NASDAQ:TCX Tucows Q1 2024 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-$2.42Consensus EPS N/ABeat/MissN/AOne Year Ago EPSN/ATucows Revenue ResultsActual Revenue$87.46 millionExpected RevenueN/ABeat/MissN/AYoY Revenue GrowthN/ATucows Announcement DetailsQuarterQ1 2024 Prepared RemarksDate5/9/2024TimeAfter Market ClosesConference Call DateThursday, May 9, 2024Conference 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 Q1 2024 Prepared Remarks Earnings Call TranscriptProvided by QuartrMay 9, 2024 ShareLink copied to clipboard.There are 5 speakers on the call. Operator00:00:00Welcome to TUKA's Q1 2024 Management Commentary. We have pre recorded 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 via email to irtucows.com until Thursday, May 16. Operator00:00:29Management will either address your questions directly or provide a recorded audio response and transcript that will be posted to the TUCAS website on Tuesday, May 28th at approximately 4 pm Eastern Time. We would also like to advise that the updated TUCAS quarterly KPI summary, which provides key metrics for all of our businesses for the last five quarters, as well as for full years 2022, 2023 and 2024 year to date, and also includes historical financial results, is available in the Investors section of the website. The updated TingBuild scorecard and investor presentation are also available. Now for management's prepared remarks. On Thursday, May 9, Tucas issued a news release reporting its financial results for the Q1 ended March 31, 2024. Operator00:01:17That news release and the Company's financial statements are available on the Company's website at tucows.com under the Investors section. Please note that the following discussion may include forward looking statements, which are subject to risks and uncertainties that could cause actual results to differ materially. These risk factors are described in detail in 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 to its business. I would now like to turn the call over to Tucow's President and Chief Executive Officer, Elliot Naas. Operator00:01:56Go ahead, Elliot. Speaker 100:01:58Thanks, Monica. A comment before our results. Public markets can still work for capital light, cash generating businesses. Tucows domains, like all of our businesses, is structured to generate a high volume of subscription based transactions. After 24 years of operations, that business is well established globally and generates strong defensible cash flow. Speaker 100:02:27The core segment is low growth, but there are nice opportunities to layer in higher growth. The Stalwart Domains business has functioned within the Tucows family as a driver of the stock price through buybacks made not to support the stock, but rather to invest in existing cash flows at great prices. It has also been a critical cash generator for building Internet businesses with the potential for outsized long term growth. It has helped fund the generational fiber opportunity and early work with Wavelo. The long term capital requirements for multi generational fiber infrastructure are significant and often at odds with the short term view of the markets. Speaker 100:03:12We've built resilient, future proof fiber networks and a standout ISP, but we continue to be heads down on solving the capital needs for further expansion of that business beyond our current resources. Although there are headwinds there in the current interest rate environment, fiber remains a generational and outsized opportunity for long term growth that is attracting a lot of capital, though not public capital. Wavelo leveraged the existing assets and traditional strengths of Tucows, as well as consolidated cash flows into a nice high margin business with almost unlimited upside potential that is now ramping up its go to market efforts after a busy year of migrating DISH's Boost subscriber base. I say all this to say, we have a clear view of the public markets as a great home for capital light, cash generating businesses. We are under no illusions. Speaker 100:04:12Now for our results. Our Q1 2024 saw strong year over year performance for revenue, gross margin, and adjusted EBITDA. Consolidated net revenue for Q1 2024 increased 8.7% year over year to 87,500,000 with strong dollar gains from all three businesses. Wavelo benefited from a fully migrated Boost subscriber base, Ting from another record quarter of subscriber growth, and Domains from the solid performance for which it is known. Gross margin in Q1 grew 30.3 percent year over year to $18,300,000 The growth came from all three businesses, with Wave Low doing the heaviest lifting. Speaker 100:04:57Adjusted EBITDA for the Q1 of 2024 increased 38.7 percent to 4,200,000 dollars The increase was primarily driven by strong growth of the Wavelo business. Behind the positive headline numbers is continued focus on positioning each business for healthy long term growth, while carefully managing operating expenses and paying down our debt. In Q1, we continued to deleverage the business with $5,500,000 in payments on the syndicated debt. 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 of Tucows Domains. Speaker 100:05:42Go ahead, Dave. Speaker 200:05:43Thanks, Elliot. The Q1 for Tucows Domains reflects the consistency of our business. We continue to reliably generate cash while modestly increasing transactions, domains under management, revenue and margin. In addition, I will expand on an exciting new joint venture called Orange Domains that was announced earlier this year. And I will conclude my comments today with some thoughts on this partnership. Speaker 200:06:10In the Q1 of 2024, domains under management and transactions were both up slightly from Q1 of 2023. We're pleased to see that given flat to declining numbers for the industry, including VeriSign. Revenue for domain services for Q1 was 61,900,000, dollars up 4.5 percent from $59,200,000 for the same quarter last year. Gross margin was 18,500,000 dollars also up 5.8 percent from the same quarter last year. Domain Services adjusted EBITDA, which was $10,000,000 in the Q1, was down 3.2% from Q1 of last year. Speaker 200:06:52A couple of comments here. First, we operate critical infrastructure and the scope and scale of attacks on network infrastructure has increased. This required us to add to our investment in cybersecurity, which is a step function increase that's not large, but in a tight business like this, it is a few basis points. And second, there is a timing element to some of our operating expenses this year, which were higher in Q1. We expect these to normalize out over the