Tumbleweed Announces Q3 2001 Financial Results

Tumbleweed exceeds analysts' consensus estimates by .05 per share in Q3; Tumbleweed outlines its 2002 operating plan and objectives

REDWOOD CITY, CA - October 18, 2001 - Tumbleweed® Communications Corp. (Nasdaq:TMWD), a leading provider of secure content management solutions for enabling the business Internet, today reported results for the third quarter ended September 30, 2001. Total revenue from products and services in the third quarter was $8.2 million versus revenue of $7.7 million in the second quarter. Net loss in Q3 2001, excluding certain non-cash expenses (pro forma net loss) was $8.8 million, or $0.29 per basic and diluted share. This compares to a pro forma net loss of $11.5 million, or $0.38 per basic and diluted share, in the second quarter of 2001. Including non-cash expenses, the Company reported a net loss for the quarter ended September 30, 2001 of $10.9 million, or $0.36 per basic and diluted share, compared to $14.0 million, or $0.46 per basic and diluted share, in the second quarter of 2001.

Tumbleweed's cash balance at September 30, 2001 was $42.9 million versus cash of $48.5 million at the end of Q2. The Company continued to improve its cash flow in the third quarter. Net cash used in Q3 2001 was $5.6 million, an improvement of 42% over $9.6 million used in the second quarter of 2001. Net cash used in the first quarter of 2001 was $17.5 million. The Company will continue to improve its cash flow in subsequent quarters, as well.

"We continued to make progress towards achieving our 2001 objectives we outlined in January, despite a challenging and abbreviated quarter," said Jeff Smith, Chairman and CEO of Tumbleweed Communications Corp. "We grew market share in new verticals. We expanded our business within our installed base of customers. Moreover, we reduced our operating costs, exceeding our targets with respect to both pro forma net loss per share and cash flow."

In early October, Tumbleweed introduced its new Tumbleweed Secure Guardian" framework, which represents the first policy-based framework to secure the enterprise, a comprehensive suite of solutions that both protect an enterprise network but also extend that network to securely reach customers, suppliers, and partners.

"Secure Guardian is perhaps the most significant product introduction since the inception of our business," Smith continued. "We made the right investments in core products, highlighting our commitment to our customers. We're pleased with the positive response to Tumbleweed Secure Guardian that we received from our customers and leading industry analysts. The Internet and email have recently become even more compelling communications channels. Security requirements for these channels are of paramount importance."

According to Avivah Litan, Vice President and Research Director at Gartner Group, "Companies are looking for a solution that leverages existing email and web-based communication systems to reach customers online while generating a notable return on investment. By using a secure platform for online business processes and communications, businesses can protect their internal network environment and corporate information, while they simultaneously improve the quality, security and privacy of customer services."

"Since the first quarter of this year, we've applied discipline to all areas of our business to achieve sequential growth in reported and deferred revenue, as well as improvement in pro forma net loss per share, cash flow, and days sales outstanding (DSO), which decreased by 40%," said Doug Sabella, President and Chief Operating Officer of Tumbleweed Communications Corp.

"We continue to target sequential improvement for each of these key metrics and maintain our objective of reaching cash flow breakeven in Q4," continued Sabella. "We are projecting that cash used in the fourth quarter could be anywhere from $0 - $3 million, with recognized revenue in the range of $8.5 million to $9.5 million and a resulting pro forma net loss between ($0.28) - ($0.26) per share, better than our previous targets."

"Earlier in the year, we established a goal to exit the year with no less than $35 million in cash, and we will exceed this goal," added Sabella. "For 2002, we've set an objective for annual revenue between $40 million and $45 million with pro forma net loss per share in the range of ($0.45) - ($0.35). We will concentrate our activities on product research and development for Secure Guardian, increasing our sales coverage to attract new customers, and providing excellent customer service."

Q3 01 Highlights
In Q3, Tumbleweed continued to expand its position across a number of vertical industries by adding 207 contracts with new and existing customers. Tumbleweed has more than 1,000 customers worldwide from more than a dozen sectors such as healthcare, financial services, pharmaceutical, manufacturing, government and technology.

