Tucows Inc. reports financial results for the fourth quarter of 2008



    TORONTO, Feb. 9 /CNW/ - Tucows Inc., (AMEX:  TCX, TSX:TC) a global provider
of domain names, email and other Internet services, today reported its
financial results for the fourth quarter 2008 ended December 31, 2008. All
figures are in U.S. dollars.
    "During the fourth quarter, our strong competitive position continued to
drive both new registration and renewal domain transaction volumes inside of
our OpenSRS wholesale services business, contributing to year-over-year growth
in revenue," said Elliot Noss, President and CEO of Tucows. "While we
benefited from the sale of our equity stake in Afilias during the quarter,
cash flow from operations was negatively impacted by the timing of payables,
as well as one-time restructuring costs."
    "Mr. Noss continued, "The domain name component of our OpenSRS Wholesale
business is exhibiting solid growth, especially relative to the rest of the
domain name market. Our launches of Hover, Butterscotch.com and YummyNames in
2008 have set the stage for us to grow each of these units in 2009.
    With our email migration, employee downsizing and more favorable Canadian
dollar environment, combined with our recurring revenue model based on
high-volume, low-cost transactions, we will produce solid cash flow from
operations, which will support our share repurchase programs and generate
value for our shareholders."

    
                          Summary Financial Results

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

    -------------------------------------------------------------------------
                             3 Months     3 Months     12 Months    12 Months
                               Ended        Ended        Ended        Ended
                              Dec. 31,     Dec. 31,     Dec. 31,     Dec. 31,
                                2008         2007         2008         2007
                            (unaudited)  (unaudited)  (unaudited)
    -------------------------------------------------------------------------
    Net Revenue               $19,159      $18,240      $78,468      $74,638
    -------------------------------------------------------------------------
    Net Income (Loss)           1,019         (935)       2,075        2,676
    -------------------------------------------------------------------------
    Net Income (Loss)/Share      0.01        (0.01)        0.03         0.04
    -------------------------------------------------------------------------
    Cash Flow from Operations    (229)       2,680        2,361        8,623
    -------------------------------------------------------------------------



                   Summary of Revenue and Cost of Revenue

                     (Numbers in Thousands of US Dollars)

    -------------------------------------------------------------------------
                                      Revenue               Cost of Revenue
    -------------------------------------------------------------------------
                             3 Months     3 Months     3 Months     3 Months
                               Ended        Ended        Ended        Ended
                              Dec. 31,     Dec. 31,     Dec. 31,     Dec. 31,
                                2008         2007         2008         2007
                            (unaudited)  (unaudited)  (unaudited) (unaudited)
    -------------------------------------------------------------------------
    Traditional Domain
     Registration Services    $14,137      $12,574      $11,397       $9,672
    -------------------------------------------------------------------------
    Domain Portfolio Services     855          831          175          171
    -------------------------------------------------------------------------
    Email Services              1,122        1,675           95          218
    -------------------------------------------------------------------------
    Retail Services             1,436        1,528          571          513
    -------------------------------------------------------------------------
    Other Services              1,609        1,632          417          423
    -------------------------------------------------------------------------
    Total                     $19,159      $18,240      $12,655      $10,997
    -------------------------------------------------------------------------
    

