TUCOWS INC. REPORTS FINANCIAL RESULTS FOR FOURTH QUARTER 2010

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Feb 16, 2011, 04:00 ET

TORONTO, Feb. 16 /PRNewswire-FirstCall/ - Tucows Inc. (NYSEAMEX:TCX) (TSX:TC), a global provider of domain names, email and other Internet services, today reported its financial results for the fourth quarter ended December 31, 2010. All figures are in U.S. dollars.

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

	3 Months Ended Dec. 31, 2010 (unaudited)	3 Months Ended Dec. 31, 2009 (unaudited)	12 Months Ended Dec 31, 2010 (unaudited)	12 Months Ended Dec. 31, 2009 (unaudited)
Net revenues	22,077	20,330	84,579	80,939
Gain (loss) on change in fair value of forward exchange contracts	298	277	(1,371)	4,180
Other income	(16)	(46)	(116)	4,268
Net income for the period	1,237	1,746	2,117	12,241
Net earnings per common share	0.02	0.03	0.04	0.18
Net cash provided by operating activities	2,341	2,880	6,769	6,466

Summary of Revenues and Cost of Revenues
(Numbers in Thousands of US Dollars)

	Revenue		Cost of Revenue
	3 Months Ended Dec. 31, 2010 (unaudited)	3 Months Ended Dec 31, 2009 (unaudited)	3 Months Ended Dec 31, 2010 (unaudited)	3 Months Ended Dec 31, 2009 (unaudited)
OpenSRS:
Domain services	17,308	15,211	14,565	12,578
Email services	529	799	104	110
Other services	1,104	1,130	366	410
Total OpenSRS services	18,941	17,140	15,035	13,098

YummyNames	1,531	1,521	181	193
Hover	1,172	1,208	398	443
Butterscotch	433	461	9	12

Network, other costs	-	-	1,148	1,248
Network, depreciation and amortization costs	-	-	313	285
Total revenues/cost of revenue	22,077	20,330	17,084	15,279

"The fourth quarter of 2010 capped off another year of strong financial performance, highlighted by record revenue and solid cash flow from operations," said Elliot Noss, President and CEO of Tucows. "We believe our performance for the quarter and the year once again underscores the consistency and reliability in our business. As we look ahead, the fundamentals of our business remain strong. The combination of our powerful distribution channel and our demonstrated ability to capitalize on opportunities as our market evolves position us to reliably generate cash in the context of growth and support our objective to return capital to shareholders."

Net revenue for the fourth quarter of 2010 increased 8.6% to $22.1 million from $20.3 million for the fourth quarter of 2009.

Net income for the fourth quarter of 2010 was $1.2 million, or $0.02 per share, compared with $1.7 million, or $0.03 per share, for the fourth quarter of 2009. Net income for the fourth quarter of 2009 benefited from an income tax recovery of $0.5 million.

Deferred revenue at the end of the fourth quarter of fiscal 2010 was $62.6 million, an increase of 11.1% from $56.3 million at the end of the fourth quarter of fiscal 2009 and an increase of less than 1% from $62.3 million at the end of the third quarter of 2010.

Cash and cash equivalents at the end of the fourth quarter of 2010 were $4.2 million compared with $9.6 million at the end of the fourth quarter of 2009 and $5.4 million at the end of third quarter of 2010. The decrease in cash and cash equivalents from the third quarter of 2010 was primarily the result of the use of $2.8 million for the repurchase of the Company's shares, $0.5 million for repayment of the Company's bank loan and $0.3 million for investment in equipment, which was partially offset by cash flow from operating activities of $2.3 million.

As previously announced, during the fourth quarter, the Company repurchased 3.9 million of its shares at a purchase price of $0.70 per share, for a total of $2.8 million, under its modified "Dutch auction" tender announced on September 7, 2010. In 2010, the Company repurchased a total of 13.7 million shares for a total of $9.7 million through both its modified Dutch tender offers and normal course issuer bids ("Buyback Programs"), representing 20.4% of the Company's outstanding shares at the end of 2009. Since initiating its first share buyback program in February 2007, the Company has repurchased a total of 23.2 million shares through its Buyback Programs representing 30.0% of the Company's total shares outstanding at the end of January 2007.

Conference Call
Tucows management will host a conference call today, Wednesday, February 16, 2011, at 5:00 p.m. (ET) to discuss the fourth quarter fiscal 2010 results. Participants can access the conference call via the Internet at http://tucowsinc.com/investors.

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 416-849-0833 or 1-800-642-1687 and enter the pass code 43292662 followed by the pound key. The telephone replay will be available until Wednesday, February 23, 2011 at midnight. To access the archived conference call as an MP3 via the Internet, go to http://tucowsinc.com/investors.

