Tucows Reports Thirteenth Consecutive Quarter of Profitability and Sixteenth Quarter of Positive Cashflow from Operations

Third Quarter Results Reflect Continued Momentum in Business

TORONTO – November 8, 2005 - Tucows Inc. (AMEX : TCX, TSC : TC) today reported continued strong results for the third quarter of fiscal 2005, ended September 30, 2005.

Highlights for the third quarter included:

  • A 7% year-over-year increase in net revenue to a record $12.1 million (excluding the impact of the one-time accounting transaction in the third quarter of fiscal 2004)
  • Income from operations of $0.7 million;
  • Net income of $0.8 million, the Company’s thirteenth consecutive quarter of profitability;
  • Cash flow from operations of $0.8 million, the Company’s sixteenth consecutive quarter of positive cash flow from operations;
  • A 15% year-over-year increase in deferred revenue to a record $37.3 million.

“Our strong third quarter performance in our first quarter of operation on the AMEX and TSX exchanges continues our history of profitability, cash generation and growth. As always, this is driven by our position as the preferred supplier to web hosting companies and Internet service providers,” said Elliot Noss, President and Chief Executive Officer. “As we move forward, we are firmly focused on growing the contribution from services like blogware and messaging to both revenue and gross margin. At the same time, we are continuing to pursue growth in our core domain business.”

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

Three months ended
Sept. 30, 2005
Three months ended
Sept. 30, 2004
Nine Months ended
Sept. 30, 2005
Nine Months ended
Sept. 30, 2004
Net Revenue 12,055 12,381 35,859 33,195
Income from Operations 665 614 1,290 1,349
Net Income 788 821 1,739 1,635
Net Income/Share – basic 0.01 0.01 0.03 0.02
Net Income/Share – fully diluted 0.01 0.01 0.02 0.02
Cash Flow from Operations 792 1,127 2,922 3,090
* includes the recognition of deferred domain name revenue of approximately $1.1 million that was recognized as a result of one of our resellers becoming an accredited registrar and transferring all of its domain names from our tag to its own tag with the result that Tucows was no longer accountable for those transactions. Included in cost of revenue is $0.8 million previously deferred against these names in prepaid domain name registry fees.

Net revenue for the third quarter of fiscal 2005 was $12.1 million compared with $12.4 million for the third quarter of fiscal 2004. Revenue for the third quarter of fiscal 2004 includes the recognition of deferred domain name revenue of approximately $1.1 million that was recognized as a result of one of our resellers becoming an accredited registrar and transferring all of its domain names from our tag to its own tag with the result that Tucows was no longer accountable for those transactions. Excluding this amount, revenue for the third quarter of fiscal 2005 increased 7% from the corresponding quarter of last year. The increase was the result of a higher number of domain transactions as well as higher revenue from ancillary services. The increase was partially offset by lower revenue from domain names and lower revenue from our content business due to the short-term impact of the relaunch of our web site.

Income from operations for the third quarter of fiscal 2005 increased to $0.7 million compared with $0.6 million for the corresponding quarter of last year. Income from operations for the third quarter of fiscal 2005 included an increase in the gain on foreign exchange of $140,000 compared with the third quarter of fiscal 2004. Net income for the third quarter of fiscal 2005 was $0.8 million, or $0.01 per share, compared with $0.8 million, or $0.01 per share, for the third quarter of fiscal 2004.

Deferred revenue at the end of the third quarter of fiscal 2005 was $37.3 million, an increase of 15% from $32.5 million at the end of the third quarter of fiscal 2004 and an increase of 2% from $36.6 million at the end of the second quarter of fiscal 2005.

Cash, short-term investments and restricted cash at the end of the third quarter of fiscal 2005 was $18.4 million compared to $13.3 million at the end of the third quarter of fiscal 2004 and $15.8 million at the end of the second quarter of fiscal 2005. The increase compared to the second quarter of fiscal 2005 is the result of proceeds of $1.6 million generated by the equity financing completed in August, as well as positive cash flow from operations for the third quarter of this year of $0.8 million

Conference Call

Tucows will host a conference call today, Tuesday, November 8, 2005, at 5:00 p.m. (ET) to discuss the company’s third 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 3166193 followed by the pound key. The telephone replay will be available until Tuesday, November 15, 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. provides Internet services and downloadable software through a global distribution network of more than 6,000 service providers. These service providers primarily consist of web hosting companies, Internet service providers and providers of other services over the Internet. Tucows’ services include domain registration services, digital certificates, billing, provisioning and customer care software solutions, email and anti-spam services, Blogware and website building tools. Tucows is an accredited registrar with the Internet Corporation for Assigned names and Numbers, or ICANN, and generates revenue primarily through the provision of domain registration and other Internet services to service providers who offer such services to their own customers in a process known as wholesale distribution.
For more information, please visit:
www.tucowsinc.com

Contact:
Hilda Kelly
Investor Relations

Tucows Inc.
416-538-5493
ir@tucows.com


TUCOWS is a registered trademark of Tucows Inc. or its subsidiaries. All other trademarks and service marks are the properties of their respective owners.

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Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows


Tucows Inc.

