TUCOWS INC. REPORTS FINANCIAL RESULTS FOR FIRST QUARTER OF 2011

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May 11, 2011, 05:18 ET

TORONTO, May 11 /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 first quarter ended March 31, 2011. All figures are in U.S. dollars.

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

	3 Months Ended Mar. 31, 2011 (unaudited)	3 Months Ended Mar. 31, 2010 (unaudited)
Net revenue	22,555	20,445
Loss (gain) on change in fair value of forward exchange contracts	113	(114)
Other income	323	-
Net income for the period	728	569
Net earnings per common share	0.01	0.01
Net cash provided by operating activities	762	1,379

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

	Revenue		Cost of Revenue
	3 Months Ended Mar. 31, 2011 (unaudited)	3 Months Ended Mar. 31, 2010 (unaudited)	3 Months Ended Mar. 31, 2011 (unaudited)	3 Months Ended Mar. 31, 2010 (unaudited)
OpenSRS:
Domain services	17,541	15,403	14,573	12,616
Email services	685	638	102	107
Other services	1,235	1,094	400	387
Total OpenSRS services	19,461	17,135	15,075	13,110

YummyNames	1,392	1,711	178	203
Hover	1,195	1,130	419	400
Butterscotch	507	469	23	19

Network, other costs	-	-	1,263	1,193
Network, depreciation and amortization costs	-	-	256	385
Total revenue/cost of revenue	22,555	20,445	17,214	15,310

"The first quarter of 2011 saw solid top-line growth, with strong contributions across our business units," said Elliot Noss, President and CEO of Tucows. "Of particular note, OpenSRS processed more than two million domain registrations in a quarter for the first time and in April, surpassed 11 million domains under management. In addition, email services returned to year-over-year revenue growth with a strong quarter. With the release of our new unified control panel, we have largely completed a re-architecture of OpenSRS that significantly strengthens its potential as a service delivery platform for what we believe is the best distribution channel in the Internet economy. We remain well positioned to consistently generate cash in the context of growth."

Net revenue for the first quarter of 2011 increased 10.3% to $22.6 million from $20.4 million for the first quarter of 2010.

Net income for the first quarter of 2011 was $0.7 million, or $0.01 per share, compared with $0.6 million, or $0.01 per share, for the first quarter of 2010. Net income for the first quarter of 2011 benefited from other income of $0.3 million generated by an additional payment related to patents that the Company assigned to a third party. As a significant proportion of the Company's expenses are incurred in Canadian dollars, the strength of the Canadian dollar, which was on average 6% higher relative to U.S. dollar in the first quarter of 2011 versus the first quarter of 2010, had a dampening effect on net income. The Company has been able to mitigate some of the impact of the stronger Canadian through its currency hedging strategy, as well as improved operating efficiencies.

Deferred revenue at the end of the first quarter of 2011 was $64.9 million, an increase of 9.0% from $59.5 million at the end of the first quarter of 2010 and an increase of 3.7% from $62.6 million at the end of the fourth quarter of 2010.

Cash and cash equivalents at the end of the first quarter of 2011 were $4.2 million compared with $5.2 million at the end of the first quarter of 2010 and $4.2 million at the end of fourth quarter of 2010. Cash flow from operating activities of $0.8 million in the first quarter of 2011 was offset by the use of $0.5 million for repayment of the Company's bank loan and $0.3 million for investment in equipment.

Conference Call
Tucows management will host a conference call today, Wednesday, May 11, 2011, at 5:00 p.m. (ET) to discuss it's the Company's first quarter 2011 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 63305561 followed by the pound key. The telephone replay will be available until Wednesday, May 18, 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 eleven 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)

			March 31,	December 31,
			2011	2010
			(unaudited)	(unaudited)

Assets

Current assets:
	Cash and cash equivalents		$ 4,164,166	$ 4,205,729
	Accounts receivable		4,254,800	3,021,995
	Prepaid expenses and deposits		2,885,523	2,363,876
	Derivative instrument asset, current portion		721,256	833,960
	Prepaid domain name registry and ancillary services fees, current portion		39,029,239	37,016,871
	Income taxes recoverable		485,000	620,000
		Total current assets	51,539,984	48,062,431

Prepaid domain name registry and ancillary services fees, long-term portion			12,808,350	12,820,479
Property and equipment			1,430,242	1,552,349
Deferred financing charges			11,200	15,600
Deferred tax asset, long-term portion			4,232,000	4,155,600
Intangible assets			16,543,926	16,883,401
Goodwill			17,990,807	17,990,807
		Total assets	$ 104,556,509	$ 101,480,667