remainder of the year. Speaker 200:07:26Looking at the results from the segments of our business, in our wholesale channel, revenue for Q1 was up 4% compared to Q1 of last year and gross margin was up 3.2% year over year. Within the wholesale channel, domain services gross margin was up 2% in Q1 compared to the same period last year, while value added services gross margin was up 5.9%. In our retail channel, revenue was up 7.2% and gross margin was up 13.6% year over year. As I mentioned last quarter, the outsized retail margin continues to be a result of the shift of customers from our wholesale channel to retail, which started in Q4 and will positively impact retail margin numbers over the course of 12 months. Our combined overall renewal rate at 76% in Q1 across all Tucows Domains brands remains within our historical range and above the industry average. Speaker 200:08:32I want to close with more information on the March announcement of our partnership in Orange Domains. Orange Domains is a joint venture with Truss Machines and HERO Systems that is working to seamlessly connect domain names, identity and Web3. This is a long term initiative, and we are a minority partner, but we are quite excited about its prospects. I've spoken previously about the evolution of Web3 and our interest in participating in a future where elements of identity and functionality related to it are delivered using Web3 technology. You may recall I spoke in 2022 about the funding of Unstoppable Domains, which is offering domain name registrations and strings like .crypto and .nft. Speaker 200:09:21Although we didn't prefer the particular approach they were taking, we did see the financing as evidence that investors are looking to the future and the convergence of domain names and identity. In this venture, we're providing our expertise in DNS, our registry platform and distribution through our reseller channel. Trust Machines and Hero are bringing their deep expertise in Web3. It's also worth noting that Don Ruiz, a Tucows Domains alum, is the GM at Orange Domains. Don brings his extensive domain name industry experience and entrepreneurial perspective to the role, and we're pleased to have him in the leadership seat for this important initiative. Speaker 200:10:05In terms of what investors will see coming from this project, we expect to launch a new TLD later this year with distribution and support across all of our registrar brands and that we see bridging the traditional domain name space, Web3 and identity. Now over to Justin Reilly, CEO of Wavelo. Speaker 300:10:27Thanks, Dave. A year ago at this time, we were in the midst of orchestrating the fastest telecom migration the industry has seen, putting to test a muscle that we have honed over decades in domains in Ting. Sitting here today, we can see what a few quarters of a fully loaded base on the Wavellow platform looks like and how our team and our platform can deliver this level of scale and operational rigor. It's a long game and we're just getting started. Waveload's revenues were 9 point $4,000,000 in Q1, up 28.6 percent from Q1 2023 and down 1.6% from Q4. Speaker 300:11:07Gross margin was $9,000,000 up 44.1% year over year and down 1.9% from last quarter. Adjusted EBITDA for Q1 was $2,800,000 up 7% from last quarter and up 7 32% year over year. The year over year trends reflect the loading ramp of subscribers onto the Wavelo platform, which did not finish in earnest until summer of 2023. The quarterly trends represent impacts from the rightsizing of DISH's subscriber base across prepaid and postpaid. As they've shared publicly, they expect 2024 to be largely a year of transition. Speaker 300:11:44Unlike its competitors, but identical to all successful modern SaaS businesses, the Wavellow business relies on subscription fees, not professional services or maintenance. When you align your business model to scale up and down based on your customers' subscriber base, you are highly reliant on their ability to retain customers and to grow. I'll remind investors that this is a feature, not a bug. We'll win in the long run by being the most customer centric platform in the world, winning when our customers win, while our competitors focus on in year onetime professional services revenues at their customers' expense. Also impacting the adjusted EBITDA trend quarter over quarter is an increased yet conservative investment in our growth teams. Speaker 300:12:30We expect to continue to invest there throughout the year as we position Wave Low for the next phase of growth. I am proud of our management team's ability to manage cost in the quarter while simultaneously setting the business up to welcome new telecoms onto the WaveLo platform. On go to market, our months long search for a growth leader has concluded and I'm proud to announce that Andy Ueh has joined us to lead Wavelo's sales efforts. Andy brings with him 25 years of experience selling telecom software around the world, including storied 10 years at Amdocs and Oracle. He shares our thesis of an industry that needs to move from massive professional services to subscription fees like the rest of the Internet, and we're excited to have him hit the ground running. Speaker 300:13:10As you've heard me say last quarter, 2024 is about building an efficient go to market machine that can deliver against our pipeline and provide the seamless and elegant onboarding experience Tucows is famous for. Since December, we've added 4 new customers to the Wavelo family. Each of these small to midsize ISPs or MVNOs is looking to expand their business on a platform that promises the flexibility and scalability that they've yet to receive from their current vendors. And as I've said before, although we are battling the long procurement cycles that telecom is famous for and that are even more commonplace with the macro conditions today, we have some major tailwinds. The move towards mobile fixed convergence, cloudification of critical systems and the need to accommodate both prepaid and postpaid billing, all of which benefit Wavelo. Speaker 300:14:01And in terms of the pipeline, the team continued the trend from last quarter of generating new qualified opportunities. These are a mix of MVNOs, ISPs and MNOs that are, some for the first time, picking their heads up to question if there is a better way to operate. Wave Low is the answer to that question. I remind investors that MNOs are big game. They take a long time to work through the pipeline, but are both the most lucrative opportunities in our space and the ones that would most benefit from what Wavellow provides. Speaker 