NASDAQ:TCX Tucows Q2 2023 Prepared Remarks Earnings Report $16.44 -0.52 (-3.07%) Closing price 04/25/2025 04:00 PM EasternExtended Trading$16.44 0.00 (0.00%) As of 04/25/2025 04:01 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings History Tucows EPS ResultsActual EPS-$1.79Consensus EPS N/ABeat/MissN/AOne Year Ago EPSN/ATucows Revenue ResultsActual Revenue$84.98 millionExpected RevenueN/ABeat/MissN/AYoY Revenue GrowthN/ATucows Announcement DetailsQuarterQ2 2023 Prepared RemarksDate8/3/2023TimeN/AConference Call DateThursday, August 3, 2023Conference Call Time5:05PM ETUpcoming EarningsTucows' Q1 2025 Prepared Remarks earnings is scheduled for Thursday, May 8, 2025Conference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckInterim ReportEarnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Tucows Q2 2023 Prepared Remarks Earnings Call TranscriptProvided by QuartrAugust 3, 2023 ShareLink copied to clipboard.There are 5 speakers on the call. Operator00:00:00Welcome to Tucows' 2nd quarter 2023 management commentary. We have pre recorded prepared remarks regarding the quarter and outlook for the company. A TucHouse 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 email at irtucows.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 TUKAS website on Tuesday, August 22nd at approximately 4 pm Eastern Time. Operator00:00:40We would also like to advise that the updated Tucows quarterly KPI summary, which provides key metrics for all of our businesses for the last 6 quarters, as well as for full years 2021, 2022 and 2023 year to date and also includes historical financial results, is available in the Investors section of the website, along with the updated Ting billed scorecard and investor presentation. Additionally, if you would like to watch segments from our May 9 Investor Day, Please email irtucas.com with your request. Now for management's prepared remarks. On Thursday, August 3, TUKAS issued a news release reporting its financial results for the Q2 ended June 30, 2023. That news release and the company's financial statements are available on the company's website at Tucast.com under the Investors section. Operator00:01:30Please note that the following discussion may include forward looking statements, which, as such, are subject to risks and uncertainties that could cause actual results to differ materially. These risk factors are described and the company's documents filed with the SEC, specifically the most recent reports on the forms 10 ks and 10 Q. The company urges you to read its security filings for a full description of the risk factors applicable for its business. I would now like to turn the call over to Tuca's President and Chief Executive Officer, Elliot Naas. Go ahead, Elliot. Speaker 100:02:04Thanks, Monica. The first half of twenty twenty three has included a number of significant developments for our businesses. Wavelo completed its migration of nearly 7,000,000 Boost subscribers for DISH, as well as the migration of Ting to the platform. Ting also completed a securitization for $239,000,000 in May to fund our fiber business. We hosted our 1st Investor Day in early May as well. Speaker 100:02:32We also continued to pay down the Tucows debt in Q2. Now, we'll hear from the heads of each business as well as from our CFO, Dave Singh, who will cover our financial results in detail. The first speaker is Dave Warwick, Chief Executive Officer, Tucows Domains. Go ahead, Dave. Speaker 200:02:49Thanks, Elliot. The Q2 for Tucows Domains continued the recent trend of transactions and domains under management returning to a stabilized business trajectory, with seasonal transaction levels comparable year over year And domains under management stable from last quarter. Revenue for domain services for the Q2 at 60,000,000 Was down slightly from $61,000,000 for the same quarter of last year. And gross margin at $17,900,000 was down 7% year over year, Absent a one time catch up accounting adjustment in Q2 2022, which inflated gross margin in that quarter. On a quarter over quarter basis, gross margin increased $400,000 2 percent from Q1. Speaker 200:03:36Domain Services adjusted EBITDA was $10,600,000 in the 2nd quarter and down 13% from Q2 of last year. Some notes here on the reduced gross margin. Half of that impact is from the ongoing weaker aftermarket for domain sales, which I have discussed in recent quarters, and we believe this to be a continuation of a broader industry wide challenge reflecting the current macroeconomic environment. The balance of the impact is split between factors I've also spoken about previously deferred revenue and price increases working their way through our accounting. These continued to affect our results in Q2, but I don't expect those impacts to be meaningful beyond this quarter. Speaker 200:04:20To put this in context, and as I discussed at our Investor Day in May, our core domain business, excluding both aftermarket And periodic portfolio sales remains healthy, with billed gross margin consistent year over year, in line with transaction levels and expectations. Looking at the channel segments of our business, in our wholesale channel, revenue for Q2 was down 2% from the Q2 of last year And gross margin down 9%. Within the wholesale channel, Domain Services gross margin was down 5% from the same period last year, while value added services gross margin was down 16%. Most of the impact on both revenue and margin are due to weaker sales And the aftermarket for domain sales, which I mentioned earlier. In our retail channel, revenue was flat year over year and gross margin, Net to one time accounting adjustment was up 2% year over year. Speaker 200:05:18And our combined overall renewal rate At 79% in Q2 across all Tucows Domains brands remains within our historical range and well above the industry average. As I talked about in the last couple of quarters and shared in more detail on Investor Day, we continue to develop new services to complement our core business And leverage our distribution channels. I look forward to sharing more later this year. But as I mentioned previously, You should not expect to see any contribution to gross margin or impact on operating expenses in 2023. And we'll continue our focus on maintaining margin, including careful management of expenses in support of adjusted EBITDA. Speaker 200:06:02Now over to Justin Reilly, CEO of Wavellow. Speaker 300:06:05Thanks, Dave. Wavellow wrapped Q2 with its strongest quarter since inception as migrations continue to move at a rapid pace. At its peak, we were migrating subscribers at a volume north of 200,000 per night, the fastest telecom migration in my career And the fastest that anyone we can talk to has seen. Remember, the 2 hardest parts of any customer engagement are migrations and network integrations. This is a key milestone that creates the muscle memory we need for