Tucows (TCX) 3 Aug 232023 Q2 Earnings call transcript

Welcome to Tucows Second Quarter 2023 Management Commentary.

We have prerecorded prepared remarks regarding the quarter and outlook for the company. A Tucows generated transcript of these remarks with relevant links is also available on the company's website. In lieu of a live question-and-answer period following these remarks, shareholders, analysts and prospective investors are invited to submit questions to Tucows management via e-mail at ir@tucows.com until Thursday, August 10. Management will address your questions directly or in a recorded audio response and transcript that will be posted to the Tucows website on Tuesday, August 22, at approximately 4:00 p.m. Time. Eastern

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Monica. Thanks,

hosted our Wavelo for migration fund the also migration in a significant securitization developments has completed King completed million to in for $XXX We nearly a of DISH first half number well. X as early first Investor May our of our XXXX Day to fiber May Ting platform. well business. subscribers Boost as included the for its as The of of million businesses.

Tucows the in We also debt QX. pay continued down to

we'll our who from cover in each heads as Now, Dave Singh, results our as detail. financial business from the will of hear well CFO,

is speaker ahead, Woroch, Officer, Go Tucows Dave. domains. first The Executive Dave Chief

Elliot. Thanks,

$XX.X continued transactions under $XX The to of with catch-up X% year. million $XX trend the And in million seasonal last second Services in in from was the last margin a for million QX and that stabilized and XXXX, $X.X levels from down Services increased from recent year-over-year, management and quarter Domain million second at domains EBITDA Domains of Domain for last a business QX. million for was management inflated and a domains X% margin $XX.X quarter of stable down adjusted basis, Tucows for onetime transaction quarter slightly down margin QX absent quarter-over-quarter gross returning which comparable XX% Revenue year-over-year quarter. On quarter. same second gross from quarter accounting the under gross trajectory was adjustment year. the at

accounting. I've working their environment. the industry-wide increases the through aftermarket weaker on price about balance is macroeconomic ongoing reflecting that and have is and quarters, in domain which of also discussed revenue gross this for The between recent split here of a believe notes Half be from reduced Deferred the challenge margin. impact broader Some continuation to impact of previously. sales, factors a way the current our I we spoken

with and excluding sales this to core in gross year-over-year, domain and results in affect periodic I put consistent billed These in in as meaningful remains I those transaction expect portfolio context, this our line Investor with beyond margin To continue aftermarket both quarter. levels Day discussed at be and expectations. to don't QX, business, but our our healthy impacts May,

our In down business. our down of segments year X%. channel gross from last revenue second wholesale for channel, and of X% margin quarter was QX the the at Looking

margin Domain was from in Most historical earlier. wholesale margin overall all to was In on QX margin up the our both due services same revenue mentioned rate aftermarket of the channel, gross which the well the Tucows down down industry the Within brands revenue Domain net the while margin renewal average. year-over-year range period in Domains X% retail impact was our And and XX%. gross adjustment channel, and across above sales, within accounting XX% X% flat was I value-added remains weaker are gross last services onetime year-over-year. sales at for our and combined year,

more focus about our quarters But new expenses on complement core of I management couple talked the gross we year. business channels. to of maintaining Day, or Investor I distribution As detail adjusted careful of expenses continued last later our contribution as including forward leverage you services to EBITDA. not and to this should our more margin continue to margin, mentioned in in we'll in in on on develop I and expect any see sharing XXXX, shared look and previously, to support impact operating

Justin over Now to Reilly, CEO of Wavelo.