300:14:31As I look at the progress we've made and what we've built in a short time, I'm incredibly proud. But I'm equally excited for what's to come. With a standout platform, newly added go to market resources and a mission driven team, we can be laser focused on our singular goal for 2024, to expand and diversify our customer base via a small but mighty sales team and an industry notorious for outrageous CAC spend. Thanks for listening. Now over to Elliot. Speaker 100:15:03Thanks, Justin. Q1 was another strong quarter for new subscriber additions for Ting, with 2,700 net new subscribers, growing 25.6% year over year and taking us to over 46,000 subscribers in total. We also had a 22.5 percent year over year growth of completed serviceable addresses in Q1, taking us to 124,000 serviceable addresses for Ting owned infrastructure. We are currently being more conservative with our capital, which has moderated our serviceable address additions this quarter. Our partner markets are continuing to ramp up their builds, with over 70% growth in addresses year over year. Speaker 100:15:48This brings us to over 157,000 total serviceable addresses across all Ting footprints. Revenue for Q1 grew 19% year over year to $14,100,000 and gross margin grew 11% year over year to $8,700,000 Adjusted EBITDA came in at negative $9,500,000 which has come down from last quarter. As I have previously stated, we plan to continue to reduce this number. Our Q1 fiber CapEx is unchanged from Q4 of 2023 at just over $18,000,000 but continues to be lower than our spends a year ago. I've spoken about partner markets the last couple of quarters and how we're leveraging Ting's expertise to improve partner performance. Speaker 100:16:38The next step that we're taking is doing installations for our partners. We've signed a deal at Memphis to do installs for Meridian and expect to do this in other markets as well. It makes sense in larger partner markets particularly. This allows us to deliver the same end to end customer experience at partner markets as we do in our organic built markets. The general underperformance of Construction in Partner Markets has impacted our results negatively, so this approach really could have huge benefits. Speaker 100:17:12This is both profitable and will make it easier for the customer experience of partner markets to more closely resemble organic markets. It's a win win. One thing many of you know is that the core of Tucows' ethos is commitment to policies that benefit Internet users. We've actively supported open Internet initiatives like net neutrality. One program we celebrated as significant progress towards equality of access was the Affordable Connectivity Program enacted under the Bipartisan Infrastructure Law as the largest internet affordability program in U. Speaker 100:17:49S. History. For 23,000,000 households, ACP meant the difference between having functional home Internet or not. Way too many poor families rely on mobile data, by far the most expensive data one can buy. Unfortunately, inertia at the current U. Speaker 100:18:09S. Congress has led to discontinue funding the program and when the current funding runs out this month, it may cause many of those households to lose their home access entirely. Given our historical footprint, this will not have a meaningful impact on our results, but all of Ting and all of Tucows views digital equity as part of what makes us proud to be doing what we are doing. We will continue to agitate for better outcomes. Now we'll hear from Tucows' CFO, Dave Singh, who will discuss our financial results in detail. Speaker 400:18:44Thanks, Elliot. Total revenue for the Q1 of 2024 increased 8.7 percent to CAD 87,500,000 compared to CAD 80,400,000 for the Q1 of 2023. When looking across the different businesses, Ting had revenue gains of 19% year over year, increasing to $14,100,000 in Q1 2024 from $11,900,000 in Q1 2023. Wavell's revenues increased 29 percent to $9,400,000 in Q1 20 24 from $7,300,000 in Q1 2023. And the revenue for Tucows domains for Q1 was up 4.5 percent, increasing to $61,900,000 from $59,200,000 in Q1 2023. Speaker 400:19:25Corporate revenues were essentially unchanged in Q1 2024 from Q1 2023. Gross profit before network costs for the Q1 increased 14.5 percent year over year to $35,700,000 from $31,100,000 in Q1 2023. As a percentage of revenue, gross profit before network costs increased this quarter to 41% compared to 39% for Q1 2023. Breaking down gross profit by business, Tucows Domains gross profit for the Q1 of 2024 increased 5.8% from Q1 of last year to $18,500,000 from $17,500,000 As a percentage of revenue, gross margin for 2,000,000 domains remained unchanged year over year at 30% for Q1 2024. Waveless gross profit increased by 44 percent to $9,000,000 this quarter from $6,300,000 for Q1 2023, reflecting the full transition from professional services to subscriber based revenues on the fully migrated Boost subscriber base. Speaker 400:20:21As a percentage of revenue, gross margin for Wavellow was 96% this quarter, which is up from 86% in Q1 2023. The increased margin is a reflection of Wavellow's increased efficiency from the fully migrated DISH subscriber base. Ting gross profit for Q1 increased 11.1 percent year over year to $8,700,000 from $7,900,000 for the same period of last year. As a percentage of revenue, gross margin for Ting was 62% in the Q1 of 2024, down from 66% in Q1 of last year. Network expenses for Q1 were CHF17.3 million, up slightly from CHF17.1 million for the same period last year. Speaker 400:21:00Network expenses continue to be driven primarily by the depreciation of our expanding fiber network assets. I do want to remind investors, however, that our network expenses in Q1 2023 accounted for impairment costs that included write downs of certain fiber capital inventory due to damage and obsolescence. The impact of that write down is that the year over year change in network expenses looks lower than it would have been otherwise. Total operating expenses for the Q1 of 2024 increased 11.1 percent to $34,800,000 from $31,300,000 for the same period last year. The increase is primarily the result of the following changes. Speaker 400:21:35People costs were up $3,600,000 The majority of the increase came from Ting's reduction in workforce in February. The costs incurred were non recurring charges consisting of severance payments, notice pay, employee benefit contributions and an outplacement costs. The majority of the total restructuring charges and cash payments were incurred in Q1. 