future customers. Speaker 300:06:39I'm pleased to share that we finished the migration and closed the quarter More than 8,000,000 subscribers on the Wavellow platform, nearly doubling where we were at the end of Q1. Wavelo's revenue was $10,800,000 in Q2, an increase of 20% from $9,000,000 in Q2 of 2022 And an increase of 47 percent from $7,300,000 last quarter. Wavelo's gross margin increased by 27% To $10,000,000 this quarter from $7,900,000 for Q2 2022. Adjusted EBITDA for WAVE LO was $3,400,000 a decrease of 11.5 percent from $3,900,000 in Q2 of 2022 And an increase from $300,000 in Q1. The decrease in adjusted EBITDA year over year was largely due to the contra revenue impact From the unwinding contract asset from the DISH agreement, which as a reminder, will continue to unwind as contra revenue over the term of the contract, Which ends in 2024 and then moves month to month. Speaker 300:07:47The non cash impact of the contract asset Change was a negative $700,000 this quarter versus a positive $5,600,000 in Q2 of last year. Adjusting for these, EBITDA actually grew $5,900,000 year over year. To a lesser degree, Another impact year over year is that we are capitalizing less labor in 2023 versus 2022. Given our major push to build the core features of the platform for DISH has largely concluded, and the team is now more focused on platform maintenance And optimizing operations, which results in lower labor capitalization and higher OpEx. We're also pleased to report that Ting Internet's website, Ordering, provisioning and subscriber management have been migrated to the Waveflow platform. Speaker 300:08:37The collaboration with Ting created a robust platform for Internet service And we're excited to see the impacts to the Ting operation. You can take a look at the interface for customers at ting.com. On the pipeline, we are seeing growing interest in the Wavellow platform with new potential logos entering the pipeline each month. This is bolstered by tailwinds from dissatisfaction with existing providers, accelerated cloud transformation and the uptick in infrastructure investment globally. While we entered the market knowing customers were dissatisfied, we hadn't anticipated seeing these levels of dissatisfaction. Speaker 300:09:17We are also seeing a consistent theme of OSSBSS providers' marketing language being far removed from platform realities. Simply saying cloud native into the void does not make it so. Further, we are educating telecoms on the efficiency and long term value Of moving from large professional services engagements to monthly subscriber fees, something operators have done in other parts of their stack, such as content management Or payments, but haven't yet done so at scale here. Cloud transformation globally remains below 10%. While this takes time, the shift is inevitable, and I'm encouraged by our go to market team's progress in the first half of the year And pleased with the foundation we are setting as the industry shifts over the coming years. Speaker 300:10:05We are both early and right on time. Thanks for listening. And now over to Elliot. Speaker 100:10:11Thanks, Justin. Ting continued with robust network construction and activation numbers in the 2nd quarter. Total serviceable addresses for Ting owned infrastructure came in at 109,300, Up 28% year over year and partner addresses at 21,100, up almost 16% year over year, Taking us to 130,400 total serviceable addresses. With the migration to Wavelo, There is a small restating of serviceable address counts with 839 owned and partner infrastructure addresses Removed after reconciling data. Our fiber CapEx was down slightly from previous quarters at $21,800,000 for Q2. Speaker 100:10:59This is not a reflection of the construction completed, where we set records this quarter for network footage, but is due to the mix of construction this quarter Being more in lower unit cost areas. We added 1900 net subscribers in Q2, taking us over 38,600 in total. Our total subscribers have grown over 27% year over year and we expect that growth will continue as we had a large number of Serviceable addresses become available late in the quarter with a healthy pre order pipeline to generate new subscriber installs. Gross margin grew by 22% year over year to $7,100,000 Ting's revenue grew 21% year over year to 12,400,000 Construction progress continues in both our owned and partner footprints. Our partner market of Colorado Springs is now live with beta customers, With new installs progressing and an official lighting ceremony in mid August. Speaker 100:12:00We will also add small peripheral markets where appropriate To our regional network footprints, which you'll see an increased total potential serviceable addresses for those footprints. Importantly, there's a lot happening in the partner space. A number of significant pools of capital have now made bold entries. Here I refer to BlackRock with Giga Power, Meridian, a large French infrastructure investor and Brookfield with their Intrepid Networks investment And more. There are, however, very few ISPs like Ting that view operating an ISP as quite separate For building and financing a network. Speaker 100:12:42This imbalance provides opportunity. These infrastructure investors are quite disciplined. So we do not expect this supply demand imbalance to create bargains. We do, however, believe that it will present opportunities. We expect this to be an important dynamic in the next phase of the coax to fiber transition. Speaker 100:13:03And lastly, we migrated Ting ordering, Billing and provisioning and address and schedule management to the Wavellow platform. In many ways, this is typical of the Tucows Playbook of using modern software to elevate the customer experience and to make the lives of both customers And employees who have to service those customers better and more efficient. Every element of this new platform will transform our operations, Delivering an even more seamless and convenient experience. We invite you to see this in action on our website atting.com. We continue to build well, load the network well and to improve operations. Speaker 100:13:47As we look around us, We are starting to see others sweat a bit with the challenges of building a network and operating an ISP. We are clearly now into period of this industry, which is just where we like to be. And now, I'd like to turn the call over to Dave Singh For a deeper dive on our financial results. Speaker 400:14:07Thanks, Elliot. Total revenue for the Q2 of 2023 increased 2.3% to 85,000,000 from $83,100,000 for the Q2 of 2022. Tang had revenue gains of 21% year over year, increasing to $12,400,000 in Q2 of 2023 From $10,200,000 in Q2 of 2022. Waybill's revenues also increased 20% to $10,800,000 in Q2 of 2023 $9,000,000 in Q2 of 2022. The gains were offset by a decline of 2% in revenue from Tuca's domains year over