Tucows Reports Twelvth Consecutive Quarter of Profitability and Fifteenth Quarter of Positive Cashflow from Operations

Financial performance in the second quarter underscores momentum in business

TORONTO – August 3, 2005 - Tucows Inc. (OTCBB: TCOW) today reported continued strong results for the second quarter of fiscal 2005, ended June 30, 2005.

Highlights for the second quarter included:

  • A 13% year-over-year increase in net revenue to $12.0 million, the Company’s second highest quarterly revenue;
  • Income from operations of $0.4 million;
  • Cash flow from operations of $1.5 million;
  • Net income of $0.5 million, the Company’s twelfth consecutive quarter of profitability; and
  • An 11% year-over-year increase in deferred revenue to a record $36.6 million.

“We continue to be successful in the execution of our strategy to build upon our dominant position in the wholesale domain market by adding higher margin services that address high growth segments of the Internet such as blogging,” said Elliot Noss, President and Chief Executive Officer, Tucows Inc. “Moving forward, in addition to pursuing continued growth in our domain business, we are focused on generating sales from our new ancillary services, to grow their contribution to both revenue and gross margin.”

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

Three months ended
June 30, 2005
Three months ended
June 30, 2004
12 Months ended
June 30, 2005
12 Months ended
June 30, 2004
Net Revenue 12,002 10,639 23,804 20,814
Income from Operations 411 623 624 735
Net Income 507 666 950 815
Net Income/Share 0.01 0.01 0.01 0.01
Cash Flow from Operations 1,475 1,396 2,130 1,963

Net revenue for the second quarter of fiscal 2005 increased 13% to $12.0 million from $10.6 million for the second quarter of fiscal 2004. This increase was the result of both a higher number of domain name registrations and a higher contribution from ancillary services.

Income from operations for the second quarter of fiscal 2005 was $0.4 million compared to $0.6 million for the corresponding quarter last year. Income from operations for the second quarter of fiscal 2005 included a decrease in the gain on foreign exchange of $102,000 compared to the second quarter of fiscal 2004. In addition, net income from operations for the second quarter of fiscal 2005 included expenses of $100,000 related to a severance payment and $64,000 related to incremental professional fees and outside contractors.

Net income for the second quarter of fiscal 2005 was $0.5 million, or $0.01 per share, compared with $0.7 million, or $0.01 per share, for the second quarter of fiscal 2004.

Deferred revenue at the end of the second quarter of fiscal 2005 was $36.6 million, an increase of 11% from $33.0 million at the end of the second quarter of fiscal 2004 and an increase of 10% from $33.3 million at the end of the first quarter of fiscal 2005.

Cash, short-term investments and restricted cash at the end of the second quarter of fiscal 2005 was $15.8 million compared to $12.3 million at the end of the second quarter of fiscal 2004 and $15.0 million at the end of the first quarter of fiscal 2005. The increase over the first quarter of fiscal 2005 is primarily the result of positive cash flow from operations for the second quarter of this year of $1.5 million.

Conference Call

Tucows will host a conference call today, Wednesday, August 3, 2005, at 5:00 p.m. (ET) to discuss the company’s second 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 3159569. The telephone replay will be available until Wednesday, August 10, 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 provider of 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 Resource
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.

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)

June 30,
2005
December 31,
2004
Assets
Current assets:
Cash and cash equivalents $ 8,037,839 $ 13,914,988
Short-term investments 7,771,453 -
Restricted cash (note 1) - 460,398
Accounts receivable 1,271,059 1,111,082
Prepaid expenses and deposits 1,638,271 2,156,702
Prepaid domain name registry and ancillary services fees, current portion 17,674,869 15,601,786
Deferred tax asset, current portion 1,000,000
1,000,000
Total current assets 37,393,491 34,244,956
Prepaid domain name registry and ancillary services fees, long-term portion 7,236,442 6,471,916
Deferred charges 449,350 -
Property and equipment 1,324,571 1,017,237
Deferred tax asset, long-term portion 2,000,000 2,000,000
Intangible assets 1,124,160 1,242,240
Goodwill 1,665,829 964,467
Investment 353,737 353,737
Cash held in escrow 616,762 1,009,650
Total assets $
52,164,342
$

47,304,203

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 1,422,830 $ 1,483,543
Accrued liabilities 2,013,399 2,688,738
Customer deposits 2,138,393 2,247,262
Deferred revenue, current portion 26,104,725 23,648,381
Accreditation fees payable, current portion 589,056
144,483
Total current liabilities 32,268,403 30,212,407
Deferred revenue, long term portion 10,540,720 9,602,599
Accreditation fees payable, long term portion 59,595 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; 68,092,665 shares issued and outstanding at June 30, 2005 and 66,817,250 shares issued and outstanding at December 31, 2004 10,429,078 9,541,277
Additional Paid-in Capital 50,061,866 50,061,866
Deficit (51,195,320)
(52,145,762)
Total stockholders’ equity 9,295,624
7,457,381
Total liabilities and stockholders’ equity $ 52,164,342
$ 47,304,203
Note 1:
Of the restricted cash, $310,000 represents margin security against a series of forward exchange contracts, and $150,398 represents security against 2 letters of credit.