Consolidated Balance Sheets
(Dollar amounts in U.S. dollars)

September 30,
2005
December 31,
2004
Assets
Current assets:
Cash and cash equivalents $ 10,315,332 $ 13,914,988
Short-term investments 7,771,453 -
Restricted cash (note 1) 300,000 460,398
Interest receivable 115,739 -
Accounts receivable 1,362,887 1,111,082
Prepaid expenses and deposits 1,687,766 2,156,702
Prepaid domain name registry and ancillary services fees, current portion 18,001,418 15,601,786
Deferred tax asset, current portion 1,000,000
1,000,000
Total current assets 40,554,595 34,244,956
Prepaid domain name registry and ancillary services fees, long-term portion 7,445,536 6,471,916
Property and equipment 1,412,753 1,017,237
Deferred tax asset, long-term portion 2,000,000 2,000,000
Intangible assets 1,065,120 1,242,240
Goodwill 1,951,067 964,467
Investment 353,737 353,737
Cash held in escrow 619,082 1,009,650
Total assets $
55,401,890
$
47,304,203
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 1,715,409 $ 1,483,543
Accrued liabilities 1,743,843 2,688,738
Customer deposits 2,169,890 2,247,262
Deferred revenue, current portion 26,561,381 23,648,381
Accreditation fees payable, current portion 366,143
144,483
Total current liabilities 32,556,666 30,212,407
Deferred revenue, long term portion 10,758,080 9,602,599
Accreditation fees payable, long term portion 78,212 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; 71,840,267 shares issued and outstanding at September 30, 2005 and 66,817,250 shares issued and outstanding at December 31, 2004 12,354,168 9,541,277
Additional Paid-in Capital 50,061,866 50,061,866
Deficit (50,407,102)
(52,145,762)
Total stockholders’ equity 12,008,932
7,457,381
Total liabilities and stockholders’ equity $ 55,401,890
$ 47,304,203
Note 1:
The restricted cash of $300,000 represents margin security against a series of forward exchange contracts.

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

Three months ended
September 30,
Nine months ended
September 30,
2005
2004
2005
2004
Net revenues $ 12,054,796 $ 12,381,326 $ 35,858,640 $ 33,195,200
Cost of revenues 7,676,713
7,654,475
22,484,530
20,658,200
Gross profit 4,378,083 4,726,851 13,374,110 12,537,000
Operating expenses:
Sales and marketing (*) 1,150,674 1,370,932 3,669,185 3,716,192
Technical operations and development 1,468,624 1,107,590 4,147,467 3,259,882
General and administrative(*) 820,860 1,388,421 3,358,347 3,295,996
Depreciation of property and equipment 213,422 187,158 732,165 817,475
Amortization of intangible assets 59,040 59,040 177,120 98,720
Total operating expenses
3,712,620

4,113,141

12,084,284

11,188,265
Income from operations 665,463 613,710 1,289,826 1,348,735
Other income
Interest income, net 122,755 56,549 296,859 136,285
Total other income
122,755

56,549

296,859

136,285
Income before provision for income taxes 788,218 670,259 1,586,685 1,485,020
Provision for (recovery of) income taxes -
(150,432)
(151,975)
(150,432)
Net income for the period $ 788,218
$ 820,691
$ 1,738,660
$ 1,635,452
Basic earnings per common share $ 0.01
$ 0.01
$ 0.03
$ 0.02
Shares used in computing basic earnings per common share 69,602,723
66,800,369
68,126,691
65,831,258
Diluted earnings per common share $ 0.01
$ 0.01
$ 0.02
$ 0.02
Shares used in computing diluted earnings per common share 73,145,627
68,458,596
72,243,523
68,099,907
(*) 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
September 30,
Nine months ended
September 30,
2005
2004
2005
2004
Cash provided by (used in):
Operating activities:
Net income for the period $ 788,218 $ 820,691 $ 1,738,660 $ 1,635,362
Items not involving cash:
Depreciation of property and equipment 213,422 187,158 732,165 817,475
Amortization of intangible assets 59,040 59,040 177,120 98,720
Unrealized change in the fair value of forward contracts (290,177) (97,512) (182,549) (188,775)
Stock-based compensation - - - 20,593
Change in non-cash operating working capital:
Interest receivable (115,739) - (115,739) -
Accounts receivable (91,828) (382,631) (251,805) (456,915)
Prepaid expenses and deposits 240,682 68,578 651,485 179,193
Prepaid domain name registry and ancillary services fees (535,643) 369,522 (3,373,252) (2,926,678)
Accounts payable 292,579 61,324 231,866 (287,933)
Accrued liabilities (269,556) 668,181 (944,895) 445,699
Customer deposits 31,497 (167,189) (77,372) (163,589)
Deferred revenue 674,016 (460,375) 4,068,481 3,916,585
Accreditation fees payable (204,296)
-
268,056
-
Cash provided by operating activities 792,215
1,126,787
2,922,221
3,089,737
Financing activities:
Proceeds received on exercise of stock options 65,177 81,581 251,616 726,050
Net proceeds received on issuance of common stock, net of issue costs 2,024,025
-
1,574,675
-
Cash provided by financing activities 2,089,202
81,581
1,826,291
726,050
Investing activities:
Additions to property and equipment (301,604) (143,239) (1,127,681) (496,489)
Investment in short-term investments - - (7,771,453) -
(Decrease) increase in restricted cash – being margin security against forward exchange contracts (300,000) 148,750 160,398 (80,000)
Acquisition of Boardtown Corporation, net of cash acquired - - - (2,019,510)
Decrease (increase) in cash held in escrow (2,320)
-
390,568
(1,000,000)
Cash (used in) provided by investing activities (603,924)
5,511
(8,348,168)
(3,595,999)
Increase (decrease) in cash and cash equivalents 2,277,493 1,213,879 (3,599,656) 219,788
Cash and cash equivalents, beginning of period 8,037,839
11,918,720
13,914,988
12,912,811
Cash and cash equivalents, end of period $ 10,315,332
$ 13,132,599
$ 10,315,332
$ 13,132,599
Supplemental cash flow information:
Interest paid $ - $ 113 $ 300 $ 166
Supplemental disclosure of non-cash investing and financing activities:
Common stock issued on the acquisition of Boardtown Corporation $ 285,238 $ - $ 986,601 $ 274,540
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