year From $61,000,000 in Q1 2022 to $60,000,000 in Q1 of 2023, mainly due to a lower contribution from expiry aftermarket sales. Speaker 400:14:49There was also a decline in corporate segment revenues of 34% year over year from $2,800,000 in Q2 of 2022 To $1,900,000 in Q2 2023, driven primarily by lower revenues from legacy mobile subscribers and higher intercompany eliminations. Gross profit before network costs for the Q2 increased 1.2% year over year to $34,200,000 from 33,800,000 As a percentage of revenue, gross profit before network costs this quarter remained flat compared to prior year at 40%. Breaking down gross profit by business, 2,000 domain's gross profit for the Q2 of 2023 decreased 10.2% from Q2 of last year To $17,900,000 from $20,000,000 As a percentage of revenue, gross margin for 2,000,000 was down to 30% for Q2 of 2023 Compared to 33% in Q2 of 2022, mainly a result of weak expiry aftermarket revenues, but also we're still seeing the impact The year devaluation to the U. S. Dollar in 2022, which increased our cost of buying domains in U. Speaker 400:15:51S. Dollars that were sold to customers in euros. The price increases we implemented in the latter half of twenty twenty two will take a few quarters as names are renewed at the higher prices and the effect flows through the deferral process. Wayliv's gross profit increased by 27 percent to $10,000,000 this quarter from $7,900,000 for Q2 2022. As a percentage of revenue, gross margin for Waylo was a robust 93.5% this quarter, which is up from 88.2% in Q2 of last year. Speaker 400:16:19Ting gross profit for Q2 increased 22% year over year to $7,100,000 from $5,800,000 for the same period of last year. As a percentage of revenue, gross margin for Ting was at 57% in the Q2 of 2023, unchanged from Q2 of last year. Network expenses for Q2 increased 38 percent to $16,200,000 from $11,700,000 for the same period of last year. The increase continues to be driven by higher depreciation of our expanding fiber network assets, up 30 2% year over year. Total operating expenses for the Q2 of 2023 Increased 17.5 percent to $31,100,000 from $26,500,000 for the same period last year. Speaker 400:16:57The increase is primarily the result of the following. People costs were up $3,200,000 with increased workforce costs to support business expansion related to the growth of Ting and Wavellown. Sales and marketing expenses increased by $800,000 year over year, mainly driven by increased investments in the Ting Internet business expansion. Facility and third party contracting and support costs were up $200,000 while stock based compensation increased $600,000 year over year mainly from subsidiary grants in Ting and Wavellow. And finally, loss on disposition of property and equipment and amortization of intangible assets are down $300,000 from Q2 of 2022. Speaker 400:17:32As a percentage of revenue, operating expenses increased to 37% for Q2 of this year from 32% for the same period last year. We reported a net loss for the Q2 of 2023 of $31,000,000 or a loss of $2.86 per share Come up with a net loss of $3,000,000 or $0.29 per share for the Q2 2022. We had a non recurring accretion of redeemable preferred shares And an associated one time loss of $14,700,000 on debt extinguishment resulting from the early redemption of a portion of generates preferred shares. The remainder of the net loss is the result of the acceleration of the construction of Ting's fiber networks and scaling up of the associated operations, Network depreciation, higher stock based compensation and higher interest expenses. Note our tax expense reflects our geographic mix, the taxes payable in Canada Our legacy Domains business. Speaker 400:18:22Adjusted EBITDA for Q2 was $5,400,000 down 54% from $11,700,000 for Q2 2022. That total breaks down amongst our 3 businesses as follows. Adjusted EBITDA for Tuca's Domains was $10,600,000 down 12.6% from Q2 of last year, reflecting the weaker expiry stream aftermarket. Adjusted EBITDA for Wavellu was $3,400,000 a decrease of 11.5% from $3,900,000 last year. I want to remind investors that this quarter, Wavellow again recognized revenue on bundled professional services included as part of the platform services provided to DISH. Speaker 400:18:56This recognition occurs either as the bundled hours are used or expire annually near the anniversary date of the DISH contract, But a similarly lumpy recognition in Q2 of 2022 2021. The decrease in adjusted EBITDA is primarily due to the contract asset related revenue recognition impact Related to the reassessment of fixed payments in the DISH agreement. As a reminder, the contract asset and associated revenue recognition Varies based on the estimated relative mix of variable and fixed payments. The non cash impact of the contract asset change was a negative $700,000 this quarter versus a positive $5,600,000 last year. Adjusting for these, EBITDA actually grew $5,900,000 year over year. Speaker 400:19:38As of June 30, 2023, the contract asset balance is $4,600,000 and it will unwind as the contra revenue over the term of the contract, Which is up for renewal in Q3 of 2024. Adjusted EBITDA for TEG was negative $10,300,000 compared with negative $6,200,000 in Q2 2022, As we continue to accelerate our fiber network expansion. And finally, the corporate category had adjusted EBITDA of $1,700,000 this quarter, Down from $1,900,000 in Q2 last year, with a decrease primarily driven by lower contribution from the legacy mobile base. Turning to our balance sheet. Cash and cash equivalents at the end of Q2 were $147,900,000 compared with $11,800,000 at the end of the Q1 of 2023 At $6,500,000 at the end of the Q2 of 2022. Speaker 400:20:23In addition to the $147,900,000 we have $11,700,000 classified as restricted cash As part of the asset backed securities or ABS transaction this quarter, of the $11,700,000 $8,400,000 will sit in the trust account for the duration of the ABS notes. The remaining $3,300,000 reflect the cash collections from securitized assets and get distributed monthly as interest to the note holders, fees to third parties And then with the remaining funds coming back to Ting. During the quarter, we had negative $1,600,000 in cash from operations compared with positive $12,600,000 in Q2 last year, The decrease driven by the larger operating investment for Ting Fiber. We invested $23,200,000 in property and equipment primarily for the accelerated build out of the Ting Fiber Internet network In addition to the continued investment in the Wavellow platform. Note that number reflects the actual cash paid for capital assets in the quarter on a cash flow statement. Speaker 400:21:16As mentioned earlier, we issued our first ever set of asset backed securities this quarter for the Ting business. The notes were issued with a value of $238,500,000 With net proceeds of $220,500,000 after taking into