TUCOWS INC. REPORTS FINANCIAL RESULTS FOR THIRD QUARTER 2010

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Nov 10, 2010, 04:22 ET

TORONTO, Nov. 10 /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 third quarter ended September 30, 2010. All figures are in U.S. dollars.

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

	3 Months Ended Sept 30, 2010 (unaudited)	3 Months Ended Sept 30, 2009 (unaudited)	9 Months Ended Sept 30, 2010 (unaudited)	9 Months Ended Sept 30, 2009 (unaudited)
Net revenue	21,209	20,496	62,501	60,610
Gain (loss) on change in fair value of forward exchange contracts	142	1,878	(1,669)	3,902
Other income	-	1,880	-	4,493
Net income for the period	1,083	5,196	880	10,603
Net earnings per common share	0.02	0.08	0.01	0.15
Net cash provided by operating activities	1,876	82	4,428	3,586

Summary of Revenue and Cost of Revenue before Network Costs
(Numbers in Thousands of US Dollars)

	Revenue		Cost of Revenue
	3 Months Ended Sept 30, 2010 (unaudited)	3 Months Ended Sept 30, 2009 (unaudited)	3 Months Ended Sept 30, 2010 (unaudited)	3 Months Ended Sept 30, 2009 (unaudited)
OpenSRS:
Domain Services	16,517	15,098	13,817	12,326
Email Services	578	842	97	103
Other Services	1,086	1,109	417	412
Total OpenSRS Services	18,181	17,049	14,331	12,841

YummyNames	1,249	1,782	180	218
Hover	1,147	1,204	381	493
Butterscotch	632	461	12	26
Total	21,209	20,496	14,904	13,578

"Our third quarter results continued our track record of solid performance throughout 2010," said Elliot Noss, President and CEO of Tucows. "Revenue reached a record $21.2 million, driven by continued strength in both OpenSRS and YummyNames along with increased contribution from our reinvigorated Hover and Butterscotch services. The consistency and reliability of our business continues to support our objective of returning capital to shareholders, as evidenced by our repurchase of an additional 3.9 million shares in October under our most recent Dutch tender offer."

Net revenue for the third quarter of 2010 increased 3.5% to $21.2 million from $20.5 million for the third quarter of 2009.

Net income for the third quarter of 2010 was $1.1 million, or $0.02 per share, compared with net income of $5.2 million, or $0.08 per share, for the third quarter of 2009. Net income for the third quarter of 2009 included the final payment related to the sale of the Company's equity stake in Afilias Inc. of $1.9 million and a gain in the fair value of forward exchange contracts of $1.9 million.

Deferred revenue at the end of the third quarter of fiscal 2010 was $62.3 million, an increase of 10.3% from $56.5 million at the end of the third quarter of fiscal 2009 and 3.8% from $60.0 million in the second quarter of 2010.

Cash and cash equivalents at the end of the third quarter of 2010 were $5.4 million compared with $8.2 million at the end of the third quarter of 2009 and $4.1 million at the end of second quarter of 2010. The increase in cash and cash equivalents from the second quarter of 2010 was primarily the result of cash flow from operating activities of $1.9 million for the third quarter of 2010, which was partially offset by the repayment of $0.5 million of the Company's bank loan.

Subsequent to quarter end, the Company announced the final results of its modified "Dutch auction" tender announced on September 7, 2010. Under the terms of the tender, Tucows purchased 3.9 million of its shares at a purchase price of $0.70 per share, for a total of $2.8 million. Year to date in 2010, the Company has repurchased an aggregate of 13.7 million shares 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, November 10, 2010, at 5:00 p.m. (ET) to discuss the third 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 1-800-642-1687and enter the pass code 20897695 followed by the pound key. The telephone replay will be available until Wednesday, November 17, 2010 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 10,000 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.