About Tucows
Tucows is a global Internet services company. OpenSRS manages over ten million domain names and millions of email boxes through a reseller network of over 11,000 web hosts and ISPs. Hover is the easiest way for individuals and small businesses to manage their domain names and email addresses. YummyNames owns premium domain names that generate revenue through advertising or resale. Butterscotch.com is an online video network building on the foundation of Tucows.com. More information can be found at http://tucowsinc.com.

This release includes forward-looking statements as that term is defined in the U.S. Private Securities Litigation Reform Act of 1995. In particular, this release includes forward looking statements regarding our expectations as to our financial results, our future growth and our ability to generate cash and return capital to shareholders. These 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. Information about potential factors that could affect Tucows' business, results of operations and financial condition is included in the Risk Factors sections of Tucows' filings with the Securities and Exchange Commission. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. All forward-looking statements are based on information available to Tucows as of the date they are made. Tucows assumes no obligation to update any forward-looking statements, except as may be required by law.

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

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


			December 31,	December 31,
			2010	2009
			(unaudited)	(unaudited)

Assets

Current assets:
	Cash and cash equivalents		$ 4,205,729	$ 9,632,394
	Accounts receivable		3,021,995	2,822,045
	Prepaid expenses and deposits		2,363,876	2,498,922
	Derivative instrument asset, current portion		833,960	2,107,825
	Prepaid domain name registry and ancillary services fees, current portion		37,016,871	31,596,236
	Income taxes recoverable		620,000	674,000
		Total current assets	48,062,431	49,331,422

Derivative instrument asset, long-term portion			-	96,845
Prepaid domain name registry and ancillary services fees, long-term portion			12,820,479	12,126,515
Property and equipment			1,552,349	1,986,768
Deferred financing charges			15,600	41,000
Deferred tax asset, long-term portion			4,155,600	3,907,476
Intangible assets			16,883,401	18,656,353
Goodwill			17,990,807	17,990,807
		Total assets	$ 101,480,667	$ 104,137,186


Liabilities and Stockholders' Equity

Current liabilities:
	Accounts payable		$ 1,664,006	$ 1,547,863
	Accrued liabilities		1,346,436	1,889,980
	Customer deposits		3,960,312	3,624,317
	Loan payable, current portion		1,305,883	3,220,125
	Deferred revenue, current portion		45,832,374	40,211,766
	Accreditation fees payable, current portion		547,810	530,656
	Deferred tax liability, current portion		1,155,600	907,476
		Total current liabilities	55,812,421	51,932,183

Deferred revenue, long-term portion			16,738,429	16,098,812
Accreditation fees payable, long-term portion			168,580	169,620
Deferred tax liability, long-term portion			4,840,000	4,840,000

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; 53,448,591 shares issued and outstanding as of December 30, 2010 and 67,080,353 shares issued and outstanding as of December 31, 2009		11,324,866	14,030,384
	Additional paid-in capital		40,700,587	47,287,351
	Deficit		(28,104,216)	(30,221,164)
		Total stockholders' equity	23,921,237	31,096,571
Total liabilities and stockholders' equity			$ 101,480,667	$ 104,137,186

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


				Three months ended December 31,				Year ended December 31,
				2010		2009		2010		2009
					(unaudited)				(unaudited)

Net revenues			$	22,077,286	$	20,329,540	$	84,578,505	$	80,939,212

Cost of revenues:
	Cost of revenues (*)			15,623,360		13,745,834		58,494,849		53,187,917
	Network expenses			1,148,073		1,247,958		4,648,899		4,748,189
	Depreciation of property and equipment			238,000		256,357		1,032,368		1,673,191
	Amortization of intangible assets			74,802		29,199		299,208		116,796
		Total cost of revenues		17,084,235		15,279,348		64,475,324		59,726,093

Gross profit				4,993,051		5,050,192		20,103,181		21,213,119

Expenses:
	Sales and marketing (*)			1,737,526		1,550,937		7,217,754		5,812,007
	Technical operations and development (*)			1,091,180		1,128,879		4,577,898		4,550,704
	General and administrative (*)			830,012		950,749		2,879,825		5,558,921
	Depreciation of property and equipment			43,285		35,915		170,844		266,251
	Loss on disposition of property and equipment			-		524		-		40,893
	Amortization of intangible assets			360,540		360,540		1,442,160		1,442,160
	Loss (gain) on change in fair value of forward exchange contracts			(298,321)		(277,195)		1,370,710		(4,179,589)
		Total expenses		3,764,222		3,750,349		17,659,191		13,491,347