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

Three months ended
June 30,
Six months ended
June 30,
2005
2004
2005
2004
Net revenues $ 12,002,138 $ 10,638,965 $ 23,803,844 $ 20,813,874
Cost of revenues 7,586,612
6,558,400
14,807,817
13,003,815
Gross profit 4,415,526 4,080,565 8,996,027 7,810,059
Operating expenses:
Sales and marketing (*) 1,166,057 1,124,726 2,518,511 2,345,260
Technical operations and development 1,356,058 1,140,870 2,678,843 2,152,292
General and administrative(*) 1,146,725 834,503 2,537,487 1,907,575
Depreciation of property and equipment 276,870 317,331 518,743 630,317
Amortization of intangible assets 59,040 39,680 118,080 39,680
Total operating expenses
4,004,750

3,457,110

8,371,664

7,075,124
Income from operations 410,776 623,455 624,363 734,935
Other income
Interest income, net 96,856 42,103 174,104 79,736
Total other income
96,856

42,103

174,104

79,736
Income before provision for income taxes 507,632 665,558 798,467 814,671
Provision for (recovery of) income taxes - - (151,975) -
Net income for the period $ 507,632
$ 665,558
$ 950,442
$ 814,671
Basic and diluted earnings per common share $ 0.01
$ 0.01
$ 0.01
$ 0.01
Shares used in computing basic earnings per common share 67,863,978
65,991,867
67,376,440
65,341,377
Shares used in computing diluted earnings per common share 71,664,882
68,744,679
71,763,526
67,917,001
(*) 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
June 30,
Six months ended
June 30,
2005
2004
2005
2004
Cash provided by (used in):
Operating activities:
Net income for the period $ 507,632 $ 665,558 $ 950,442 $ 814,671
Items not involving cash:
Depreciation of property and equipment 276,870 317,331 518,743 630,317
Amortization of intangible assets 59,040 39,680 118,080 39,680
Unrealized change in the fair value of forward contracts - (110,148) 107,628 (91,263)
Stock-based compensation - - - 20,593
Change in non-cash operating working capital:
Accounts receivable (8,380) (11,616) (159,977) (74,284)
Prepaid expenses and deposits 83,467 75,495 410,803 110,615
Prepaid domain name registry and ancillary services fees (835,394) (1,259,188) (2,837,609) (3,296,200)
Accounts payable (103,675) 26,192 (60,713) (349,257)
Accrued liabilities 335,452 32,939 (675,339) (222,482)
Customer deposits (30,742) 50,481 (108,869) 3,600
Deferred revenue 888,976 1,569,497 3,394,465 4,376,960
Accreditation fees payable 301,495
-
472,352
-
Cash provided by operating activities 1,474,741
1,396,221
2,130,006
1,962,950
Financing activities:
Proceeds received on exercise of stock options 5,416 491,407 186,439 644,469
Deferred charges (449,350)
-
(449,350)
-
Cash (used in) provided by financing activities (443,934)
491,407
(262,911)
644,469
Investing activities:
Additions to property and equipment (625,169) (245,106) (826,077) (353,250)
Investment in short-term investments (7,771,453) - (7,771,453) -
(Decrease) increase in restricted cash – being margin security against forward exchange contracts - (361,250) 460,398 (228,750)
Acquisition of Boardtown Corporation, net of cash acquired - (2,019,510) - (2,019,510)
Decrease (increase) in cash held in escrow 396,604
(1,000,000)
392,888
(1,000,000)
Cash used in investing activities (8,000,018)
(3,625,866)
(7,744,244)
(3,601,510)
Decrease in cash and cash equivalents (6,969,211) (1,738,238) (5,877,149) (994,091)
Cash and cash equivalents, beginning of period 15,007,050
13,656,958
13,914,988
12,912,811
Cash and cash equivalents, end of period $ 8,037,839
$ 11,918,720
$ 8,037,839
$ 11,918,720
Supplemental cash flow information:
Interest paid $ - $ 53 $ 300 $ 53
Supplemental disclosure of non-cash investing and financing activities:
Common stock issued on the acquisition of Boardtown Corporation $ 701,363 $ 274,540 $ 701,363 $ 274,540
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