Tucows Inc. reports financial results for first quarter 2010

TORONTO, May 12 /CNW/ - Tucows Inc. (NYSE AMEX: TCX, TSX:TC), a global provider of domain names, email and other Internet services, today reported its financial results for the first quarter ended March 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  3 Months Ended
                                                   Mar. 31,       Mar. 31,
                                                     2010           2009
                                                  (unaudited)    (unaudited)

    Net Revenue                                        20,445         20,091
    Net Income (Loss)                                     569          1,028
    Net Income (Loss)/Share                              0.01           0.01
    Cash Flow from Operations                           1,379            913


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

                                      Revenue             Cost of Revenue

                             3 Months     3 Months     3 Months    3 Months
                               Ended        Ended        Ended       Ended
                              Mar. 31,     Mar. 31,     Mar. 31,    Mar. 31,
                                2010         2009         2010        2009
                            (unaudited)  (unaudited)  (unaudited) (unaudited)
    OpenSRS:
    Domain Services            15,403       14,202       12,616       11,355
    Email Services                638        1,122          107          180
    Other Services              1,094        1,094          387          389
    -------------------------------------------------------------------------
    Total OpenSRS Services     17,135       16,418       13,110       11,924

    YummyNames                  1,711        1,865          203          185
    Hover                       1,130        1,301          400          513
    Butterscotch                  469          507           19            7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total                      20,445       20,091       13,732       12,629
    

"Our results for the first quarter of fiscal 2010 underscore the consistency in our business, anchored by the OpenSRS Domain Service, which grew 9% year-over-year in both transactions and revenue," said Elliot Noss, President and CEO of Tucows. "We are experiencing growth both in the number of new OpenSRS customers as well as the speed at which these customers roll our service out to their customers. Our ability to consistently and reliably generate cash flow from operations continues to support our ability to return capital to our shareholders. Since implementing our open market share purchase program in February 2010, we have repurchased an additional 956,000 shares, and since the beginning of the year we have repurchased a total of 7.3 million shares, or 11% of our total shares outstanding as of the end of 2009."

Net revenue for the first quarter of 2010 increased 1.8% to $20.4 million from $20.1 million for the first quarter of 2009.

Net income for the first quarter of 2010 was $0.6 million, or $0.01 per share, compared with $1.0 million, or $0.01 per share, for the first quarter of 2009. Net income for the first quarter of 2010 benefitted from a pre-tax gain on foreign exchange of $0.7 million (inclusive of a mark-to-market gain of $0.1 million) compared to a pre-tax loss on foreign exchange of $0.7 million (inclusive of a mark-to-market gain of $0.1 million) for the first quarter of 2009.

Deferred revenue at the end of the first quarter of fiscal 2010 was $59.5 million, an increase of 5.1% from $56.7 million at the end of the first quarter of fiscal 2009 and an increase of 5.7% from $56.3 million at the end of the fourth quarter of fiscal 2009.

Cash and cash equivalents at the end of the first quarter of fiscal 2010 were $5.2 million compared with $4.0 million at the end of the first quarter of fiscal 2009 and $9.6 million at the end of the fourth quarter of fiscal 2009. The decrease in cash compared with the fourth quarter of 2009 is primarily the result of the use of $5.2 million for the repurchase of common stock under the Company's modified "Dutch auction" tender offer, which concluded in January 2010 and the current open market share repurchase program that was initiated in February 2010, as well as the repayment of $0.5 million of the Company's bank loan. This use of funds was partially offset by cash flow from operations for the first quarter of 2010 of $1.4 million.

Conference Call

Tucows will host a conference call today, Wednesday, May 12, 2010 at 5:00 p.m. ET to discuss the Company's first quarter fiscal 2010 results. To access the conference call via the Internet, go to 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 1-416-849-0833 or 1-800-642-1687 and enter the pass code 72055618. The telephone replay will be available until Wednesday, May 19, 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.

