Tucows (TCX) 22 Feb 242023 Q4 Earnings call transcript

Welcome to Tucows Fourth 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. Please submit questions by e-mail to ir@tucows.com until Thursday, February 29. XX, your transcript or to that website Tuesday, address audio a the either p.m. on and X:XX response will March will questions provide directly recorded Tucows Management approximately at be posted Eastern Time.

results We includes our quarterly key summary, available Tucows the the XXXX, is KPI for the for and like historical last would and all as which XXXX Scorecard of full the Investors well to as and also the for that section updated along advise presentation. website, metrics financial updated businesses provides also X Build XXXX Ting in quarters investor years of with

ended remarks. reporting website That news December Now prepared On for financial release February release and a its the XX, management's are company's for Tucows the Investors company's available results on the section. news quarter XX, issued financial statements at XXXX. Thursday, fourth under tucows.com the

read discussion risks company's risk that risk described which note with materially. These detail statements, factors the that security following results differ may full actual business. specifically the the in most to XX-K uncertainties cause and and in for recent filings filed factors the XX-Q. applicable The the to description urges you include on forward-looking to of Please the to documents are a company subject reports are SEC, could Forms its its

Chief Executive Noss. like turn to Elliot to President the Officer, now would and ahead, over I Elliot. call Go Tucows

cash the our range. by Ting driven QX was robust EBITDA million performance a operating year-over-year consistent Wavelo Thanks, million, consolidated with of was helped XXXX Tucows to million, growth year. grew Ting the fourth Monica. was of at from finish outside $XX.X revenue domains in all our businesses. We XXXX for Ting. This $X.X $X higher in XX% Tucows up Tucows quarter, drive in strong to annual adjusted momentum and and Tucows offset flow finished year by with million our continued of positive and the in from and guidance investment end last $XX.X of of

a in repaid syndicated the also down which loan $XX paid XXXX. on balance of We the takes $XX.X us this million non-Ting further to quarter, million

continued the not to deleveraging financing at Again, authorization. Tucows year environment. machine, being business, over we on to which million formality. buyback Now every focused authorized to we this cash-generating for addressing right up and back be that the a do at this are macroeconomic whether program we in today's is or challenges and year, more squarely which place a to Ting we've foresee is TCX, $XX the are more do of can using getting stock. a We This we've the it time Tucows the spilled

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

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

Thanks, Elliot.

quarter-over-quarter of out As grew I'm quarters we and Domains fiscal close our through gross particularly Tucows successive pleased a margin on XXXX. that XXXX, basis revenue

resellers. our company and is the healthy rolling being build runway for Tucows Domains pay we're Our out for importantly, to products to And debt for the the cash generate growth. core used business down and is long-term Tucows new continues that

was domains adjusted EBITDA, $XX.X year. And which Domain also last Gross $XX.X X.X% last quarter the the up from quarter for the up all saw same margin metrics, our from under year-over-year. Domain was registered, fourth registrations. range of X.X% quarter being QX, Revenue legitimate continues transactions a under our to and new slight in management driven I million, management the last domains in domains quarter $XX.X to X% of quality growth QX in up Services' and to within like by In of an transactions. million is for and across increase $XX.X for expenses. highlight higher Services up that million quality we gains the domain QX, as top level continue million, attentive and there industry, results be was our same from would The concentrated X% in were year. fourth including the were be that year was slightly number we up managing to in

our was year-over-year. to of results our at from QX X% and was compared of Looking channel, margin revenue the last the wholesale up essentially segments unchanged business. QX for year, In gross

X%. services wholesale down in compared the margin gross same Services' year, margin Domain to channel, QX gross value-added was X% Within up last while was the period

of periodically is do reseller's retail to and the move customers from to from at their I'll the aftermarket quarters value-added associated is factor covered note wholesale in The for something we which decline services QX the was request, no a shifts longer of revenues result retail. value-added domains a decline services services. in that that in I actually the business, the the to last our which business couple value-added margin