a QX wrapped has customers. per fastest any seen. continue the the telecom of fastest my that creates its as north parts strongest to with since milestone quarter to inception talk move migration are its X of engagement Remember, pace. we at XXX,XXX migrating subscribers rapid network migrations need can were in Wavelo Dave. memory customer hardest the the muscle we peak, volume At night, and at is anyone This integration. career future key a for a migrations that Thanks, we and

a for we I'm from million of and closed quarter XX.X% QX from the an in QX Wavelo's we margin $X XX% from end increase million QX. Wavelo pleased increased increase for $X.X more quarter. on XXXX were of $X.X million XXXX from $X.X at Adjusted the the to $XX.X with was million, by $X.X of million in an from in EBITDA million increase $XX subscribers of QX of million finished platform, last $X.X million and an nearly gross than million was XX% the Wavelo's quarter X share where QX. doubling of revenue QX, migration and in decrease XXXX. that to XX% this Wavelo

actually a adjusted in DISH The from year-over-year decrease and unwinding to $X.X impact quarter million The contract million these, term change a To EBITDA of million XXXX then which, we was labor revenue versus $X.X of asset is as a contract as year-over-year. given are the the in agreement, that versus ends operations, another this less over month. a the impact lesser the features XXXX and capitalization revenue DISH lower degree, negative due for we'll largely to our largely last labor and which of now asset from OpEx. more core maintenance in Contra for positive of concluded, grew to build Contra team the EBITDA the push impact platform platform which results in in the contract, has unwind focused month year. moves reminder, continue to major XXXX, noncash optimizing the was and higher $X.X year-over-year is Adjusting the QX on capitalizing

the report and Wavelo subscriber robust to Internet We're that the impacts provisioning service Ting to have ordering, and website, migrated platform a been management excited also the created with Ting Internet's to providers, for operation. Ting we're platform. to The collaboration see pleased

interface customers a for look Ting.com. at at take the can You

growing from platform and the interest globally. new On the is are tailwinds accelerated in bolstered the in we pipeline, each investment Wavelo transformation pipeline potential existing uptick with entering infrastructure month. the seeing providers, with This logos by dissatisfaction cloud

market the entered knowing we While dissatisfied, levels customers these hadn't we anticipated seeing of dissatisfaction. were

theme OSS, stack educating value of professional such long-term large language platform other operators but telecoms below moving the management we consistent parts not done to here. Cloud at also BSS XX%. payments, globally on fees, far or efficiency being saying of marketing services haven't engagements of it does so. scale as yet monthly make are native into so content the seeing have are in a realities. remains from done subscriber removed Simply transformation providers from something Further, and We cloud void their

our we and setting over coming time, While the encouraged and I'm go-to-market half the year by team's years. are the industry this progress shifts shift inevitable, of the pleased with the in foundation takes the first as is

time. right And We Elliot. for Thanks are early listening. now both over to on and

numbers in at came continued almost Thanks, XX% to partner construction second robust Ting with infrastructure addresses. for and addresses up serviceable total up year-over-year network activation the quarter. in XX% Total and Justin. XXX,XXX, owned serviceable year-over-year, us Ting XXX,XXX $XX,XXX, at taking addresses

with small of to restating was counts addresses address infrastructure owned serviceable reconciling With data. removed the and XXX after partner a Wavelo, migration there

to due unit was for quarter mix records CapEx not a completed, where at being fiber cost network is QX. million previous This areas. set in $XX.X quarters from lower construction of quarter construction this of the but more reflection footage, for is we slightly Our this down the

in in X,XXX net added We total. XX,XXX QX, us subscribers taking over

over footprints. installs. subscriber and grown we revenue have $XX.X we XX% healthy and subscribers XX% a quarter total as Gross XX% $X.X by become grew year-over-year will in Construction margin partner new grew with both growth generate large to owned to in available progress addresses our of had preorder number Our late Ting's million. serviceable a pipeline continue expect year-over-year year-over-year, the to that million. continues

progressing Our mid-August. with partner beta ceremony live official installs an market customers of now lighting and is new Colorado Springs with in

potential network serviceable footprints, to which small for addresses those peripheral add footprints. will total you'll our see also We appropriate increased markets an regional where