    Net revenue for the fourth quarter 2008 increased 5.0% to $19.2 million
from $18.2 million for the fourth quarter 2007. The increase was primarily the
result of growth in both new registrations and renewals from our traditional
domain registration service. Net revenue for fiscal 2008 increased 5.1% to
$78.5 million from $74.6 million for fiscal 2007.
    Net income for the fourth quarter 2008 was $1.0 million, or $0.01 per
share, compared with a net loss of $935,000, or $0.01 per share, for the
fourth quarter 2007. Net income for the fourth quarter 2008 included other
income of $3.1 million from the sale of the Company's equity stake in Afilias.
This benefit was partially offset by a loss on foreign exchange of $2.2
million, inclusive of a mark to market loss of $1.4 million, compared to a
gain on foreign exchange of $106,000, inclusive of a mark to market loss of
$667,000 in the fourth quarter 2007, largely as a result of the significant
weakening of the Canadian dollar that occurred during the fourth quarter 2008.
    Net income for fiscal 2008 was $2.1 million, or $0.03 per share, compared
with $2.7 million, or $0.04 per share, for fiscal 2007. Net income for fiscal
2008 included other income of $5.3 million, which was composed primarily of
the profit of $3.1 million from the sale of the Company's equity stake in
Afilias and the profit of $2.1 million on the sale of the Company's retail
hosting assets. These benefits were largely offset by a loss on foreign
exchange of $2.8 million, inclusive of a mark to market loss of $2.0 million,
compared to a gain on foreign exchange of $1.5 million, inclusive of a mark to
market gain of $497,000 in fiscal 2007, largely the result of the significant
weakening of the Canadian dollar that occurred during fiscal 2008.
    Deferred revenue at the end the fourth quarter of fiscal 2008 was $54.2
million, an increase of 7.0% from $50.6 million at the end of the fourth
quarter of 2007 and down marginally from $54.4 million at the end of the third
quarter of fiscal 2008 due primarily to the impact of the sale of the
Company's retail hosting assets. Cash at the end of the fourth quarter of
fiscal 2008 was $5.4 million compared with $8.1 million at the end of the
fourth quarter of fiscal 2007 and $2.7 million at the end of the third quarter
of fiscal 2008. This increase in cash compared to the third quarter of 2008 is
primarily the result of cash proceeds of $3.2 million generated by the sale of
the Company's equity position in Afilias and the return of $500,000 from
escrow on the conclusion of our acquisition of Innerwise, Inc. This was
partially offset by the use of cash in operations of $229,000, the repayment
of $479,000 of the Company's bank loan, the investment of $191,000 in property
and equipment and the repurchase of shares valued at $272,000.

    About Tucows

    Tucows is a global Internet services company. OpenSRS manages over 8
million domain names and millions of email boxes through a reseller network of
over 9,000 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 Inc.
                         Consolidated Balance Sheets
                       (Dollar amounts in U.S. dollars)

                                                 December 31,    December 31,
                                                     2008            2007
                                               --------------  --------------
                                                  (unaudited)

    Assets

    Current assets:
      Cash and cash equivalents                $   5,427,467   $   8,093,476
      Accounts receivable                          3,200,362       3,422,180
      Prepaid expenses and deposits                2,274,043       3,132,129
      Prepaid domain name registry and other
       Internet services fees, current portion    29,212,610      25,473,465
      Cash held in escrow                                  -       1,070,632
      Deferred tax asset, current portion            500,000         500,000
                                               --------------  --------------
        Total current assets                      40,614,482      41,691,882

    Prepaid domain name registry and other
     Internet services fees, long-term portion    11,855,971      10,765,862
    Property and equipment                         3,072,958       4,963,311
    Deferred financing charges                        78,500         128,200
    Deferred tax asset, long-term portion          2,500,000       2,500,000
    Intangible assets                             20,206,996      22,150,738
    Goodwill                                      17,990,807      17,490,807
    Investment                                       200,000         353,737
                                               --------------  --------------
      Total assets                             $  96,519,714   $ 100,044,537
                                               --------------  --------------
                                               --------------  --------------

    Liabilities and Stockholders' Equity

    Current liabilities:
      Accounts payable                         $   1,633,830   $   2,689,346
      Accrued liabilities                          2,000,146       3,289,087
      Customer deposits                            3,319,241       3,267,784
      Derivative instrument liability              1,974,919               -
      Promissory note payable                              -       6,000,000
      Loan payable, current portion                2,624,242       1,914,242
      Deferred revenue, current portion           37,985,821      35,465,584
      Accreditation fees payable, current
       portion                                       510,548         483,090
                                               --------------  --------------
        Total current liabilities                 50,048,747      53,109,133

    Deferred revenue, long-term portion           16,201,804      15,147,644
    Accreditation fees payable, long-term portion    187,374         181,345
    Loan payable, long-term portion                3,235,125       6,859,366
    Deferred tax liability                         5,396,000       5,396,000

    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;
       73,073,782 shares issued and
       outstanding at December 31, 2008
       and 73,888,542 shares issued and
       outstanding at December 31, 2007           15,198,358      15,350,915
      Additional paid-in capital                  48,714,676      48,537,313
      Deficit                                    (42,462,370)    (44,537,179)
                                               --------------  --------------
        Total stockholders' equity                21,450,664      19,351,049
                                               --------------  --------------
    Total liabilities and stockholders'
     equity                                    $  96,519,714   $ 100,044,537
                                               --------------  --------------
                                               --------------  --------------