This news release contains, in addition to historical information, forward-looking statements related to such matters as our business, including the price per share at which Tucows will purchase shares and the level of under subscription. Such statements are based on management's current expectations and are subject to a number of uncertainties and risks, which 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 included in this document are based on information available to Tucows as of the date of this document, and except to the extent Tucows may be required to update such information under any applicable securities laws, 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.

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

                                                   March 31,     December 31,
                                                     2010           2009
                                                  (unaudited)    (unaudited)
                                                 -------------  -------------
    Assets

    Current assets:
      Cash and cash equivalents                  $  5,181,896   $  9,632,394
      Accounts receivable                           3,697,545      2,822,045
      Prepaid expenses and deposits                 2,860,624      2,498,922
      Derivative instrument asset, current
       portion                                      2,185,688      2,107,825
      Prepaid domain name registry and ancillary
       services fees, current portion              33,750,000     31,596,236
      Income taxes recoverable                        358,000        674,000
                                                 -------------  -------------
        Total current assets                       48,033,753     49,331,422

    Derivative instrument asset, long-term
     portion                                          140,913        112,553
    Prepaid domain name registry and ancillary
     services fees, long-term portion              12,588,320     12,126,515
    Property and equipment                          1,779,999      1,986,768
    Deferred financing charges                         33,600         41,000
    Deferred tax asset, long-term portion           4,102,929      3,907,476
    Intangible assets                              18,213,439     18,656,353
    Goodwill                                       17,990,807     17,990,807
                                                 -------------  -------------
      Total assets                               $102,883,760   $104,152,894
                                                 -------------  -------------
                                                 -------------  -------------

    Liabilities and Stockholders' Equity

    Current liabilities:
      Accounts payable                             $1,738,878     $1,547,863
      Accrued liabilities                           1,763,176      1,889,980
      Customer deposits                             3,895,116      3,624,317
      Loan payable, current portion                 2,741,564      3,220,125
      Deferred revenue, current portion            42,837,249     40,211,766
      Accreditation fees payable, current portion     594,968        530,656
      Deferred tax liability, current portion       1,102,929        907,476
                                                 -------------  -------------
        Total current liabilities                  54,673,880     51,932,183

    Derivative instrument liability, long-term
     portion                                            7,958         15,708
    Deferred revenue, long-term portion            16,677,922     16,098,812
    Accreditation fees payable, long-term portion     169,705        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; 59,792,816 shares
       issued and outstanding as of March 31,
       2010 and 67,080,353 shares issued and
       outstanding as of December 31, 2009         12,579,210     14,030,384
      Additional paid-in capital                   43,587,383     47,287,351
      Deficit                                     (29,652,298)   (30,221,164)
                                                 -------------  -------------
        Total stockholders' equity                 26,514,295     31,096,571
                                                 -------------  -------------
    Total liabilities and stockholders' equity   $102,883,760   $104,152,894
                                                 -------------  -------------
                                                 -------------  -------------



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

                                                 Three months ended March 31,
                                                      2010           2009
                                                 -------------  -------------
                                                        (unaudited)

    Net revenues                                 $ 20,445,153   $ 20,091,424

    Cost of revenues:
      Cost of revenues(*)                        14,924,874     13,785,398
      Depreciation of property and equipment          310,058        392,947
      Amortization of intangible assets                74,802         29,199
                                                 -------------  -------------
      Total cost of revenues                       15,309,734     14,207,544
                                                 -------------  -------------

    Gross profit                                    5,135,419      5,883,880

    Expenses:
      Sales and marketing(*)                      1,862,336      1,353,176
      Technical operations and development(*)     1,243,013      1,104,139
      General and administrative(*)                 815,580      1,869,896
      Depreciation of property and equipment           43,889         82,453
      Amortization of intangible assets               360,540        360,540
      Gain in fair value of forward exchange
       contracts                                     (113,973)       (85,343)
                                                 -------------  -------------
        Total expenses                              4,211,385      4,684,861
                                                 -------------  -------------

