8,844,829 
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