3rd party contractor costs, professional fees, travel and facility costs were up $1,000,000 and foreign exchange related expenses increased $400,000 related to the revaluation of our foreign denominated monetary assets and liabilities. There was an offset to operating expenses from stock based compensation, which was down $300,000 and lower amortization of $1,200,000 in Q1 2024 as we fully amortized intangible assets related to the Melbourne IT acquisition in 2016 and the Enom acquisition in 2017. Speaker 400:22:23As a percentage of revenue, year over year operating expenses were relatively stable at just under 40% for Q1 of this year and 39% for the same period last year. We reported a net loss for the Q1 of 2024 of $26,500,000 or a loss of $2.42 per share compared with a net loss of $19,100,000 or $1.77 per share for the Q1 of 2023. The net loss is primarily the result of a higher effective tax rate and interest expenses primarily related to the ABS notes, which were issued in May of 2023, higher network depreciation and a slightly higher but expected operating loss as part of the planned investment in Ting. These were offset by lower impairment charges in Q1 2024. Please note that our tax expense reflects our geographic mix with taxes payable in Canada on our legacy Domains business. Speaker 400:23:12Adjusted EBITDA for Q1 was $4,200,000 up 39% from $3,000,000 for Q1 2023, driven by the strong growth of the Wavellow business year over year. The total breaks down amongst our 3 businesses as follows. Adjusted EBITDA for 2 customer means was CAD10 1,000,000 down 3.2 percent from Q1 of last year. Adjusted EBITDA for WAVELLO was $2,800,000 a 9 fold increase from $300,000 last year. Adjusted EBITDA for Ting was negative $9,500,000 compared with a negative 9,300,000 in Q1 2023 as we continue to invest in Ting's fiber network expansion. Speaker 400:23:45And finally, the corporate category had adjusted EBITDA of CAD900,000 this quarter, down from CAD1.6 million in Q1 last year. The decrease is primarily driven by a lower contribution from the legacy mobile base. Turning to our balance sheet, cash and cash equivalents at the end of Q1 2024 were $66,600,000 compared with $92,700,000 at the end of the Q4 of 2023 and $11,800,000 at the end of the Q1 of 2023. In addition to the CAD66,600,000, we have CAD12,800,000 classified as restricted cash as part of the ABS transaction in 2023. As a reminder of the $12,800,000 of restricted cash, dollars 8,800,000 will sit in a trust account for the duration of the ABS notes. Speaker 400:24:26The remaining $4,000,000 reflects the cash collections from the securitized assets and is distributed monthly as interest to note holders, fees to third parties and with the remaining funds coming back to Ting. I will also note that we generated $1,000,000 in interest income this quarter. During the quarter, we had negative $5,700,000 in cash from operations compared with negative $5,300,000 in Q1 of last year, with the increase in negative cash flow driven primarily by the ongoing investment into Ting Fiber Operations. We invested $14,300,000 in property and equipment, primarily for the continued build out of the Ting Fiber network, in addition to the continued investment in the Wavelo platform. Note that this number reflects the actual cash paid for capital assets in the quarter on a cash flow statement and includes capitalized cash interest. Speaker 400:25:13As of March 31, 2024, our syndicated loan balance for covenant calculation purposes was a net CAD 200,000,000 when factoring in letters of credit and cash on hand of up to CAD 7,500,000 which resulted in a leverage ratio of 3.25 times. This is the 4th consecutive quarter we have reduced the leverage ratio. We repaid a net $5,500,000 on the balance of the loan this quarter and expect quarterly repayments to continue. Finally, deferred revenue at the end of Q1 was $155,000,000 up from $148,000,000 for the Q4 of 2023 and also up from $151,000,000 for the Q1 of 2023. This is primarily due to the stabilization of Domains revenues now that the pandemic impacts have normalized. Speaker 400:25:55That concludes my remarks, and I'll now turn it back to Elliot. Speaker 100:25:58Thanks, Dave. Last week was the annual Berkshire Hathaway Annual Meeting, the first without Charlie Munger. I always view this meeting as a bit of a bellwether, and this year was no exception. There were two things I took away not Warren's views on crypto or AI, nor his views on interest rates or inflation. What I paid attention to was a huge and growing cash hoard and Apple as their continued largest holding. Speaker 100:26:28Those may seem like non items, but they tell a story. The two points combine to reinforce things I've been talking about that the market is exceedingly concentrated and that investors and therefore the market is more short term than it has ever been. It is a market that has more dollars chasing fewer companies and likely due to the amount of money concentrating in the largest index funds, we see returns concentrating into the largest stocks. At the same time, we see the world's greatest value investor piling up cash. Warren famously says, we only swing at pitches we like. Speaker 100:27:10And he makes clear that in this market, he doesn't see a lot he likes. He, more than anyone, knows about the corrections to come in the private markets as PE, VC, and Commercial Real Estate work through the overvalued portions of their portfolios in a process that will take years. More importantly, he suffers from the short term focus of markets more than anyone. It is tough to look for value when the market only rewards scale and short term story. We see these macro trends reinforced at the Fiber market, which had 2 big stories this quarter: Digital Bridge making an unsolicited offer for WideOpenWest and EQT combining with T Mobile to take the Lumos fiber assets and split them into infrastructure and ISP, similar to our partner markets. Speaker 100:28:05Both items are further reminders that the long term nature of building and operating infrastructure like fiber assets is not rewarded to the public markets. In fact, it's clearly viewed negatively. And the latter item is the 1st large deal that validates the split between infrastructure and operating assets that we have been pursuing since 2015. What all of the above reinforces is that the one and arguably successful way to navigate the public markets if you are not one of the biggest 7 companies in the world or are not a stock selling the current story and trading at impossible to maintain multiples is to require low amounts of capital to generate cash on a consistent and ideally growing basis and to use that