The Company also made significant progress on signing new partners to its reseller program, the Tumbleweed Channel Alliance Program. There are over 25 partners in the Channel Alliance program that range from information security and networking specialists to eBusiness consultants, as well as firms that specialize in various industry sectors, such as government or healthcare. The company will continue to focus on attracting leading resellers to its Channel Alliance Program as part of its 2002 plan to increase sales coverage and market penetration.

In Q3, the Company expanded its position in the healthcare and pharmaceutical market with new contracts with a number of companies, including: Anthem Blue Cross Blue Shield, Blue Cross Blue Shield of Florida, District One Hospital, McKesson HBOC, IDEC Pharmaceutical Corporation, Beckman Coulter, Inc., and Aurora Biosciences. Healthcare providers and pharmaceutical companies are using Tumbleweed software to reduce administrative costs and protect patient privacy.

Tumbleweed also signed contracts in the third quarter with both new and existing customers in the financial services sector including: First Union Wachovia, Countrywide Home Loans, Inc., Citicorp Diners Club, JP Morgan Chase & Co., American Century Services Corporation, Columbia Financial Center, Hilliard Lyons, Safeco Insurance, Coutts (USA) International, Prudential PLC, and First Technology Credit Union. Over 340 banking, brokerage, credit card, insurance and mutual fund customers now use Tumbleweed solutions to secure customer and partner information exchanged over the Internet while they improve customer service and enhance customer relationships. Many financial firms are using Tumbleweed software to move paper-based processes to the Internet to reduce both the cost and waste of paper-based communications.

In the legal sector, contracts in Q3 included: Steptoe & Johnson; Young, Conaway, Stargett & Taylor; Simpson, Tacher and Bartlett; Skadden, Arps, Slate, Meagher & Flom; Cadwalader, Wickersham & Taft; and Weil, Gotshal and Manges, LLP.

The Company was successful in further penetrating other vertical markets in Q3, as well. New contracts were signed with Motorola, AT&T Broadband, LAM Research Corporation, Best Buy Co. Inc., TELUS Communications, and Jacobs Engineering.

Conference Call Information
The Company will host a conference call with the investment community at 2 PM PT/5 PM ET today to discuss its results for the second quarter. This call is being made available to all interested parties via a LIVE webcast on Tumbleweed's website at www.tumbleweed.com, under Company heading, investor relations. A replay of the conference call will be available for 30 days at the Company's website or by telephone at (913) 385-6780, pin #2157.

About Tumbleweed
Tumbleweed is a leading provider of solutions for managing secure communication and collaboration to enable the business Internet. Tumbleweed's robust policy-based framework empowers organizations to safely share and protect critical information, increase customer loyalty and privacy and dramatically reduce costs. Tumbleweed is trusted by 1,000 blue-chip customers including American Express, JP Morgan Chase & Co., Chevron, Datek Online, the European Union's Joint Research Council, Food and Drug Administration, John Deere, Merrill Lynch, Nike, Northern Trust, NTT, Salomon Smith Barney, Travelers, United Parcel Service, and seven of the world's largest postal services. Tumbleweed Communications was founded in 1993 and is headquartered in Redwood City, CA with offices around the world.

Tumbleweed cautions that forward-looking statements contained in this press release are based on current plans and expectations, and that a number of factors could cause the actual results to differ materially from the guidance given at this time. These factors are described in the Safe Harbor statement below. The Company undertakes no obligation to update this guidance during the current quarter or future quarters.

Except for the historical information contained herein, the matters discussed in this press release may constitute forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected, particularly with respect to Tumbleweed's financial performance, including its ability to reach cash flow breakeven at any particular point, as well as the performance and market acceptance of Tumbleweed's products. In some cases, forward-looking statements can be identified by terminology such as "may," "will," "should," "potential," "continue," "expects," "anticipates," "intends," "plans," "believes," "estimates," and similar expressions. For further cautions about the risks of investing in Tumbleweed, we refer you to the documents Tumbleweed files from time to time with the Securities and Exchange Commission, particularly Tumbleweed's Form 10-K filed March 30, 2001 and Form 10-Q filed May 15, 2001. Tumbleweed assumes no obligation to update information contained in this press release.