In X.X% retail our revenue channel, margin gross of outsized which shift over the months. numbers customers will was result X% of of The mentioned, I in up retail impact retail XX started year-over-year. course up margin and the and was a was margin QX

average. remains industry above rate Our combined overall across within QX XX.X% the our all renewal and Tucows in historical brands at Domains range

to background the I enable tools on and service provisioning the a cloud to automation update and further short new hosting. also have transition resellers that and billing

a hands and providing iterate. feedback We have us these in are us number helping the resellers of who of

structure, our the refer like would And please we're major investors these existing cost invisible is it the along with means investment If concept on a developed to services, as comments detail these that my cost to products to reminder, impacts. we've improve without quarter. way last prove new which more you and able new within

very margins products current compelling comfortable been been We've generating in It business. the our is mature with in these a industry prospects for and for with Domains that margin about operating us. gross razor-thin several the margin new Domains of Tucows has $XX to so limited competitive growth. million is years of

you we this as business. successfully know, moat have the into of turned around In many fact, a

for margins. you However, gross higher-margin products about these optimistic am Deploying range. X significantly is for from meaningfully their of higher margin million I domain margins the and typical services, beyond I will than opportunities these us keep $XX critical name potential get the to the are apprised new new our progress.

Now Justin over to Reilly, Wavelo. of CEO

generate I and marks year Thanks, laid A an million ago as second Dave. XXXX with foundation Wavelo's I year $XX shared Investor full million revenue. the how was independent in to Day, to business. $XX at pleased

other north growth over rates Wavelo As growth XX% period. the over years, SaaS nearly compound we today, a rate annual last X BXB generated same companies $XX.X halved sit in here averaging XXXX, while revenue of in million the

quality. be the software burn. start-up the for outperforming slight new want step million performance in macro our margin $XX lower $X come million, as to the environment on upgraded EBITDA is clear competitive in customers midst up That we is this Adjusted context what is invest to This full $XX.X $X when an expect else's Gross of year. million, business that growth from customers full platform. to increasingly to cash million said, This in profitability its of Remember, in $XX.X battle back reach we million XXXX. of market. last up year guidance the can was a I our a be and much from scale represents and year million flight that in was of XXXX XXXX level $X.X in in a everyone

from $X.X down In XX.X% $X.X XX.X% margin represents Gross XX% Wavelo's million were from XXX% down Adjusted XXX% up quarter, QX, trend The was and down revenues of million, million, from in the was $X.X QX year-over-year. EBITDA up QX up year-over-year. QX XXX% couple QX and from QX for a quarter-over-quarter things. XXXX. and

deferred QX, as stabilized. all from metrics shift from to which provides in year the DISH subscriber those focus recognize haven't revenue in quarter. across a And bases every prepaid in postpaid second, we First, extra third yet DISH's bump

In adjusted the growth EBITDA quarter-over-quarter in our reflects addition, teams the years. an increased support investment coming to trend

and true our another long-term in customer I and for opportunity telecoms a true mix the since last as was now well I leveraging relationships customer-centric at that to to software. the These And competencies reported, The it operations of businesses, is This further the shift last in represent on It Ting the day-to-day XX-year I'm focus towards both Tucows that to net in experience in existing our cloud heart logos appetite added more new announce quarter, strong telecom move cloud simplicity, of is happy upgrades and of shareholder service of view customers value. as X was reinforcing and customer a chapter true software. history new that Wavelo Wavelo. we've is that efficiency opportunity family. it intense drives the discussed yet Wavelo and OpenSRS, of assets, in and in story to

are end-to-end quarter, billing focus these in are customers the pipeline. machine without continued and ISPs seeing leapfrog to a adding at to automating tremendous solid we Unlike with and as on service. well value-added with shared opportunity I and as as As a first provisioning MNOs, their small traction Investor have operators on replatform a mobile pain qualified too adding all team building elegantly pipeline, Day, software focus is steady With that pitfalls implementations. a midsize is the in that legacy the common on telecom. the all new of opportunities our these In onboards the trend this to of closes the

procurement laborious that have ahead is year cycles famous us the telecom navigating We busy for. a of

that growing Thanks remind on as below I'll efficiency the market representing now but XXXX, much pipeline, of over marketing team of and small to competitors. smaller the the we to than a while and listening, In expect a spend sales and Elliot. staying focusing service grow percentage on our investors spend. for team and our is well mighty, revenue

very taking another addresses XX% growth for for to Thanks, Justin. serviceable of QX us resulting of in year-over-year Ting-owned completed addresses, was quarter infrastructure. construction XXX,XXX strong Ting, serviceable

subscribers over us ramping growth also the with us XX% are addresses serviceable across grew up markets XX,XXX total total. addresses partner Ting in all to Ting taking brings year-over-year in Our This fourth XXX,XXX year-over-year. to footprints. quarter, XX% in