Importantly, bold partner in have pools the there's made lot space. A of of entries. significant capital now a happening number

imbalance a and very ISP view their to we imbalance and This however, investment do as so with Here, BlackRock financing I expect infrastructure create refer building Gigapower, networks ISPs investor quite bargains. like separate supply/demand Intrepid not infrastructure Brookfield These There quite French this network. Ting with investors and that are, opportunity. more. disciplined operating an few large Meridiam, to are a from provides

We opportunities. it however, that present will do, believe

billing an in experience to our the employees elevate even make to customers have more this delivering better fiber who and of operations, using And of expect be Every migrated we modern experience. and efficient. the coax of and more is an service schedule of new and will management phase typical important the ways, platform. the to We lives and transition. ordering, both the to software and In to this and to many platform convenient lastly, customers Ting of seamless transform address next playbook Wavelo provisioning this the Tucows dynamic those element customer

We action website invite in our this on at ting.com. you to see

to operations. to build well load well, network continue improve We the and

it look are building a of of others an operating around to the challenges see and we starting ISP. we As sweat us, with network

period we for deeper a We the dive the like industry, this to clearly is call results. to into And Dave our like execution on now be. which Singh of turn now I'd just to are where over financial

to $XX.X revenues Tucows from quarter million in million revenue revenue second of X.X% aftermarket the QX XXXX, lower gains X% to in QX of by had of Ting year-over-year, gains mainly of $XX Elliot. $XX.X million Thanks, XXXX XXXX. or QX due in for $XX QX at revenue million XXXX. $X of million QX Total contribution in also from year-over-year the XX% Where in XXXX XXXX a those were to of million offset second a quarter of QX XX% in $XX.X sales. million XXXX. of from increased increased The decline expiry to million increasing XXXX in $XX.X from Domains from of $XX to

driven from a for from revenues higher XXXX, quarter increased revenues $XX.X QX primarily $XX.X of to $X.X eliminations. profit XX% year-over-year to second also decline was million There million in in from network subscribers segment by and intercompany million. Gross year-over-year lower costs before mobile million $X.X legacy the XXXX of corporate QX X.X% in

to Domains a compared QX this last at from year of XXXX of quarter As down to million before remained profit revenue, gross XX.X% flat profit the costs XX%. $XX.X network second from prior business, decreased percentage Tucows $XX gross million. for Breaking gross by profit quarter of year

impact XX% in implemented of XXXX, As expiry the for which our down devaluation we million take dollars dollar also million in result Tucows weak the U.S. at we're half domains of the a Wavelo's gross for to of mainly higher are prices for of seeing price but XX% XXXX, of increased the XXXX the was QX the few U.S. percentage revenues, of XXXX. sold from still will were aftermarket XX% the $XX to through as in latter gross to flows process. QX compared of quarter to Domains revenue, effect margin renewed names and cost increases that euro a in customers by deferral profit QX euros. The a quarters this to buying XXXX increased in $X.X

As XX.X% of year. was QX revenue, of this a from margin quarter, a is in percentage robust gross last XX.X% which for Wavelo up

million year-over-year gross from for same to QX for $X.X $X.X Ting increased year. the million period profit last of XX%

of percentage depreciation the $XX.X last be period XXXX, million higher year. assets, second XX% QX at Network expanding QX million from in continues from gross margin by XX% of up last to fiber a was As XX% The of for expenses increase year-over-year. for of our driven network of Ting increased revenue, $XX.X same the year. for to quarter unchanged

Wavelo. Ting business mainly up while are increase expenses a operating $X.X second and period year-over-year, $X.X XXXX contracting Total up People $X.X $XX.X support and on with support by costs $X.X and $X.X down to related expansion and following: for of QX to and increased and Facility mainly business increased of the Sales third-party Ting growth million amortization investments XXXX. increased assets primarily marketing Internet the of stock-based million by in grants million, intangible year. the workforce from result of million from million were Wavelo. And from equipment of property the is million expansion. XX.X% same subsidiary in million were of The driven for loss quarter of $XX.X disposition increased and expenses Ting to finally, the last the costs costs year-over-year, compensation increased