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


                   Three months ended December 31,  Year ended December 31,
                         2008          2007          2008          2007
                      ------------- ------------- ------------- -------------
                               (unaudited)         (unaudited)

    Net revenues      $ 19,159,149  $ 18,240,184  $ 78,467,880  $ 74,638,196

    Cost of revenues:
      Cost of
       revenues(*)      13,819,760    13,040,271    54,614,036    48,742,915
      Depreciation of
       property and
       equipment           472,311       947,274     2,909,853     3,738,324
      Amortization of
       intangible
       assets               29,199        92,700       163,796       302,832
                      ------------- ------------- ------------- -------------
        Total cost of
         revenues       14,321,270    14,080,245    57,687,685    52,784,071
                      ------------- ------------- ------------- -------------

    Gross profit         4,837,879     4,159,939    20,780,195    21,854,125

    Expenses:
      Sales and
       marketing(*)      1,536,504     1,808,801     6,668,884     6,345,999
      Technical
       operations and
       development(*)    1,505,596     1,422,012     6,172,428     6,710,841
      General and
       administrative(*) 2,003,748       501,423     6,809,601     5,232,385
      Depreciation of
       property and
       equipment            86,428        64,994       263,745       263,101
      Loss on disposition
       of property and
       equipment                 -             -       498,529             -
      Amortization of
       intangible assets   360,540       396,041     1,483,195     1,174,864
      Loss (gain) in
       fair value of
       forward exchange
       contracts         1,419,555       666,862     1,974,919      (497,253)
                      ------------- ------------- ------------- -------------
        Total expenses   6,912,371     4,860,133    23,871,301    19,229,937
                      ------------- ------------- ------------- -------------

    Income (loss) from
     operations         (2,074,492)     (700,194)   (3,091,106)    2,624,188

    Other income
     (expenses):
      Interest income
       (expense), net     (116,647)     (222,531)     (583,911)     (516,853)
      Other income, net  3,239,950             -     5,870,960       619,014
                      ------------- ------------- ------------- -------------
        Total other
         income          3,123,303      (222,531)    5,287,049       102,161
                      ------------- ------------- ------------- -------------

    Income (loss)
     before provision
     for income taxes    1,048,811      (922,725)    2,195,943     2,726,349

    Provision for
     income taxes           30,000        12,000       121,134        50,816
                      ------------- ------------- ------------- -------------
    Net income (loss)
     for the period   $  1,018,811  $   (934,725) $  2,074,809  $  2,675,533
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    Basic earnings
     (loss) per
     common share     $       0.01  $      (0.01) $       0.03  $       0.04
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    Shares used in
     computing basic
     earnings (loss)
     per common share   73,559,276    73,805,296    73,817,347    74,361,470
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    Diluted earnings
     (loss) per
     common share     $       0.01  $      (0.01) $       0.03  $       0.03
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    Shares used in
     computing diluted
     earnings (loss)
     per common share   72,274,490    75,990,226    74,830,217    77,046,519
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    (*) Stock-based compensation has been included in expenses as follows:

    Cost of revenues  $      5,100  $      4,000  $     19,700  $     15,000
    Sales and
     marketing        $     15,700  $     19,100  $     64,200  $     80,200
    Technical
     operations and
     development      $     10,900  $     16,500  $     52,700  $     78,800
    General and
     administrative   $     22,600  $     29,500  $    151,200  $    147,600



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

                   Three months ended December 31,  Year ended December 31,
                         2008          2007          2008          2007
                      ------------- ------------- ------------- -------------
                               (unaudited)         (unaudited)