Income from operations				1,228,829		1,299,843		2,443,990		7,721,772

Other (expenses) income:
	Interest (expense) income, net			(16,385)		(46,471)		(116,197)		(225,140)
	Other income			-		-		-		4,493,190
		Total other (expenses) income		(16,385)		(46,471)		(116,197)		4,268,050

Income before provision for income taxes				1,212,444		1,253,372		2,327,793		11,989,822

(Recovery of) provision for income taxes				(24,260)		(493,005)		210,845		(251,384)
Net income for the period			$	1,236,704	$	1,746,377	$	2,116,948	$	12,241,206


Basic earnings per common share			$	0.02	$	0.03	$	0.04	$	0.18

Shares used in computing basic earnings per common share				54,203,289		67,076,782		57,982,248		69,145,001

Diluted earnings per common share			$	0.02	$	0.03	$	0.04	$	0.17

Shares used in computing diluted earnings per common share				56,294,238		68,860,034		59,955,788		70,356,013


(*) Stock-based compensation has been included in expenses as follows:
		Cost of revenues	$	6,647	$	3,730	$	22,406	$	15,957
		Sales and marketing	$	24,711	$	16,018	$	96,300	$	58,782
		Technical operations and development	$	19,109	$	15,186	$	71,012	$	49,302
		General and administrative	$	35,847	$	28,579	$	210,284	$	171,220

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


				Three months ended December 31,			Year ended December 31,
				2010		2009	2010		2009
Cash provided by (used in):					(unaudited)			(unaudited)
Operating activities:
	Net income for the period		$	1,236,704	$	1,746,377	2,116,948	$	12,241,206
	Items not involving cash:
		Depreciation of property and equipment		281,285		292,272	1,203,212		1,939,442
		Loss on disposition of property and equipment		-		524	-		40,893
		Amortization of deferred financing charges		5,300		8,300	25,400		37,500
		Amortization of intangible assets		435,342		389,739	1,741,368		1,558,956
		Gain on disposal of investment in Afilias		-		-	-		(3,890,395)
		Reduction in deferred tax liability		-		(59,000)	-		(556,000)
		Disposal of domain names		14,494		2,866	31,584		5,462
		Unrealized (gain) loss in the fair value of forward contracts		(298,321)		(277,195)	1,370,710		(4,179,589)
		Stock-based compensation		86,314		63,513	400,002		295,261
	Changes in non-cash operating working capital:
		Accounts receivable		310,282		1,107,837	(199,950)		378,317
		Prepaid expenses and deposits		73,690		244,583	135,046		(224,879)
		Prepaid fees for domain name registry and ancillary services fees		(328,041)		(65,694)	(6,114,599)		(2,654,170)
		Income taxes recoverable		(73,000)		(674,000)	54,000		(674,000)
		Accounts payable		408,414		424,977	(35,210)		(172,583)
		Accrued liabilities		(307,613)		1,553	(571,930)		(110,166)
		Customer deposits		257,848		(140,003)	335,995		305,076
		Deferred revenue		236,335		(191,381)	6,260,225		2,122,953
		Accreditation fees payable		2,232		4,811	16,114		2,354
	Net cash provided by operating activities			2,341,265		2,880,079	6,768,915		6,465,638

Financing activities:
	Proceeds received on exercise of stock options			-		-	14,809		25,422
	Repurchase of common stock			(2,792,301)		(534,467)	(9,707,093)		(2,915,981)
	Repayment of loan payable			(478,560)		(478,560)	(1,914,242)		(2,639,242)
	Net cash used in financing activities			(3,270,861)		(1,013,027)	(11,606,526)		(5,529,801)

Investing activities:
	Cost of domain names acquired			-		(7,875)	-		(13,775)
	Additions to property and equipment			(296,264)		(381,238)	(589,054)		(807,530)
	Proceeds on disposal of investment in Afilias			-		-	-		4,090,395
	Net cash (used in) provided by investing activities			(296,264)		(389,113)	(589,054)		3,269,090

Increase (decrease) in cash and cash equivalents				(1,225,860)		1,477,939	(5,426,665)		4,204,927

Cash and cash equivalents, beginning of period				5,431,589		8,154,455	9,632,394		5,427,467
Cash and cash equivalents, end of period			$	4,205,729	$	9,632,394	4,205,729	$	9,632,394

Supplemental cash flow information:
	Interest paid		$	16,444	$	46,604	116,242	$	227,616

Supplementary disclosure of non-cash investing activity:
	Property and equipment acquired during the period not yet paid for		$	273,333	$	93,594	273,333	$	93,594