cash to distribute to your shareholders through either buybacks or dividends. Following that path does not require analysts. Speaker 100:29:06It does not require mainstream institutional investors. This is the approach we followed with great success from 2,008 through 2014 with our 8 Dutch tenders and plenty of open market buyback activity. In 2015, we started another cycle of investing in Fiber. We've done a great job of building a real business at Fiber. We have over 125,000 organic addresses. Speaker 100:29:32We have another 200,000 to build in our current footprints, requiring no more market development, and then well over another $500,000 in our existing partner markets, including 2 large cities in Colorado Springs and Memphis. But a growing fiber business requires capital. We have every indication that the public markets are not the right place to source that capital. If you look at TCX, the market is saying that if we turned over the keys of the Ting Fiber business to its lenders for nothing, then our stock price would likely skyrocket. That is market inefficiency. Speaker 100:30:09Inefficiencies create opportunities. We have a good sense of what the inefficiencies are and a track record of exploiting them. We are looking forward to the rest of 2024 and to the long term future. 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 May 16th and look for our recorded Q and A audio response and transcript to this call to be posted to the Tucows website on Tuesday, May 28th at approximately 4 pm Eastern Time. Speaker 100:30:45Thank you.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallTucows Q1 2024 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.comWhy Elon put $51 million into thisWhy Elon Musk Just Invested $51 Million Into Brand New “Miracle Metal” Developed by MIT ScientistsApril 26, 2025 | True Market Insiders (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. 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There are 5 speakers on the call. Operator00:00:00Welcome to TUKA's Q1 2024 Management Commentary. We have pre recorded 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 via email to irtucows.com until Thursday, May 16. Operator00:00:29Management will either address your questions directly or provide a recorded audio response and transcript that will be posted to the TUCAS website on Tuesday, May 28th at approximately 4 pm Eastern Time. We would also like to advise that the updated TUCAS quarterly KPI summary, which provides key metrics for all of our businesses for the last five quarters, as well as for full years 2022, 2023 and 2024 year to date, and also includes historical financial results, is available in the Investors section of the website. The updated TingBuild scorecard and investor presentation are also available. Now for management's prepared remarks. On Thursday, May 9, Tucas issued a news release reporting its financial results for the Q1 ended March 31, 2024. Operator00:01:17That news release and the Company's financial statements are available on the Company's website at tucows.com under the Investors section. Please note that the following discussion may include forward looking statements, which are subject to risks and uncertainties that could cause actual results to differ materially. These risk factors are described in detail in 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 to its business. I would now like to turn the call over to Tucow's President and Chief Executive Officer, Elliot Naas. Operator00:01:56Go ahead, Elliot. Speaker 100:01:58Thanks, Monica. A comment before our results. Public markets can still work for capital light, cash generating businesses. Tucows domains, like all of our businesses, is structured to generate a high volume of subscription based transactions. After 24 years of operations, that business is well established globally and generates strong defensible cash flow. Speaker 100:02:27The core segment is low growth, but there are nice opportunities to layer in higher growth. The Stalwart Domains business has functioned within the Tucows family as a driver of the stock price through buybacks made not to support the stock, but rather to invest in existing cash flows at great prices. It has also been a critical cash generator for building Internet businesses with the potential for outsized long term growth. It has helped fund the generational fiber opportunity and early work with Wavelo. The long term capital requirements for multi generational fiber infrastructure are significant and often at odds with the short term view of the markets. Speaker 100:03:12We've built resilient, future proof fiber networks and a standout ISP, but we continue to be heads down on solving the capital needs for further expansion of that business beyond our current resources. Although there are headwinds there in the current interest rate environment, fiber remains a generational and outsized opportunity for long term growth that is attracting a lot of capital, though not public capital. Wavelo leveraged the existing assets and traditional strengths of Tucows, as well as consolidated cash flows into a nice high margin business with almost unlimited upside potential that is now ramping up its go to market efforts after a busy year of migrating DISH's Boost subscriber base. I say all this to say, we have a clear view of the public markets as a great home for capital light, cash generating businesses. We are under no illusions. Speaker 100:04:12Now for our results. Our Q1 2024 saw strong year over year performance for revenue, gross margin, and adjusted EBITDA. Consolidated net revenue for Q1 2024 increased 8.7% year over year to 87,500,000 with strong dollar gains from all three businesses. Wavelo benefited from a fully migrated Boost subscriber base, Ting from another record quarter of subscriber growth, and Domains from the solid performance for which it is known. Gross margin in Q1 grew 30.3 percent year over year to $18,300,000 The growth came from all three businesses, with Wave Low doing the heaviest lifting. Speaker 100:04:57Adjusted EBITDA for the Q1 of 2024 increased 38.7 percent to 4,200,000 dollars The increase was primarily driven by strong growth of the Wavelo business. Behind the positive headline numbers is continued focus on positioning each business for healthy long term growth, while carefully managing operating expenses and paying down our debt. In Q1, we continued to deleverage the business with $5,500,000 in payments on the syndicated debt. 