the Generate's or $XX.X percentage redemption a onetime loss or this loss quarter with portion million year. quarter of accretion associated resulting early of increased million nonrecurring the a operating debt to per year $X With $XX $X.XX period reported XXXX. from redeemable loss of net the We of XX% shares. XXXX million preferred from for on of expenses same for QX compared per of of As of share [ preferred loss $X.XX share and for second a the a a extinguishment of for of last net an revenue, a of ] shares XX% second

the businesses the associated for of the XX.X% operations, down and with expense and of of Note, EBITDA of Adjusted result higher interest expiry $XX.X million compensation mix depreciation, of acceleration remainder stock-based the in our construction reflects scaling Canada The taxes net the tax of our networks loss geographic XX% follows: Ting's on as expenses. total fiber for our payable reflecting network is up higher Domains $X.X adjusted stream was was aftermarket. $XX.X legacy million, domains year, business. QX breaks weaker That QX for EBITDA down XXXX. from last Tucows down QX amongst million, the X from our

a million XXXX occurs similarly annually platform services recognition date are anniversary expire bundled of provided or Adjusted bundled decrease either again revenue to Wavelo the million, EBITDA was professional This I services this DISH. that year. part $X.X Wavelo for DISH included as recognized to of the investors as of XX.X% QX last $X.X but the of near quarter, want a from recognition on in remind the hours and contract, used XXXX. lumpy

primarily The reassessment fixed related contract in to related the of asset impact due to decrease DISH in the agreement. the adjusted revenue EBITDA recognition payments is

year-over-year. the a payments. positive and for asset the recognition contract based varies was last negative A Adjusting asset a the grew million these, contract $X.X year. million reminder, actually impact of estimated on quarter $X.X on relative revenue associated As variable change noncash EBITDA mix a fixed $X.X this million versus and

Ting as EBITDA accelerate is renewal XXXX, EBITDA a million $X.X the we base. million, QX of Contra $XX.X negative for quarter, million $X.X compared XX, lower is a the Adjusted will this June corporate $X.X the from network was contract, negative over with for from in of balance of As and QX year, a category our in And million of contract $X.X down it the fiber up unwind adjusted asset driven XXXX. expansion. mobile QX term contribution revenue as last decrease million had finally, the with to in continue XXXX primarily legacy by which

the of Cash QX quarter and and sheet. $XXX.X at with end million compared our end of equivalents first second to the million the the XXXX at the quarter at XXXX. million Turning end of balance $X.X $XX.X cash of were of

back In this or $XX.X addition ABS million million, in will classified remaining of million then the notes. coming restricted have million, as the as cash quarter. $X.X remaining the funds ABS transaction the with parties we $XXX.X securities to of duration noteholders, Of distributed interest to trust the The the $X.X sit million to to collections Ting. the part reflect third account get from cash assets the and and the $XX.X asset-backed monthly securitized for as the fees

with million QX decrease equipment, addition cash Wavelo Ting number investment primarily Fiber. cash in in we During the in a reflects by of cash investment compared operations operating with continued fiber $XX.X $X.X million quarter for for from flow driven platform. Internet accelerated $XX.X invested the We in to quarter, property that the for negative on larger assets statement. million network build-out and year, the positive last Ting in paid the the a in the capital the actual had Note

we of this first business. mentioned asset-backed securities for ever the our earlier, set issued As quarter Ting