account the OID or original issue discount and issuance costs. The notes carry a blended coupon rate of 6.88 percent and after taking into account the OID, an effective rate of 8.2%. The notes are secured against most of the fiber assets, including certain customer relationships obtained. Interest of approximately $1,400,000 is paid monthly With monthly covenant tests of annualized revenue versus interest expense. Speaker 400:21:52In Q2, we drew another $5,000,000 on the preferred financing, But after receiving the proceeds from the Ting securitization in early May, we repaid $31,000,000 in the preferred financing, which resulted in a loss of 14,700,000 The early debt extinguishment. A reminder, cash interest payments on the deferred debt are deferred for the 1st 2 years. I also wanted to note that on June 30, 2023 syndicated loan balance for covenant calculation purposes was in at $224,300,000 when factoring in letters of credit and cash on hand of up to 5,000,000 resulting in a leverage ratio of 4.17 times. We repaid $7,000,000 on the facility this quarter and expect to continue quarterly repayments this year. Finally, deferred revenue at the end of Q2 was $151,000,000 unchanged from the Q1 of 2023 and up slightly from $150,100,000 For the Q2 of last year, primarily reflecting the stabilization of domain's revenue now that the pandemic impacts have normalized. Speaker 400:22:48That concludes my remarks. And I'll now turn it back to Elliot. Speaker 100:22:52Thanks, Dave. To start, now halfway through the year, I would like to reiterate our consolidated adjusted EBITDA guidance of $14,000,000 to $16,000,000 It looks like Tucows domains will be a little light Due to weakness in the secondary market and Wavellow will be a bit stronger due to effective cost control. Last quarter, I talked about our successful ABS process and the importance of us having sourced the vast majority of the capital necessary for this cycle. I also shared that we had retained Goldman Sachs and Bank Street to explore further opportunities for our capital structure. That investigation led to us maintaining the status quo for now. Speaker 100:23:36The opportunities available We're more structured than we were looking for. We are happily in a position of strength and will instead focus on execution. We are certainly informed by our view that we are operating in a unique macro environment, one with huge opportunities and significant risks. This is a good time to focus on execution and be conservative. We are also informed by what we described earlier, A number of larger partner markets needing tenants, which do not require the massive capital that organic markets do. Speaker 100:24:12For clarity, I'm not signaling a massive change in our approach or our strategy. Rather, I'm identifying some current market opportunities That our strategy might allow us to take advantage of. For TCX, our 3 businesses are all in a better place than just a year ago. Domains continues to generate cash as it always has, with progress on some upside opportunities. Wave Low has moved to now solidly generating cash and we only expect that trend to continue. Speaker 100:24:44Importantly, Ting is now at or near the low point of loss on an operating basis, and we can start to grind towards operating cash flow positive. At its simplest, we've gone from domains having to generate cash sufficient to invest in 2 businesses, one of which is extremely capital intensive To those 2 businesses becoming cash flow positive in one case and self funded in the other. This means deleveraging. It means executing. We also believe there is a fair bit of dislocation in financial markets right now. Speaker 100:25:19This is true in both public and private markets as assets start to revalue following the end of free money And the unwinding of a number of structural elements of the last decade plus. We are glad to be where we are this year, while this takes place rather than where we were a year ago. What I say next applies to all 3 of our businesses. It is important, While focusing on execution that we do not lose sight of the big picture. All of the massive opportunities, whether they be in AI or otherwise, And many of the challenges make technology both more important and more complex for people. Speaker 100:26:00Our businesses need to understand how they can help people take advantage of these massive opportunities and help them navigate the challenges that The increasing role of technology brings directly as in the case of Ting or through partners in the case of Tucows Domains or Wavelo. We are at an interesting time. There is so much technological change and in most respects, people do not have a trusted partner to Make the most of it. Technology in 2023 is like health or happiness. It is fundamental to our existence, And we are often left without knowing where to turn to be supported. Speaker 100:26:38That role, the role that used to be fulfilled in the Early Internet by dial up ISPs has most certainly not been taken up by incumbent telecom. The incumbents are simply not in relationship with They're customers. They are not trusted nor liked. Many of Tucows Domains customers are. Ting is, Wavellow gives incumbents a chance to be. Speaker 100:27:03We all thought the change ushered in by technology in the last couple of decades was massive. We are only at the beginning and all of the TCX businesses are right in the middle of that change. And with that, I look forward to your written questions and exploring areas that interest you in greater detail. Again, Please send your questions to irtucows.com by Thursday, August 10th, and look for our recorded Q and A audio response and transcript to this call To be posted to the Tucows website on Tuesday, August 22nd at approximately 4 pm Eastern Time. Thank you.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallTucows Q2 2023 Prepared Remarks00:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckInterim report Tucows Earnings HeadlinesTucows Announces Timing for Q1 2025 Financial Results News Release and Management CommentaryApril 24 at 7:30 AM | prnewswire.comTucows Announces Director Nominations and Honors Departing Board MembersApril 10, 2025 | prnewswire.comTrump’s tariffs just split the AI market in twoTrump’s tariff just split the AI market – among others – in two. One group of AI companies—the ones relying on cheap foreign hardware—just saw their costs shoot through the roof. For the other group of AI companies, they were just handed a massive competitive advantage. Make no mistake, AI as a whole is still a game-changer for the global economy. But within the AI sector, Trump’s tariffs have created a huge divergence.April 26, 2025 | Traders Agency (Ad)Tucows Announces Director Nominations and Honors Departing Board MembersApril 10, 2025 | prnewswire.comTop Analyst Reports for Walt Disney, Progressive & CitigroupMarch 27, 2025 | finance.yahoo.comTucows issues amendment to Q4 2024 earningsMarch 13, 2025 | prnewswire.comSee More Tucows Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Tucows? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Tucows and other key companies, straight to your email. Email Address About TucowsTucows (NASDAQ:TCX) provides network access, domain name registration, email, mobile telephony, and other Internet services in North America and Europe. It operates in three segments: Ting, Wavelo and Tucows Domains. The Ting segment provides fiber and fixed wireless internet services. The Wavelo segment offers individual developer tools, subscription, billing management, network orchestration, and provisioning services. This segment also provides billing solutions under Platypus brand. The Tucows Domains segment offers name registration, as well as value added services under OpenSRS, eNom, Ascio, EPAG, and Hover brands. The company was formerly known as Infonautics, Inc. and changed its name to Tucows Inc. in August 2001. Tucows Inc. was incorporated in 1992 and is headquartered in Toronto, Canada.View Tucows ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Market Anticipation Builds: Joby Stock Climbs Ahead of EarningsIs Intuitive Surgical a Buy After Volatile Reaction to Earnings?Seismic Shift at Intel: Massive Layoffs Precede Crucial EarningsRocket Lab Lands New Contract, Builds Momentum Ahead of EarningsAmazon's Earnings Could Fuel a Rapid Breakout Tesla Earnings Miss, But Musk Refocuses and Bulls ReactQualcomm’s Range Narrows Ahead of Earnings as Bulls Step In Upcoming Earnings Cadence Design Systems (4/28/2025)Welltower (4/28/2025)Waste Management (4/28/2025)AstraZeneca (4/29/2025)Mondelez International (4/29/2025)PayPal (4/29/2025)Starbucks (4/29/2025)DoorDash (4/29/2025)Honeywell International (4/29/2025)Regeneron Pharmaceuticals (4/29/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. 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There are 5 speakers on the call. Operator00:00:00Welcome to Tucows' 2nd quarter 2023 management commentary. We have pre recorded prepared remarks regarding the quarter and outlook for the company. A TucHouse 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 email at irtucows.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 TUKAS website on Tuesday, August 22nd at approximately 4 pm Eastern Time. Operator00:00:40We would also like to advise that the updated Tucows quarterly KPI summary, which provides key metrics for all of our businesses for the last 6 quarters, as well as for full years 2021, 2022 and 2023 year to date and also includes historical financial results, is available in the Investors section of the website, along with the updated Ting billed scorecard and investor presentation. Additionally, if you would like to watch segments from our May 9 Investor Day, Please email irtucas.com with your request. Now for management's prepared remarks. On Thursday, August 3, TUKAS issued a news release reporting its financial results for the Q2 ended June 30, 2023. That news release and the company's financial statements are available on the company's website at Tucast.com under the Investors section. Operator00:01:30Please note that the following discussion may include forward looking statements, which, as such, are subject to risks and uncertainties that could cause actual results to differ materially. These risk factors are described and the company's documents filed with the SEC, specifically the most recent reports on the forms 10 ks and 10 Q. The company urges you to read its security filings for a full description of the risk factors applicable for its business. I would now like to turn the call over to Tuca's President and Chief Executive Officer, Elliot Naas. Go ahead, Elliot. Speaker 100:02:04Thanks, Monica. The first half of twenty twenty three has included a number of significant developments for our businesses. Wavelo completed its migration of nearly 7,000,000 Boost subscribers for DISH, as well as the migration of Ting to the platform. Ting also completed a securitization for $239,000,000 in May to fund our fiber business. We hosted our 1st Investor Day in early May as well. Speaker 100:02:32We also continued to pay down the Tucows debt in Q2. Now, we'll hear from the heads of each business as well as from our CFO, Dave Singh, who will cover our financial results in detail. The first speaker is Dave Warwick, Chief Executive Officer, Tucows Domains. Go ahead, Dave. Speaker 200:02:49Thanks, Elliot. The Q2 for Tucows Domains continued the recent trend of transactions and domains under management returning to a stabilized business trajectory, with seasonal transaction levels comparable year over year And domains under management stable from last quarter. Revenue for domain services for the Q2 at 60,000,000 Was down slightly from $61,000,000 for the same quarter of last year. And gross margin at $17,900,000 was down 7% year over year, Absent a one time catch up accounting adjustment in Q2 2022, which inflated gross margin in that quarter. On a quarter over quarter basis, gross margin increased $400,000 2 percent from Q1. Speaker 200:03:36Domain Services adjusted EBITDA was $10,600,000 in the 2nd quarter and down 13% from Q2 of last year. Some notes here on the reduced gross margin. Half of that impact is from the ongoing weaker aftermarket for domain sales, which I have discussed in recent quarters, and we believe this to be a continuation of a broader industry wide challenge reflecting the current macroeconomic environment. The balance of the impact is split between factors I've also spoken about previously deferred revenue and price increases working their way through our accounting. These continued to affect our results in Q2, but I don't expect those impacts to be meaningful beyond this quarter. Speaker 200:04:20To put this in context, and as I discussed at our Investor Day in May, our core domain business, excluding both aftermarket And periodic portfolio sales remains healthy, with billed gross margin consistent year over year, in line with transaction levels and expectations. Looking at the channel segments of our business, in our wholesale channel, revenue for Q2 was down 2% from the Q2 of last year And gross margin down 9%. Within the wholesale channel, Domain Services gross margin was down 5% from the same period last year, while value added services gross margin was down 16%. Most of the impact on both revenue and margin are due to weaker sales And the aftermarket for domain sales, which I mentioned earlier. In our retail channel, revenue was flat year over year and gross margin, Net to one time accounting adjustment was up 2% year over year. Speaker 200:05:18And our combined overall renewal rate At 79% in Q2 across all Tucows Domains brands remains within our historical range and well above the industry