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 of Tucows Domains. Speaker 100:05:42Go ahead, Dave. Speaker 200:05:43Thanks, Elliot. The Q1 for Tucows Domains reflects the consistency of our business. We continue to reliably generate cash while modestly increasing transactions, domains under management, revenue and margin. In addition, I will expand on an exciting new joint venture called Orange Domains that was announced earlier this year. And I will conclude my comments today with some thoughts on this partnership. Speaker 200:06:10In the Q1 of 2024, domains under management and transactions were both up slightly from Q1 of 2023. We're pleased to see that given flat to declining numbers for the industry, including VeriSign. Revenue for domain services for Q1 was 61,900,000, dollars up 4.5 percent from $59,200,000 for the same quarter last year. Gross margin was 18,500,000 dollars also up 5.8 percent from the same quarter last year. Domain Services adjusted EBITDA, which was $10,000,000 in the Q1, was down 3.2% from Q1 of last year. Speaker 200:06:52A couple of comments here. First, we operate critical infrastructure and the scope and scale of attacks on network infrastructure has increased. This required us to add to our investment in cybersecurity, which is a step function increase that's not large, but in a tight business like this, it is a few basis points. And second, there is a timing element to some of our operating expenses this year, which were higher in Q1. We expect these to normalize out over the remainder of the year. Speaker 200:07:26Looking at the results from the segments of our business, in our wholesale channel, revenue for Q1 was up 4% compared to Q1 of last year and gross margin was up 3.2% year over year. Within the wholesale channel, domain services gross margin was up 2% in Q1 compared to the same period last year, while value added services gross margin was up 5.9%. In our retail channel, revenue was up 7.2% and gross margin was up 13.6% year over year. As I mentioned last quarter, the outsized retail margin continues to be a result of the shift of customers from our wholesale channel to retail, which started in Q4 and will positively impact retail margin numbers over the course of 12 months. Our combined overall renewal rate at 76% in Q1 across all Tucows Domains brands remains within our historical range and above the industry average. Speaker 200:08:32I want to close with more information on the March announcement of our partnership in Orange Domains. Orange Domains is a joint venture with Truss Machines and HERO Systems that is working to seamlessly connect domain names, identity and Web3. This is a long term initiative, and we are a minority partner, but we are quite excited about its prospects. I've spoken previously about the evolution of Web3 and our interest in participating in a future where elements of identity and functionality related to it are delivered using Web3 technology. You may recall I spoke in 2022 about the funding of Unstoppable Domains, which is offering domain name registrations and strings like .crypto and .nft. Speaker 200:09:21Although we didn't prefer the particular approach they were taking, we did see the financing as evidence that investors are looking to the future and the convergence of domain names and identity. In this venture, we're providing our expertise in DNS, our registry platform and distribution through our reseller channel. Trust Machines and Hero are bringing their deep expertise in Web3. It's also worth noting that Don Ruiz, a Tucows Domains alum, is the GM at Orange Domains. Don brings his extensive domain name industry experience and entrepreneurial perspective to the role, and we're pleased to have him in the leadership seat for this important initiative. Speaker 200:10:05In terms of what investors will see coming from this project, we expect to launch a new TLD later this year with distribution and support across all of our registrar brands and that we see bridging the traditional domain name space, Web3 and identity. Now over to Justin Reilly, CEO of Wavelo. Speaker 300:10:27Thanks, Dave. A year ago at this time, we were in the midst of orchestrating the fastest telecom migration the industry has seen, putting to test a muscle that we have honed over decades in domains in Ting. Sitting here today, we can see what a few quarters of a fully loaded base on the Wavellow platform looks like and how our team and our platform can deliver this level of scale and operational rigor. It's a long game and we're just getting started. Waveload's revenues were 9 point $4,000,000 in Q1, up 28.6 percent from Q1 2023 and down 1.6% from Q4. Speaker 300:11:07Gross margin was $9,000,000 up 44.1% year over year and down 1.9% from last quarter. Adjusted EBITDA for Q1 was $2,800,000 up 7% from last quarter and up 7 32% year over year. The year over year trends reflect the loading ramp of subscribers onto the Wavelo platform, which did not finish in earnest until summer of 2023. The quarterly trends represent impacts from the rightsizing of DISH's subscriber base across prepaid and postpaid. As they've shared publicly, they expect 2024 to be largely a year of transition. Speaker 300:11:44Unlike its competitors, but identical to all successful modern SaaS businesses, the Wavellow business relies on subscription fees, not professional services or maintenance. When you align your business model to scale up and down based on your customers' subscriber base, you are highly reliant on their ability to retain customers and to grow. I'll remind investors that this is a feature, not a bug. We'll win in the long run by being the most customer centric platform in the world, winning when our customers win, while our competitors focus on in year onetime professional services revenues at their customers' expense. Also impacting the adjusted EBITDA trend quarter over quarter is an increased yet conservative investment in our growth teams. Speaker 300:12:30We expect to continue to invest there throughout the year as we position Wave Low for the next phase of growth. I am proud of our management team's ability to manage cost in the quarter while simultaneously setting the business up to welcome new telecoms onto the WaveLo platform. On go to market, our months long search for a growth leader has concluded and I'm proud to announce that Andy Ueh has joined us to lead Wavelo's sales efforts. Andy brings with him 25 years of experience selling telecom software around the world, including storied 10 years at Amdocs and Oracle. He shares our thesis of an industry that needs to move from massive professional services to subscription fees like the rest of the Internet, and we're excited to have him hit the ground