X.X%. paid The of the after coupon the OID extinguishment. early on blended taking of in May, and $XXX.X relationships of $X issuance into $XX.X versus customer discount in interest net issued a account and $XXX.X we an certain million of a million rate OID assets, the against early are financing, X.XX% Ting. from costs. including the QX, another receiving debt million rate after carry proceeds The on fiber a The notes secured preferred or after million original with securitization repaid in of resulted taking were of most loss the the notes the In which Ting preferred account of the expense. notes monthly $XX effective financing, tests $X.X of revenue with is but we issue annualized into drew value million approximately Interest million covenant of with monthly proceeds

cash I on $X syndicated expect are I loan balance of in repaid the this up preferred deferred leverage wanted that hand million, remind and on XXXX, repayments cash quarter million of $XXX.X We for of quarterly X.XXx. factoring the $X this resulting letters continue XX, our X note purposes ratio to debt interest to credit years. in also the to facility and company at million for when the payments first a calculation year. on wasn't June

at end it QX the million, of the $XXX Domains pandemic I'll from revenue remarks, up deferred That of was of $XXX.X revenue now my normalized. that back have impacts primarily slightly now from the turn and second for year, Finally, Elliot. unchanged quarter stabilization to quarter last of reflecting the XXXX first and the concludes million

importance and were capital further looks the To Street Dave. that like for. I I were our and structured to Last us we of Tucows million due due more weakness for in to secondary bit effective sourced The shared quo about and to talked led EBITDA $XX necessary explore opportunities having to Bank for successful than investigation million. Sachs Wavelo process a That the now ABS available halfway status the we of be like our quarter, light will little a the us Thanks, will be cost majority stronger to start, year, consolidated reiterate Domains would also the Goldman It maintaining our opportunities through now. $XX looking control. adjusted the cycle. retained vast structure. I for guidance market this to have capital of

execution. position instead of in will happily and on are focus We strength a

good on be unique in informed are environment, huge is conservative. that We time to operating focus significant and one opportunities and our This risks. execution we are certainly with by a view a macro

partner needing we We a not larger tenants, massive informed described markets are organic earlier, by number also which do markets that do. require the what of capital

strategy clarity, allow our that current I'm approach advantage a identifying take might massive not some to of. opportunities or For I'm in us signaling market change rather our our strategy,

moved progress than For TCX, better place continues and always we are that opportunities. cash, to Domains a upside on with Wavelo has some in cash just our now year solidly generate expect X has, all only as to a trend generating businesses it continue. to ago.

of basis, we've flow now at loss and can cash on becoming flow is businesses to which sufficient we to is those other. start X an simplest, self-funded means executing. having X At one extremely operating to to invest its cash the gone intensive case from Ting Importantly, capital positive in It point or deleveraging. grind positive. businesses, of in generate cash operating This in one the domains means and near towards low

markets the end revalue believe now. both bit decade public assets in last This of is and the and there of following of a elements fair of to of We dislocation is markets a money right true as financial free the in plus. also start private number structural unwinding

I be We big were sight we this our to not applies where we important are while focusing takes on while year execution year, lose businesses. glad place of next rather the this do a to picture. than we say is where of What are It ago. X all that

All massive whether or the many AI both important complex otherwise technology of they challenges more opportunities, and more people. of and in for make be the

the brings of the take directly in case opportunities Wavelo. of understand Domains can businesses need technology the of Tucows Our as through how case or challenges massive that partners people advantage them in role the Ting and help of increasing these help to navigate or they

dial-up ISPs our That be by existence, turn where early them be We in been are Internet up the telecom. in often help and fundamental to not There's most or to and without interesting to at is health has is role, an partner technological Technology most most certainly taken are a It of in so make people not used much respects, to knowing that supported. incumbent we the change trusted it. fulfilled time. the like happiness. role by have XXXX to do left

all the a technology They customers Wavelo simply was are last chance are incumbents ushered thought couple the of We by in trusted are, relationship Tucows their massive. Domains decades be. Ting The customers. Many in nor with incumbents of in gives change not to not is, liked.

your and right August middle change. questions be the the with forward at only the by you look detail. Again, to to recorded areas to the TCX website of questions please this are that And businesses that Tuesday, We to call beginning in interest Time. ir@tucows.com your written exploring XX, look I Eastern all of in of our posted and and at are greater send Thank XX, approximately p.m. Tucows audio and Thursday, Q&A on response August for you. transcript X:XX that,