$X.X grew million, came $XX.X year-over-year million. in gross to XX% year-over-year QX negative $XX.X Adjusted for EBITDA grew and X.X% Revenue margin to million.

previously this stated, I number As too is high. have

have in position. to and We we'll address until quarter, it started continue are this more a to we appropriate

mostly considered the QX QX a will you to than to a our fiber QX was for CapEx at still us has our In and a but fiber In $XX reflection QX, XXXX, transition market million vendor Alexandria. from more of new evolve. is of see the into in in little increased Our as that spends earlier year. microtrenching XXXX, lower continues

into into Heading relief. coax-to-fiber transition is the sharper coming XXXX,

We well into now are process. this

construction We every as of about have same capital, having and ingredients ISP always X market fiber the talked operation.

as capital for the X private see it the We element infra-fund their those Any element. us ISP. strategic of strategic family have always or be sponsor, is financial identified equity, office,

colleagues fiber not infrastructure all the ISPs. thus, operations. market, financial mid-market Our on of we and focused and do being see much sponsors, pools see on of fully integrated capital larger more We partner are the have existing on focusing larger others many focused side

in as capital partner relative the pools the not are As building away we and additional opportunities we X Colorado partner cities be the of U.S., have, money come look plan does Ting to will In us this for the top of take clearly. at X to see the build attracted organic partner XXXX, biggest but from in space. organically. space the largest we that we XX XXXX, The to very markets. the and we are in more markets That both Springs following Memphis, expect

promises We coax-to-fiber interesting it to financings cycle, when in market regard. in companies the also having to original of were the continue this wave externally the receptive come watch to this and finding back to as as XXXX funded were who be done. not first

is years of taught partner their markets drawback biggest has with inconsistent experience delivery. Our that us

the Over other amounts on of us has dollars wasting and to marketing led this significant operating years, operations.

we same operations. in developed construction our have competency At real time, the

opportunities time, We have open The use partner discussions. can get how skills partners with expect better choosing very started and help to our to Over more also we involved partners. good new that investigating delivery. selected creating markets these are we in to news with construction is here

started the on current a years decade As needs when building our partner are different Ting's a we large loading than of first business. business current today our focus and and looked opportunities, closely saw we ultimately spent out the evolved building increased footprints, at underlying have We ago. complicated We our part XX networks operation.

priorities being Ting the XX% we some are to current reduce able we the building originally We of operate match made operational moving from envisioned. the Ting's approximately Because the to some of now realized XX them employees, We've functions workforce and that business business. decision to impacted material this, core workforce. of This business are have as as functions run changed to not efficiently. and

resources to cease opportunities. and been made As to other Mesa, well, with and related of in partner Since Arizona, announced market the to competition March, our we've we've Mesa decision our activity overbuilding. infrastructure reprioritize last on issues talk working to partner through we

only We continue fiber with X to prefer markets overbuilder.

recently our service the new organic Denver Thornton, start add We to to next approximately few is expected which build addresses announced months will Colorado, live this later serviceable in XX,XXX a in and footprint. Construction be year. will

add Although opportunities be where organic we our will thoughtfully economics will builds markets, logistics footprints and in work. largest partner existing continue with to

been excited to essentially has Thornton there. in engaged market market, eager back an expansion a organic For example, highly build a existing new operation. about a our We're of the fiber if build facilitate we're the utilizes is half as market in that city nearby is and the local out

Dave hear from discuss financial in CFO, Singh, we'll our detail. who will Tucows Now results

million million subscribers of to was Total Thanks, by to primarily from of sale XX% as of eliminations. $X.X in million revenue Domains a revenues a QX million year-over-year, of QX to to million XXX% the corporate revenue the the fourth to revenue million $X.X increased million as XXXX $XX.X quarter to $XX.X X.X%, segment XXXX XXXX. by year-over-year driven looking million higher increased of mobile XXXX. Ting in QX subscribers gains QX DISH, increasing $X.X businesses XX% revenue in to across And $XX.X to was from QX Elliot. XXXX. fourth There The $XX.X Tucows for in QX in different for offset businesses, X XXXX for in in the million XXXX. decline $X.X up intercompany from had revenues Wavelo's quarter gains Ting XXXX. in of QX from increasing $XX lower well compared decline for legacy in the When $XX.X XX.X% the XXXX was QX small Mobile retained revenues the million from