average. As I talked about in the last couple of quarters and shared in more detail on Investor Day, we continue to develop new services to complement our core business And leverage our distribution channels. I look forward to sharing more later this year. But as I mentioned previously, You should not expect to see any contribution to gross margin or impact on operating expenses in 2023. And we'll continue our focus on maintaining margin, including careful management of expenses in support of adjusted EBITDA. Speaker 200:06:02Now over to Justin Reilly, CEO of Wavellow. Speaker 300:06:05Thanks, Dave. Wavellow wrapped Q2 with its strongest quarter since inception as migrations continue to move at a rapid pace. At its peak, we were migrating subscribers at a volume north of 200,000 per night, the fastest telecom migration in my career And the fastest that anyone we can talk to has seen. Remember, the 2 hardest parts of any customer engagement are migrations and network integrations. This is a key milestone that creates the muscle memory we need for future customers. Speaker 300:06:39I'm pleased to share that we finished the migration and closed the quarter More than 8,000,000 subscribers on the Wavellow platform, nearly doubling where we were at the end of Q1. Wavelo's revenue was $10,800,000 in Q2, an increase of 20% from $9,000,000 in Q2 of 2022 And an increase of 47 percent from $7,300,000 last quarter. Wavelo's gross margin increased by 27% To $10,000,000 this quarter from $7,900,000 for Q2 2022. Adjusted EBITDA for WAVE LO was $3,400,000 a decrease of 11.5 percent from $3,900,000 in Q2 of 2022 And an increase from $300,000 in Q1. The decrease in adjusted EBITDA year over year was largely due to the contra revenue impact From the unwinding contract asset from the DISH agreement, which as a reminder, will continue to unwind as contra revenue over the term of the contract, Which ends in 2024 and then moves month to month. Speaker 300:07:47The non cash impact of the contract asset Change was a negative $700,000 this quarter versus a positive $5,600,000 in Q2 of last year. Adjusting for these, EBITDA actually grew $5,900,000 year over year. To a lesser degree, Another impact year over year is that we are capitalizing less labor in 2023 versus 2022. Given our major push to build the core features of the platform for DISH has largely concluded, and the team is now more focused on platform maintenance And optimizing operations, which results in lower labor capitalization and higher OpEx. We're also pleased to report that Ting Internet's website, Ordering, provisioning and subscriber management have been migrated to the Waveflow platform. Speaker 300:08:37The collaboration with Ting created a robust platform for Internet service And we're excited to see the impacts to the Ting operation. You can take a look at the interface for customers at ting.com. On the pipeline, we are seeing growing interest in the Wavellow platform with new potential logos entering the pipeline each month. This is bolstered by tailwinds from dissatisfaction with existing providers, accelerated cloud transformation and the uptick in infrastructure investment globally. While we entered the market knowing customers were dissatisfied, we hadn't anticipated seeing these levels of dissatisfaction. Speaker 300:09:17We are also seeing a consistent theme of OSSBSS providers' marketing language being far removed from platform realities. Simply saying cloud native into the void does not make it so. Further, we are educating telecoms on the efficiency and long term value Of moving from large professional services engagements to monthly subscriber fees, something operators have done in other parts of their stack, such as content management Or payments, but haven't yet done so at scale here. Cloud transformation globally remains below 10%. While this takes time, the shift is inevitable, and I'm encouraged by our go to market team's progress in the first half of the year And pleased with the foundation we are setting as the industry shifts over the coming years. Speaker 300:10:05We are both early and right on time. Thanks for listening. And now over to Elliot. Speaker 100:10:11Thanks, Justin. Ting continued with robust network construction and activation numbers in the 2nd quarter. Total serviceable addresses for Ting owned infrastructure came in at 109,300, Up 28% year over year and partner addresses at 21,100, up almost 16% year over year, Taking us to 130,400 total serviceable addresses. With the migration to Wavelo, There is a small restating of serviceable address counts with 839 owned and partner infrastructure addresses Removed after reconciling data. Our fiber CapEx was down slightly from previous quarters at $21,800,000 for Q2. Speaker 100:10:59This is not a reflection of the construction completed, where we set records this quarter for network footage, but is due to the mix of construction this quarter Being more in lower unit cost areas. We added 1900 net subscribers in Q2, taking us over 38,600 in total. Our total subscribers have grown over 27% year over year and we expect that growth will continue as we had a large number of Serviceable addresses become available late in the quarter with a healthy pre order pipeline to generate new subscriber installs. Gross margin grew by 22% year over year to $7,100,000 Ting's revenue grew 21% year over year to 12,400,000 Construction progress continues in both our owned and partner footprints. Our partner market of Colorado Springs is now live with beta customers, With new installs progressing and an official lighting ceremony in mid August. Speaker 100:12:00We will also add small peripheral markets where appropriate To our regional network footprints, which you'll see an increased total potential serviceable addresses for those footprints. Importantly, there's a lot happening in the partner space. A number of significant pools of capital have now made bold entries. Here I refer to BlackRock with Giga Power, Meridian, a large French infrastructure investor and Brookfield with their Intrepid Networks investment And more. There are, however, very few ISPs like Ting that view operating an ISP as quite separate For building and financing a network. Speaker 100:12:42This imbalance provides opportunity. These infrastructure investors are quite disciplined. So we do not expect this supply demand imbalance to create bargains. We do, however, believe that it will present opportunities. We expect this to be an important dynamic in the next phase of the coax to fiber transition. Speaker 100:13:03And lastly, we migrated Ting ordering, Billing and provisioning and address and schedule management to the Wavellow platform. In many ways, this is typical of the Tucows Playbook of using modern software to elevate the customer experience and to make the lives of both customers And employees who have to