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)

			September 30	December 31,
			2010	2009
			(unaudited)	(unaudited)

Assets

Current assets:
	Cash and cash equivalents		$ 5,431,589	$ 9,632,394
	Accounts receivable		3,332,277	2,822,045
	Prepaid expenses and deposits		2,437,566	2,498,922
	Derivative instrument asset, current portion		576,581	2,107,825
	Prepaid domain name registry and ancillary services fees, current portion		36,621,716	31,596,236
	Income taxes recoverable		547,000	674,000
		Total current assets	48,946,729	49,331,422

Derivative instrument asset, long-term portion			5,436	112,553
Prepaid domain name registry and ancillary services fees, long-term portion			12,887,593	12,126,515
Property and equipment			1,410,195	1,986,768
Deferred financing charges			20,900	41,000
Deferred tax asset, long-term portion			3,870,038	3,907,476
Intangible assets			17,333,237	18,656,353
Goodwill			17,990,807	17,990,807
		Total assets	$ 102,464,935	$ 104,152,894


Liabilities and Stockholders' Equity

Current liabilities:
	Accounts payable		$ 1,156,803	$ 1,547,863
	Accrued liabilities		1,625,663	1,889,980
	Customer deposits		3,702,464	3,624,317
	Derivative instrument liability,current portion		37,933	-
	Loan payable, current portion		1,784,443	3,220,125
	Deferred revenue, current portion		45,475,807	40,211,766
	Accreditation fees payable, current portion		545,694	530,656
	Deferred tax liability, current portion		870,038	907,476
		Total current liabilities	55,198,845	51,932,183

Derivative instrument liability, long-term portion			8,445	15,708
Deferred revenue, long-term portion			16,858,661	16,098,812
Accreditation fees payable, long-term portion			168,464	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; 57,362,236 shares issued and outstanding as of September 30, 2010 and 67,080,353 shares issued and outstanding as of December 31, 2009		12,107,580	14,030,384
	Additional paid-in capital		42,623,860	47,287,351
	Deficit		(29,340,920)	(30,221,164)
		Total stockholders' equity	25,390,520	31,096,571
Total liabilities and stockholders' equity			$ 102,464,935	$ 104,152,894

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

				Three months ended September 30,				Nine months ended September 30,
				2010		2009		2010		2009
				(unaudited)				(unaudited)

Net revenues			$	21,209,468	$	20,496,129	$	62,501,219	$	60,609,673

Cost of revenues:
	Cost of revenues (*)			15,991,455		14,770,868		46,372,315		42,942,314
	Depreciation of property and equipment			231,253		347,619		794,368		1,316,986
	Amortization of intangible assets			74,802		29,199		224,406		87,597
		Total cost of revenues		16,297,510		15,147,686		47,391,089		44,346,897

Gross profit				4,911,958		5,348,443		15,110,130		16,262,776

Expenses:
	Sales and marketing (*)			1,830,999		1,568,727		5,480,228		4,261,070
	Technical operations and development (*)			1,053,768		1,142,331		3,486,718		3,421,825
	General and administrative (*)			633,457		1,145,951		2,049,813		4,608,173
	Depreciation of property and equipment			40,239		47,249		127,559		221,937
	Loss on disposition of property and equipment			-		40,369		-		40,369
	Amortization of intangible assets			360,540		360,540		1,081,620		1,081,620
	Loss (gain) on change in fair value of forward exchange contracts			(141,981)		(1,878,230)		1,669,031		(3,902,394)
		Total expenses		3,777,022		2,426,937		13,894,969		9,732,600

Income from operations				1,134,936		2,921,506		1,215,161		6,530,176

Other (expenses) income:
	Interest (expense) income, net			(26,917)		(52,887)		(99,812)		(178,669)
	Other income			-		1,880,000		-		4,493,190
	Total other (expenses) income			(26,917)		1,827,113		(99,812)		4,314,521

Income before provision for income taxes				1,108,019		4,748,619		1,115,349		10,844,697

(Recovery of) provision for income taxes				24,863		(447,455)		235,105		241,621
Net income for the period			$	1,083,156	$	5,196,074	$	880,244	$	10,603,076