running. Speaker 300:13:10As you've heard me say last quarter, 2024 is about building an efficient go to market machine that can deliver against our pipeline and provide the seamless and elegant onboarding experience Tucows is famous for. Since December, we've added 4 new customers to the Wavelo family. Each of these small to midsize ISPs or MVNOs is looking to expand their business on a platform that promises the flexibility and scalability that they've yet to receive from their current vendors. And as I've said before, although we are battling the long procurement cycles that telecom is famous for and that are even more commonplace with the macro conditions today, we have some major tailwinds. The move towards mobile fixed convergence, cloudification of critical systems and the need to accommodate both prepaid and postpaid billing, all of which benefit Wavelo. Speaker 300:14:01And in terms of the pipeline, the team continued the trend from last quarter of generating new qualified opportunities. These are a mix of MVNOs, ISPs and MNOs that are, some for the first time, picking their heads up to question if there is a better way to operate. Wave Low is the answer to that question. I remind investors that MNOs are big game. They take a long time to work through the pipeline, but are both the most lucrative opportunities in our space and the ones that would most benefit from what Wavellow provides. Speaker 300:14:31As I look at the progress we've made and what we've built in a short time, I'm incredibly proud. But I'm equally excited for what's to come. With a standout platform, newly added go to market resources and a mission driven team, we can be laser focused on our singular goal for 2024, to expand and diversify our customer base via a small but mighty sales team and an industry notorious for outrageous CAC spend. Thanks for listening. Now over to Elliot. Speaker 100:15:03Thanks, Justin. Q1 was another strong quarter for new subscriber additions for Ting, with 2,700 net new subscribers, growing 25.6% year over year and taking us to over 46,000 subscribers in total. We also had a 22.5 percent year over year growth of completed serviceable addresses in Q1, taking us to 124,000 serviceable addresses for Ting owned infrastructure. We are currently being more conservative with our capital, which has moderated our serviceable address additions this quarter. Our partner markets are continuing to ramp up their builds, with over 70% growth in addresses year over year. Speaker 100:15:48This brings us to over 157,000 total serviceable addresses across all Ting footprints. Revenue for Q1 grew 19% year over year to $14,100,000 and gross margin grew 11% year over year to $8,700,000 Adjusted EBITDA came in at negative $9,500,000 which has come down from last quarter. As I have previously stated, we plan to continue to reduce this number. Our Q1 fiber CapEx is unchanged from Q4 of 2023 at just over $18,000,000 but continues to be lower than our spends a year ago. I've spoken about partner markets the last couple of quarters and how we're leveraging Ting's expertise to improve partner performance. Speaker 100:16:38The next step that we're taking is doing installations for our partners. We've signed a deal at Memphis to do installs for Meridian and expect to do this in other markets as well. It makes sense in larger partner markets particularly. This allows us to deliver the same end to end customer experience at partner markets as we do in our organic built markets. The general underperformance of Construction in Partner Markets has impacted our results negatively, so this approach really could have huge benefits. Speaker 100:17:12This is both profitable and will make it easier for the customer experience of partner markets to more closely resemble organic markets. It's a win win. One thing many of you know is that the core of Tucows' ethos is commitment to policies that benefit Internet users. We've actively supported open Internet initiatives like net neutrality. One program we celebrated as significant progress towards equality of access was the Affordable Connectivity Program enacted under the Bipartisan Infrastructure Law as the largest internet affordability program in U. Speaker 100:17:49S. History. For 23,000,000 households, ACP meant the difference between having functional home Internet or not. Way too many poor families rely on mobile data, by far the most expensive data one can buy. Unfortunately, inertia at the current U. Speaker 100:18:09S. Congress has led to discontinue funding the program and when the current funding runs out this month, it may cause many of those households to lose their home access entirely. Given our historical footprint, this will not have a meaningful impact on our results, but all of Ting and all of Tucows views digital equity as part of what makes us proud to be doing what we are doing. We will continue to agitate for better outcomes. Now we'll hear from Tucows' CFO, Dave Singh, who will discuss our financial results in detail. Speaker 400:18:44Thanks, Elliot. Total revenue for the Q1 of 2024 increased 8.7 percent to CAD 87,500,000 compared to CAD 80,400,000 for the Q1 of 2023. When looking across the different businesses, Ting had revenue gains of 19% year over year, increasing to $14,100,000 in Q1 2024 from $11,900,000 in Q1 2023. Wavell's revenues increased 29 percent to $9,400,000 in Q1 20 24 from $7,300,000 in Q1 2023. And the revenue for Tucows domains for Q1 was up 4.5 percent, increasing to $61,900,000 from $59,200,000 in Q1 2023. Speaker 400:19:25Corporate revenues were essentially unchanged in Q1 2024 from Q1 2023. Gross profit before network costs for the Q1 increased 14.5 percent year over year to $35,700,000 from $31,100,000 in Q1 2023. As a percentage of revenue, gross profit before network costs increased this quarter to 41% compared to 39% for Q1 2023. Breaking down gross profit by business, Tucows Domains gross profit for the Q1 of 2024 increased 5.8% from Q1 of last year to $18,500,000 from $17,500,000 As a percentage of revenue, gross margin for 2,000,000 domains remained unchanged year over year at 30% for Q1 2024. Waveless gross profit increased by 44 percent to $9,000,000 this quarter from $6,300,000 for Q1 2023, reflecting the full transition from professional services to subscriber based revenues on the fully migrated Boost subscriber base. Speaker 400:20:21As a percentage of revenue, gross margin for Wavellow was 96% this quarter, which is up from 86% in Q1 2023. The increased margin is a reflection of Wavellow's increased efficiency from the fully migrated DISH subscriber base. Ting