service those customers better and more efficient. Every element of this new platform will transform our operations, Delivering an even more seamless and convenient experience. We invite you to see this in action on our website atting.com. We continue to build well, load the network well and to improve operations. Speaker 100:13:47As we look around us, We are starting to see others sweat a bit with the challenges of building a network and operating an ISP. We are clearly now into period of this industry, which is just where we like to be. And now, I'd like to turn the call over to Dave Singh For a deeper dive on our financial results. Speaker 400:14:07Thanks, Elliot. Total revenue for the Q2 of 2023 increased 2.3% to 85,000,000 from $83,100,000 for the Q2 of 2022. Tang had revenue gains of 21% year over year, increasing to $12,400,000 in Q2 of 2023 From $10,200,000 in Q2 of 2022. Waybill's revenues also increased 20% to $10,800,000 in Q2 of 2023 $9,000,000 in Q2 of 2022. The gains were offset by a decline of 2% in revenue from Tuca's domains year over year From $61,000,000 in Q1 2022 to $60,000,000 in Q1 of 2023, mainly due to a lower contribution from expiry aftermarket sales. Speaker 400:14:49There was also a decline in corporate segment revenues of 34% year over year from $2,800,000 in Q2 of 2022 To $1,900,000 in Q2 2023, driven primarily by lower revenues from legacy mobile subscribers and higher intercompany eliminations. Gross profit before network costs for the Q2 increased 1.2% year over year to $34,200,000 from 33,800,000 As a percentage of revenue, gross profit before network costs this quarter remained flat compared to prior year at 40%. Breaking down gross profit by business, 2,000 domain's gross profit for the Q2 of 2023 decreased 10.2% from Q2 of last year To $17,900,000 from $20,000,000 As a percentage of revenue, gross margin for 2,000,000 was down to 30% for Q2 of 2023 Compared to 33% in Q2 of 2022, mainly a result of weak expiry aftermarket revenues, but also we're still seeing the impact The year devaluation to the U. S. Dollar in 2022, which increased our cost of buying domains in U. Speaker 400:15:51S. Dollars that were sold to customers in euros. The price increases we implemented in the latter half of twenty twenty two will take a few quarters as names are renewed at the higher prices and the effect flows through the deferral process. Wayliv's gross profit increased by 27 percent to $10,000,000 this quarter from $7,900,000 for Q2 2022. As a percentage of revenue, gross margin for Waylo was a robust 93.5% this quarter, which is up from 88.2% in Q2 of last year. Speaker 400:16:19Ting gross profit for Q2 increased 22% year over year to $7,100,000 from $5,800,000 for the same period of last year. As a percentage of revenue, gross margin for Ting was at 57% in the Q2 of 2023, unchanged from Q2 of last year. Network expenses for Q2 increased 38 percent to $16,200,000 from $11,700,000 for the same period of last year. The increase continues to be driven by higher depreciation of our expanding fiber network assets, up 30 2% year over year. Total operating expenses for the Q2 of 2023 Increased 17.5 percent to $31,100,000 from $26,500,000 for the same period last year. Speaker 400:16:57The increase is primarily the result of the following. People costs were up $3,200,000 with increased workforce costs to support business expansion related to the growth of Ting and Wavellown. Sales and marketing expenses increased by $800,000 year over year, mainly driven by increased investments in the Ting Internet business expansion. Facility and third party contracting and support costs were up $200,000 while stock based compensation increased $600,000 year over year mainly from subsidiary grants in Ting and Wavellow. And finally, loss on disposition of property and equipment and amortization of intangible assets are down $300,000 from Q2 of 2022. Speaker 400:17:32As a percentage of revenue, operating expenses increased to 37% for Q2 of this year from 32% for the same period last year. We reported a net loss for the Q2 of 2023 of $31,000,000 or a loss of $2.86 per share Come up with a net loss of $3,000,000 or $0.29 per share for the Q2 2022. We had a non recurring accretion of redeemable preferred shares And an associated one time loss of $14,700,000 on debt extinguishment resulting from the early redemption of a portion of generates preferred shares. The remainder of the net loss is the result of the acceleration of the construction of Ting's fiber networks and scaling up of the associated operations, Network depreciation, higher stock based compensation and higher interest expenses. Note our tax expense reflects our geographic mix, the taxes payable in Canada Our legacy Domains business. Speaker 400:18:22Adjusted EBITDA for Q2 was $5,400,000 down 54% from $11,700,000 for Q2 2022. That total breaks down amongst our 3 businesses as follows. Adjusted EBITDA for Tuca's Domains was $10,600,000 down 12.6% from Q2 of last year, reflecting the weaker expiry stream aftermarket. Adjusted EBITDA for Wavellu was $3,400,000 a decrease of 11.5% from $3,900,000 last year. I want to remind investors that this quarter, Wavellow again recognized revenue on bundled professional services included as part of the platform services provided to DISH. Speaker 400:18:56This recognition occurs either as the bundled hours are used or expire annually near the anniversary date of the DISH contract, But a similarly lumpy recognition in Q2 of 2022 2021. The decrease in adjusted EBITDA is primarily due to the contract asset related revenue recognition impact Related to the reassessment of fixed payments in the DISH agreement. As a reminder, the contract asset and associated revenue recognition Varies based on the estimated relative mix of variable and fixed payments. The non cash impact of the contract asset change was a negative $700,000 this quarter versus a positive $5,600,000 last year. Adjusting for these, EBITDA actually grew $5,900,000 year over year. Speaker 400:19:38As of June 30, 2023, the contract asset balance is $4,600,000 and it will unwind as the contra revenue over the term of the contract, Which is up for renewal in Q3 of 2024. Adjusted EBITDA for TEG was negative $10,300,000 compared with negative $6,200,000 in Q2 2022, As we continue to accelerate our fiber network expansion. And finally, the corporate category had adjusted EBITDA of $1,700,000 this quarter, Down from $1,900,000 in Q2 last year, with a decrease primarily driven by lower contribution from the legacy mobile base. Turning to our balance sheet. Cash and cash equivalents at the end of Q2 were $147,900,000 compared with $11,800,000 at the end of the Q1 of 2023 At $6,500,000 at the end of the Q2 of 2022. Speaker 400:20:23In addition to the $147,900,000 we have $11,700,000 classified as restricted cash As part of the asset backed securities or