Basic earnings per common share			$	0.02	$	0.08	$	0.01	$	0.15

Shares used in computing basic earnings per common share				57,351,161		68,008,871		59,225,739		69,841,981

Diluted earnings per common share			$	0.02	$	0.08	$	0.01	$	0.15

Shares used in computing diluted earnings per common share				59,185,793		68,874,517		61,223,369		70,156,521


(*) Stock-based compensation has been included in expenses as follows:
	Cost of revenues		$	6,557	$	3,860	$	15,759	$	12,227
	Sales and marketing		$	30,358	$	12,807	$	71,589	$	42,764
	Technical operations and development		$	19,058	$	12,395	$	51,903	$	34,116
	General and administrative		$	99,813	$	70,748	$	174,437	$	142,641

TORONTO, Nov. 10 /CNW/ -

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

			Three months ended September 30,					Nine months ended September 30,
			2010			2009		2010		2009
Cash provided by (used in):			(unaudited)					(unaudited)
Operating activities:
	Net income for the period		$	1,083,156	$	5,196,074	$	880,244	$	10,603,076
	Items not involving cash:
		Depreciation of property and equipment		271,492		394,868		921,927		1,538,923
		Loss on disposition of property and equipment		-		40,369		-		40,369
		Amortization of deferred financing charges		6,000		9,100		20,100		29,200
		Amortization of intangible assets		435,342		389,739		1,306,026		1,169,217
		Gain on disposal of investment in Afilias		-		(1,880,000)		-		(3,890,395)
		Reduction in deferred tax liability		-		(497,000)		-		(497,000)
		Disposal of domain names		5,084		649		17,090		2,596
		Unrealized (gain) loss in the fair value of forward contracts		(141,981)		(1,878,230)		1,669,031		(3,902,394)
		Stock-based compensation		155,786		99,810		313,688		231,748
	Changes in non-cash operating working capital:
		Accounts receivable		53,373		(465,454)		(510,232)		(729,520)
		Prepaid expenses and deposits		489,843		419,761		61,356		(469,462)
		Prepaid fees for domain name registry and ancillary services fees		(2,355,886)		33,425		(5,786,558)		(2,588,476)
		Income taxes recoverable		(165,000)		(835,398)		127,000		-
		Accounts payable		(244,194)		(977,967)		(443,624)		(597,560)
		Accrued liabilities		(231,633)		(115,362)		(264,317)		(111,719)
		Customer deposits		240,907		592,612		78,147		445,079
		Deferred revenue		(14,435)		(398,657)		6,023,890		2,314,334
		Accreditation fees payable		2,287,739		(46,762)		13,882		(2,457)
		Net cash provided by operating activities		1,875,593		81,577		4,427,650		3,585,559

		Financing activities:
		Proceeds received on exercise of stock options		-		-		14,809		25,422
		Repurchase of common stock		-		(570,335)		(6,914,792)		(2,381,514)
		Repayment of loan payable		(478,561)		(478,561)		(1,435,682)		(2,160,682)
	Net cash used in financing activities			(478,561)		(1,048,896)		(8,335,665)		(4,516,774)

Investing activities:
		Cost of domain names acquired		-		-		-		(5,900)
		Additions to property and equipment		(33,111)		(281,282)		(292,790)		(426,292)
		Proceeds on disposal of investment in Afilias		-		1,980,000		-		4,090,395
		Net cash (used in) provided by investing activities		(33,111)		1,698,718		(292,790)		3,658,203

		Increase (decrease) in cash and cash equivalents		1,363,921		731,399		(4,200,805)		2,726,988

Cash and cash equivalents, beginning of period				4,067,668		7,423,056		9,632,394		5,427,467
Cash and cash equivalents, end of period			$	5,431,589	$	8,154,455	$	5,431,589	$	8,154,455

Supplemental cash flow information:
		Interest paid	$	27,001	$	52,983	$	99,798	$	181,012

Supplementary disclosure of non-cash investing activity:
		Property and equipment acquired during the period not yet paid for	$	146,158	$	343,777	$	146,158	$	343,777