    Cash provided by
     (used in):
    Operating activities:
      Net income (loss)
       for the period $  1,018,811  $   (934,725) $  2,074,809  $  2,675,533
      Items not
       involving cash:
        Depreciation of
         property and
         equipment         558,739     1,012,268     3,173,598     4,001,425
        Loss on
         disposition of
         property and
         equipment               -             -       498,529             -
        Amortization
         of deferred
         financing
         charges            11,300        14,400        49,700        26,616
        Amortization
         of intangible
         assets            389,739       488,741     1,646,991     1,477,696
        Gain on sale
         of customer
         relationships     (49,546)            -    (2,091,995)            -
        Disposal of
         domain names        5,030             -         5,030             -
        Unrealized change
         in the fair
         value of forward
         exchange
         contracts       1,419,555       666,861     1,974,919      (497,253)
        Stock-based
         compensation       54,300        69,100       287,800       321,600
        Gain on
         disposal of
         Afilias Inc.   (3,090,404)            -    (3,090,404)            -
      Change in non-cash
       operating working
       capital:
        Accounts
         receivable        456,205       549,770       221,818      (425,959)
        Prepaid expenses
         and deposits      321,694      (323,705)      858,086      (485,374)
        Prepaid fees for
         domain name
         registry and
         other Internet
         services fees    (346,502)   (1,010,927)   (4,829,254)   (4,559,427)
        Accounts payable  (557,655)      839,356      (789,425)      (67,268)
        Accrued
         liabilities      (420,176)      250,812    (1,288,941)      902,001
        Customer deposits  200,149       289,225        51,457       123,665
        Deferred revenue  (193,558)      765,306     3,574,397     5,476,621
        Accreditation
         fees payable       (6,878)        3,405        33,487      (346,878)
                      ------------- ------------- ------------- -------------
      Net cash provided
       by operating
       activities         (229,197)    2,679,887     2,360,602     8,622,998
                      ------------- ------------- ------------- -------------

    Financing
     activities:
      Proceeds received
       on exercise of
       stock options             -        54,040         9,450       258,296
      Repurchase of
       shares             (272,444)            -      (272,444)   (2,446,955)
      Proceeds received
       on loan payable           -             -             -     9,416,393
      Repayment of
       promissory note
       and loan payable   (478,560)     (478,561)   (8,914,241)     (797,601)
                      ------------- ------------- ------------- -------------
      Net cash (used
       in) provided by
       financing
       activities         (751,004)     (424,521)   (9,177,235)    6,430,133
                      ------------- ------------- ------------- -------------

    Investing activities:
      Cost of domain
       names
       (acquired)/sold      (4,705)       (5,573)       (8,944)      (23,999)
      Additions to
       property and
       equipment          (191,140)     (315,037)   (2,113,904)   (3,408,403)
      Proceeds on
       disposition of
       property and
       equipment                 -             -        66,039             -
      Decrease in
       restricted cash -
       being margin
       security against
       forward exchange
       contracts                 -       255,000             -     1,019,423
      Acquisition of
       Hosted Messaging
       Assets from
       Critical Path
       Inc., net of
       cash acquired             -             -             -       (90,050)
      Acquisition of
       Boardtown
       Corporation, net
       of cash acquired          -             -             -        (4,900)
      Acquisition of
       Innerwise Inc.,
       net of cash
       acquired           (500,000)            -      (500,000)  (10,332,065)
      Proceeds on
       disposal of
       Afilias Inc.      3,244,141             -     3,244,141             -
      Sale of customer
       relationships        49,546             -     2,392,660             -
      (Decrease) increase
       in cash held in
       escrow            1,088,793       (12,012)    1,070,632      (376,053)
                      ------------- ------------- ------------- -------------
      Net cash provided
       by (used in)
       investing
       activities        3,686,635       (77,622)    4,150,624   (13,216,047)
                      ------------- ------------- ------------- -------------

    Increase (decrease)
     in cash and cash
     equivalents         2,706,434     2,177,744    (2,666,009)    1,837,084
    Cash and cash
     equivalents,
     beginning of
     period              2,721,033     5,915,732     8,093,476     6,256,392
                      ------------- ------------- ------------- -------------
    Cash and cash
     equivalents, end
     of period        $  5,427,467  $  8,093,476  $  5,427,467  $  8,093,476
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    Supplemental cash
     flow information:
      Interest paid   $     78,431  $    299,893  $    630,729  $    784,263

    Supplementary
     disclosure of
     non-cash investing
     activity:
      Capital assets
       acquired during
       the period not
       yet paid for   $      6,979  $    273,070  $      6,979  $    273,070
    




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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