fourth XX.X% for the Gross year-over-year costs in network from quarter profit million XXXX. million $XX.X before increased $XX.X QX to

of gross compared XXXX. to percentage QX quarter network to a increased XX% before revenue, profit XX% for this costs As

profit Breaking year for down quarter of gross profit business, by QX $XX.X $XX.X XXXX million. gross fourth Tucows last from the from X.X% to Domains increased of million

from by for gross the Domains Wavelo's year-over-year remained of at million gross margin subscribers. XXX% quarter XXXX percentage as finished revenue, with $X.X $X.X for to loaded QX a As Tucows XXXX. unchanged million XX% QX profit fully Wavelo for increased this second quarter Boost

revenue, quarter, gross subscriber DISH a As for margin from Wavelo increased efficiency of Wavelo's increased in base. XX% reflection up of a the was QX of The last year. percentage is margin which this XX% is migrated fully from

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

quarter year. of margin As of a percentage the fourth QX from XX% in gross last revenue, was of in XXXX, for XX% Ting down

period higher from $XX.X of managing $XX.X as XX% to Network depreciation up our continues as increase network. by million year-over-year expenses network XX.X% last expanded driven million to for This assets, fiber well costs be QX people primarily of increased year. expanding for our the same

the Ting of business following in $X.X operating of Wavelo is from year-over-year, expansion Total People Wavelo. driven centers: increased expansion year. expansion. same of for cost increased result the increased investments $XX.X to workforce Internet business expenses related in Ting and the million costs growth $X.X primarily Marketing with XXXX to by mainly million for Ting costs million were and up $XX specifically the period fourth increased costs increase support of XX% million businesses, last the The quarter the the to

$X costs professional up were costs, million. contractor and facilities fees, Third-party travel

million. decreases to XXXX; sizable finally, $X.X and compensation depreciation $X.X operating Stock-based were and from decreased primarily million expense by There $X.X of exchange expenses including: subsidiary intangible grants million, and in equipment down property offsets is assets of reduced QX impact amortization the foreign quarter; from gains this

nonrecurring of February workforce expenses. million, contributions X, on also employee prioritizations business ongoing reflect operational Ting reduction severance to outplacement Ting the $X notice note a and estimate lower approximately and operating will benefits the company's incurring pay, payments, consisting of undertook I charges primarily that We of to year-over-year XXXX, costs. in

that implementation reductions be incurred payments in will of the and the quarter headcount first majority cash restructuring the We of XXXX. expect of charges the fiscal

operating were a last of expenses year-over-year under for the relatively revenue, and As XX% year percentage this XX% of at stable for period year. just QX same

investment loss per share million quarter of $XX.X debt. XXXX. higher interest and our network of loss a taxes per of net net million geographic legacy Ting's for reported construction increased the and interest We of depreciation $X.XX up higher fourth that expenses fourth fiber or scaling compared the a $X.XX the expense ongoing payable on share of and our our or quarter The business. of higher in for note networks is Please net the loss tax primarily with with of associated domains loss Canada the a rates in both result from $XX.X operations, XXXX reflects on mix

of to Adjusted million, for $XX.X legacy driven X was amongst primarily by intercompany $X.X was Wavelo million Adjusted XXXX, year. million Ting base decrease down lower from corporate in fiber increase contribution of $X.X as QX $XX.X primarily driven year. QX And negative adjusted $X.X breaks XXXX $X.X million EBITDA down million, quarter, in compared the EBITDA $X.X follows: this million investment of higher we our the was EBITDA X.X% expansion. and was from Adjusted $X Tucows last as with from in Adjusted EBITDA finally, mobile up businesses an year. continue had The The our invest EBITDA by last business. was category down $X.X for from network our total from million eliminations. $X.X for million million, for Ting XX% QX a Domains million negative loss in QX last QX of the from