    Income from operations                            924,034      1,199,019

    Other income:
      Interest income (expense), net                  (39,168)       (63,462)
                                                 -------------  -------------
        Total other income                            (39,168)       (63,462)
                                                 -------------  -------------

    Income before provision for income taxes          884,866      1,135,557

    Provision for income taxes                        316,000        107,425
                                                 -------------  -------------
    Net income for the period                    $    568,866   $  1,028,132
                                                 -------------  -------------
                                                 -------------  -------------

    Basic earnings per common share              $       0.01   $       0.01
                                                 -------------  -------------
                                                 -------------  -------------

    Shares used in computing basic earnings per
     common share                                  61,265,903     72,655,213
                                                 -------------  -------------
                                                 -------------  -------------

    Diluted earnings per common share            $       0.01   $       0.01
                                                 -------------  -------------
                                                 -------------  -------------

    Shares used in computing diluted earnings
     per common share                              63,338,084     72,657,604
                                                 -------------  -------------
                                                 -------------  -------------

    (*)Stock-based compensation has been
     included in expenses as follows:
      Cost of revenues                           $      3,628   $      5,000
      Sales and marketing                        $     15,686   $     14,900
      Technical operations and development       $     14,581   $     10,600
      General and administrative                 $     22,734   $     18,700



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

                                                 Three months ended March 31,
                                                      2010           2009
                                                 -------------  -------------
    Cash provided by (used in):                           (unaudited)
    Operating activities:

      Net income for the period                  $    568,866   $  1,028,132
      Items not involving cash:
        Depreciation of property and equipment        353,947        475,400
        Amortization of deferred financing charges      7,400         10,400
        Amortization of intangible assets             435,342        389,739
        Disposal of domain names                        7,572            973
        Unrealized gain in the fair value of
         forward contracts                           (113,973)       (85,343)
        Stock-based compensation                       56,629         49,200
      Change in non-cash operating working capital:
        Accounts receivable                          (875,500)      (516,993)
        Prepaid expenses and deposits                (361,702)      (578,568)
        Prepaid fees for domain name registry and
         ancillary services fees                   (2,615,569)    (2,125,399)
        Income taxes recoverable/payable              316,000         85,182
        Accounts payable                              186,569       (180,821)
        Accrued liabilities                          (126,804)       128,773
        Customer deposits                             270,799       (309,502)
        Deferred revenue                            3,204,593      2,463,376
        Accreditation fees payable                     64,397         78,607
                                                 -------------  -------------
      Net cash provided by operating activities     1,378,566        913,156
                                                 -------------  -------------

    Financing activities:
      Proceeds received on exercise of stock
       options                                          4,501              -
      Repurchase of common stock                   (5,212,272)    (1,811,179)
      Repayment of loan payable                      (478,561)      (478,561)
                                                 -------------  -------------
      Net cash used in financing activities        (5,686,332)    (2,289,740)
                                                 -------------  -------------

    Investing activities:
      Cost of domain names acquired                         -         (5,900)
      Additions to property and equipment            (142,732)        (2,240)
                                                 -------------  -------------
      Net cash used in investing activities          (142,732)        (8,140)
                                                 -------------  -------------

    Decrease in cash and cash equivalents          (4,450,498)    (1,384,724)

    Cash and cash equivalents, beginning of
     period                                         9,632,394      5,427,467
                                                 -------------  -------------
    Cash and cash equivalents, end of period     $  5,181,896   $  4,042,743
                                                 -------------  -------------
                                                 -------------  -------------

    Supplemental cash flow information:
      Interest paid                              $     65,521   $     39,276

    Supplementary disclosure of non-cash
     investing activity:
      Property and equipment acquired during the
       period not yet paid for                   $      2,784   $     98,040
    

SOURCE Tucows Inc.

For further information: For further information: Lawrence Chamberlain, The Equicom Group for Tucows Inc., (416) 815-0700 ext. 257, lchamberlain@equicomgroup.com

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