Liabilities and Stockholders' Equity

Current liabilities:
	Accounts payable		$ 1,778,092	$ 1,664,006
	Accrued liabilities		1,634,522	1,346,436
	Customer deposits		3,868,879	3,960,312
	Loan payable, current portion		827,322	1,305,883
	Deferred revenue, current portion		48,141,934	45,832,374
	Accreditation fees payable, current portion		586,290	547,810
	Deferred tax liability, current portion		1,232,000	1,155,600
		Total current liabilities	58,069,039	55,812,421

Deferred revenue, long-term portion			16,747,268	16,738,429
Accreditation fees payable, long-term portion			166,283	168,580
Deferred rent, long-term portion			6,945	-
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; 53,455,691 shares issued and outstanding as of March 31, 2011 and 53,448,591 shares issued and outstanding as of December 31, 2010		11,331,134	11,324,866
	Additional paid-in capital		40,772,110	40,700,587
	Deficit		(27,376,270)	(28,104,216)
		Total stockholders' equity	24,726,974	23,921,237
Total liabilities and stockholders' equity			$ 104,556,509	$ 101,480,667

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

			Three months ended March 31,

			2011		2010


Net revenues		$	22,555,207	$	20,445,153

Cost of revenues:
	Cost of revenues (*)		15,695,140		13,731,550
	Network expenses		1,262,828		1,193,324
	Depreciation of property and equipment		236,681		310,058
	Amortization of intangible assets		19,290		74,802
	Total cost of revenues		17,213,939		15,309,734

Gross profit			5,341,268		5,135,419

Expenses:
	Sales and marketing (*)		2,024,703		1,862,336
	Technical operations and development (*)		1,199,236		1,243,013
	General and administrative (*)		1,096,926		815,580
	Depreciation of property and equipment		46,187		43,889
	Amortization of intangible assets		306,990		360,540
	Loss (gain) on change in fair value of forward exchange contracts		112,704		(113,973)
	Total expenses		4,786,746		4,211,385

Income from operations			554,522		924,034

Other income (expenses):
	Interest (expense) income, net		(11,540)		(39,168)
	Other income		323,329		-
	Total other income (expenses)		311,789		(39,168)

Income before provision for income taxes			866,311		884,866

Provision for income taxes			138,365		316,000
Net income for the period		$	727,946	$	568,866


Basic earnings per common share		$	0.01	$	0.01

Shares used in computing basic earnings per common share			53,437,672		61,265,903

Diluted earnings per common share		$	0.01	$	0.01

Shares used in computing diluted earnings per common share			55,747,952		63,338,084


(*) Stock-based compensation has been included in expenses as follows:
	Cost of revenues	$	6,013	$	3,628
	Sales and marketing	$	25,333	$	15,686
	Technical operations and development	$	15,708	$	14,581
	General and administrative	$	27,277	$	22,734

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

			Three months ended March 31,
				2011		2010
Cash provided by (used in):
Operating activities:
	Net income for the period		$	727,946	$	568,866
	Items not involving cash:
		Depreciation of property and equipment		282,868		353,947
		Amortization of deferred financing charges		4,400		7,400
		Amortization of intangible assets		326,280		435,342
		Deferred rent		6,945		-
		Disposal of domain names		13,195		7,572
		Unrealized loss (gain) in the fair value of forward contracts		112,704		(113,973)
		Stock-based compensation		74,331		56,629
	Changes in non-cash operating working capital:
		Accounts receivable		(1,232,805)		(875,500)
		Prepaid expenses and deposits		(521,647)		(361,702)
		Prepaid fees for domain name registry and ancillary services fees		(2,000,239)		(2,615,569)
		Income taxes recoverable		135,000		316,000
		Accounts payable		253,897		186,569
		Accrued liabilities		316,472		(126,804)
		Customer deposits		(91,433)		270,799
		Deferred revenue		2,318,399		3,204,593
		Accreditation fees payable		36,183		64,397
	Net cash provided by operating activities			762,496		1,378,566

	Financing activities:
		Proceeds received on exercise of stock options		3,460		4,501
		Repurchase of common stock		-		(5,212,272)
		Repayment of loan payable		(478,561)		(478,561)
		Net cash used in financing activities		(475,101)		(5,686,332)

	Investing activities:
		Additions to property and equipment		(328,958)		(142,732)
		Net cash used in investing activities		(328,958)		(142,732)

	Decrease in cash and cash equivalents			(41,563)		(4,450,498)

	Cash and cash equivalents, beginning of period			4,205,729		9,632,394
	Cash and cash equivalents, end of period		$	4,164,166	$	5,181,896

	Supplemental cash flow information:
		Interest paid	$	11,589	$	39,276

	Supplementary disclosure of non-cash investing activity:
		Property and equipment acquired during the period not yet paid for	$	105,136	$	98,040