ABS transaction this quarter, of the $11,700,000 $8,400,000 will sit in the trust account for the duration of the ABS notes. The remaining $3,300,000 reflect the cash collections from securitized assets and get distributed monthly as interest to the note holders, fees to third parties And then with the remaining funds coming back to Ting. During the quarter, we had negative $1,600,000 in cash from operations compared with positive $12,600,000 in Q2 last year, The decrease driven by the larger operating investment for Ting Fiber. We invested $23,200,000 in property and equipment primarily for the accelerated build out of the Ting Fiber Internet network In addition to the continued investment in the Wavellow platform. Note that number reflects the actual cash paid for capital assets in the quarter on a cash flow statement. Speaker 400:21:16As mentioned earlier, we issued our first ever set of asset backed securities this quarter for the Ting business. The notes were issued with a value of $238,500,000 With net proceeds of $220,500,000 after taking into account the OID or original issue discount and issuance costs. The notes carry a blended coupon rate of 6.88 percent and after taking into account the OID, an effective rate of 8.2%. The notes are secured against most of the fiber assets, including certain customer relationships obtained. Interest of approximately $1,400,000 is paid monthly With monthly covenant tests of annualized revenue versus interest expense. Speaker 400:21:52In Q2, we drew another $5,000,000 on the preferred financing, But after receiving the proceeds from the Ting securitization in early May, we repaid $31,000,000 in the preferred financing, which resulted in a loss of 14,700,000 The early debt extinguishment. A reminder, cash interest payments on the deferred debt are deferred for the 1st 2 years. I also wanted to note that on June 30, 2023 syndicated loan balance for covenant calculation purposes was in at $224,300,000 when factoring in letters of credit and cash on hand of up to 5,000,000 resulting in a leverage ratio of 4.17 times. We repaid $7,000,000 on the facility this quarter and expect to continue quarterly repayments this year. Finally, deferred revenue at the end of Q2 was $151,000,000 unchanged from the Q1 of 2023 and up slightly from $150,100,000 For the Q2 of last year, primarily reflecting the stabilization of domain's revenue now that the pandemic impacts have normalized. Speaker 400:22:48That concludes my remarks. And I'll now turn it back to Elliot. Speaker 100:22:52Thanks, Dave. To start, now halfway through the year, I would like to reiterate our consolidated adjusted EBITDA guidance of $14,000,000 to $16,000,000 It looks like Tucows domains will be a little light Due to weakness in the secondary market and Wavellow will be a bit stronger due to effective cost control. Last quarter, I talked about our successful ABS process and the importance of us having sourced the vast majority of the capital necessary for this cycle. I also shared that we had retained Goldman Sachs and Bank Street to explore further opportunities for our capital structure. That investigation led to us maintaining the status quo for now. Speaker 100:23:36The opportunities available We're more structured than we were looking for. We are happily in a position of strength and will instead focus on execution. We are certainly informed by our view that we are operating in a unique macro environment, one with huge opportunities and significant risks. This is a good time to focus on execution and be conservative. We are also informed by what we described earlier, A number of larger partner markets needing tenants, which do not require the massive capital that organic markets do. Speaker 100:24:12For clarity, I'm not signaling a massive change in our approach or our strategy. Rather, I'm identifying some current market opportunities That our strategy might allow us to take advantage of. For TCX, our 3 businesses are all in a better place than just a year ago. Domains continues to generate cash as it always has, with progress on some upside opportunities. Wave Low has moved to now solidly generating cash and we only expect that trend to continue. Speaker 100:24:44Importantly, Ting is now at or near the low point of loss on an operating basis, and we can start to grind towards operating cash flow positive. At its simplest, we've gone from domains having to generate cash sufficient to invest in 2 businesses, one of which is extremely capital intensive To those 2 businesses becoming cash flow positive in one case and self funded in the other. This means deleveraging. It means executing. We also believe there is a fair bit of dislocation in financial markets right now. Speaker 100:25:19This is true in both public and private markets as assets start to revalue following the end of free money And the unwinding of a number of structural elements of the last decade plus. We are glad to be where we are this year, while this takes place rather than where we were a year ago. What I say next applies to all 3 of our businesses. It is important, While focusing on execution that we do not lose sight of the big picture. All of the massive opportunities, whether they be in AI or otherwise, And many of the challenges make technology both more important and more complex for people. Speaker 100:26:00Our businesses need to understand how they can help people take advantage of these massive opportunities and help them navigate the challenges that The increasing role of technology brings directly as in the case of Ting or through partners in the case of Tucows Domains or Wavelo. We are at an interesting time. There is so much technological change and in most respects, people do not have a trusted partner to Make the most of it. Technology in 2023 is like health or happiness. It is fundamental to our existence, And we are often left without knowing where to turn to be supported. Speaker 100:26:38That role, the role that used to be fulfilled in the Early Internet by dial up ISPs has most certainly not been taken up by incumbent telecom. The incumbents are simply not in relationship with They're customers. They are not trusted nor liked. Many of Tucows Domains customers are. Ting is, Wavellow gives incumbents a chance to be. Speaker 100:27:03We all thought the change ushered in by technology in the last couple of decades was massive. We are only at the beginning and all of the TCX businesses are right in the middle of that change. And with that, I look forward to your written questions and exploring areas that interest you in greater detail. Again, Please send your questions to irtucows.com by Thursday, August 10th, and look for our recorded Q and A audio response and transcript to this call To be posted to the Tucows website on Tuesday, August 22nd at approximately 4 pm Eastern Time. Thank you.Read morePowered by