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

the addition part restricted as $XX.X million, transaction $XX.X as May. of last classified ABS we In have the cash million to

the and the As in remaining of will $X.X cash $XX.X duration the the million of collections million notes. of million and from funds coming sit third the that noteholders, a Ting. for interest income ABS note The to restricted the remaining a account back is will $X.X parties reflects with to this trust generated as fees in cash, quarter. the we distributed to interest reminder, monthly securitized I assets also $X.X million

had increase the we compared cash by efficiency syndicated and first driven a and QX capital the with of last payments week $X the working quarter, operations million following into timing reset year, quarter. the During from of timing with million in in $X.X of interest primarily quarterly

We platform. on of assets and invested buildout equipment, in network, number $XX.X actual million capital our the that Note the interest. Fiber cash the paid Wavelo in quarter in capitalized statement investment primarily this continued includes Ting in continued to cash reflects the and for cash the property for the addition flow

in this syndicated to calculation cash As our credit we expect million of and net purposes million $XX.X reduced $X.X resulted quarterly when which factoring the was of of This loan quarter a We have hand covenant repayments the XXXX, continue. and consecutive million, up a letters a on the XX, leverage in $XXX December third repaid ratio. of for to of balance quarter leverage on ratio the net is loan X.XXx. balance

was of the million $XXX quarter normalized. XXXX, is stabilization million the $XXX due for from to end revenue last revenues year. for deferred that fourth QX million, the at This quarter the pandemic have of of up Finally, $XXX primarily third domains impacts from the now but down of

concludes to That remarks, back Elliot. and I'll it my now turn

Thanks, Dave.

Let with guidance businesses start for our XXXX. me for

EBITDA For million. Tucows guidance giving adjusted $XX Domains, we're of

million for to $XX of our we're $X million. million to giving Wavelo, Corporate million of million $XX segment, For million. to $X guidance $XX for total And a $X

which it, Given we're for will but than next estimate reducing a and the share in with no recent intention loss. when an we later of working refined you at that results we through event quarter's have Ting, the business, with changes more EBITDA guidance

paths X I to start out over businesses. XXXX, I all As clear see for look

into For turn new contributors. real Tucows Domains, the offerings

customers. Wavelo, a pipeline new For generate of

up and clean balance the network. Ting, the For sheet load

myself often or sense transition of in the what. anything is the the find dealing than balance another. sense And the I conditions the transition engages of the Ting, that one timing. in about coax-to-fiber timing is with pace when more arc, in With are thinking the sheet U.S. and of Timing time macroeconomic in when Time important while cap coax-to-fiber the one table,

comfortably very in see XX micro the this still XX general Let's for the those will that, activity being shortly entrants, it the it good believe to the into will We cycle. is economy. call the to footprints late and country. footprints. building for industry will where There arc. is months too execution industry we are be that We away years commenced. cycle about across be from We in of but this late and new lot feel new of after are view, building and fiber of a X too macro, be the part our most X fiber phase and of now We

in positioned well market of tier players. middle first are We the

not we our sheet. to level being that environment. leg EBITDA of been we debt I of this want losses this That need capital to is acceptable. risk build, While primarily strengthen the in because means have level balance take have to our in we clear position next and not of are a do are through of This this looking us macro

of quiver. arrows we to I lots have of earnings the over numerous lucky As said times numerous calls, have are different

are There the these have in X this with want this. are dealing are be environment macro thoughts point. this clear to about. I story X thoughts I best reason the to presented And be We however, not, to

to generational that benefit slowly long First, lot is a the that for most for infrastructure, purpose important Internet business takes micro the effort arc the fiber-to-the-home making position of makes in this thing. sure time. dominates transition and that The mean the By patience. is from to It and money capital, built macro Ting I arc. a

sheet means Second, been structural to evolution strong very customer rate, in down create simply And We recipe is have end. long-term a If as the a term an come. growing would separation nearer putting fiber in to the in infrastructure sat a XXXX shareholders industry-leading pleased. the would success. for ISP we value a do we take be XXXX, for would seen time of have ownership for and and and Ting is strengthening of balance all between footprint, an ISP. a have most position we Whatever fascinating in churn seen to and importantly, we have the will long would of ourselves future operating shown a with satisfaction, which us long-term an

February transcript And questions that, our for I by please to and and Again, X:XX written call questions Thank Tucows your you approximately XX, Tuesday, posted look to exploring Time. March ir@tucows.com with and recorded forward to look your website you. the response on to interest Q&A greater at areas detail. send be XX, Eastern this that audio in p.m. to