gross profit for Q1 increased 11.1 percent year over year to $8,700,000 from $7,900,000 for the same period of last year. As a percentage of revenue, gross margin for Ting was 62% in the Q1 of 2024, down from 66% in Q1 of last year. Network expenses for Q1 were CHF17.3 million, up slightly from CHF17.1 million for the same period last year. Speaker 400:21:00Network expenses continue to be driven primarily by the depreciation of our expanding fiber network assets. I do want to remind investors, however, that our network expenses in Q1 2023 accounted for impairment costs that included write downs of certain fiber capital inventory due to damage and obsolescence. The impact of that write down is that the year over year change in network expenses looks lower than it would have been otherwise. Total operating expenses for the Q1 of 2024 increased 11.1 percent to $34,800,000 from $31,300,000 for the same period last year. The increase is primarily the result of the following changes. Speaker 400:21:35People costs were up $3,600,000 The majority of the increase came from Ting's reduction in workforce in February. The costs incurred were non recurring charges consisting of severance payments, notice pay, employee benefit contributions and an outplacement costs. The majority of the total restructuring charges and cash payments were incurred in Q1. 3rd party contractor costs, professional fees, travel and facility costs were up $1,000,000 and foreign exchange related expenses increased $400,000 related to the revaluation of our foreign denominated monetary assets and liabilities. There was an offset to operating expenses from stock based compensation, which was down $300,000 and lower amortization of $1,200,000 in Q1 2024 as we fully amortized intangible assets related to the Melbourne IT acquisition in 2016 and the Enom acquisition in 2017. Speaker 400:22:23As a percentage of revenue, year over year operating expenses were relatively stable at just under 40% for Q1 of this year and 39% for the same period last year. We reported a net loss for the Q1 of 2024 of $26,500,000 or a loss of $2.42 per share compared with a net loss of $19,100,000 or $1.77 per share for the Q1 of 2023. The net loss is primarily the result of a higher effective tax rate and interest expenses primarily related to the ABS notes, which were issued in May of 2023, higher network depreciation and a slightly higher but expected operating loss as part of the planned investment in Ting. These were offset by lower impairment charges in Q1 2024. Please note that our tax expense reflects our geographic mix with taxes payable in Canada on our legacy Domains business. Speaker 400:23:12Adjusted EBITDA for Q1 was $4,200,000 up 39% from $3,000,000 for Q1 2023, driven by the strong growth of the Wavellow business year over year. The total breaks down amongst our 3 businesses as follows. Adjusted EBITDA for 2 customer means was CAD10 1,000,000 down 3.2 percent from Q1 of last year. Adjusted EBITDA for WAVELLO was $2,800,000 a 9 fold increase from $300,000 last year. Adjusted EBITDA for Ting was negative $9,500,000 compared with a negative 9,300,000 in Q1 2023 as we continue to invest in Ting's fiber network expansion. Speaker 400:23:45And finally, the corporate category had adjusted EBITDA of CAD900,000 this quarter, down from CAD1.6 million in Q1 last year. The decrease is primarily driven by a lower contribution from the legacy mobile base. Turning to our balance sheet, cash and cash equivalents at the end of Q1 2024 were $66,600,000 compared with $92,700,000 at the end of the Q4 of 2023 and $11,800,000 at the end of the Q1 of 2023. In addition to the CAD66,600,000, we have CAD12,800,000 classified as restricted cash as part of the ABS transaction in 2023. As a reminder of the $12,800,000 of restricted cash, dollars 8,800,000 will sit in a trust account for the duration of the ABS notes. Speaker 400:24:26The remaining $4,000,000 reflects the cash collections from the securitized assets and is distributed monthly as interest to note holders, fees to third parties and with the remaining funds coming back to Ting. I will also note that we generated $1,000,000 in interest income this quarter. During the quarter, we had negative $5,700,000 in cash from operations compared with negative $5,300,000 in Q1 of last year, with the increase in negative cash flow driven primarily by the ongoing investment into Ting Fiber Operations. We invested $14,300,000 in property and equipment, primarily for the continued build out of the Ting Fiber network, in addition to the continued investment in the Wavelo platform. Note that this number reflects the actual cash paid for capital assets in the quarter on a cash flow statement and includes capitalized cash interest. Speaker 400:25:13As of March 31, 2024, our syndicated loan balance for covenant calculation purposes was a net CAD 200,000,000 when factoring in letters of credit and cash on hand of up to CAD 7,500,000 which resulted in a leverage ratio of 3.25 times. This is the 4th consecutive quarter we have reduced the leverage ratio. We repaid a net $5,500,000 on the balance of the loan this quarter and expect quarterly repayments to continue. Finally, deferred revenue at the end of Q1 was $155,000,000 up from $148,000,000 for the Q4 of 2023 and also up from $151,000,000 for the Q1 of 2023. This is primarily due to the stabilization of Domains revenues now that the pandemic impacts have normalized. Speaker 400:25:55That concludes my remarks, and I'll now turn it back to Elliot. Speaker 100:25:58Thanks, Dave. Last week was the annual Berkshire Hathaway Annual Meeting, the first without Charlie Munger. I always view this meeting as a bit of a bellwether, and this year was no exception. There were two things I took away not Warren's views on crypto or AI, nor his views on interest rates or inflation. What I paid attention to was a huge and growing cash hoard and Apple as their continued largest holding. Speaker 100:26:28Those may seem like non items, but they tell a story. The two points combine to reinforce things I've been talking about that the market is exceedingly concentrated and that investors and therefore the market is more short term than it has ever been. It is a market that has more dollars chasing fewer companies and likely due to the amount of money concentrating in the largest index funds, we see returns concentrating into the largest stocks. At the same time, we see the world's greatest value investor piling up cash. Warren famously says, we only swing at pitches we like. Speaker 100:27:10And he makes clear that in this market, he doesn't see a lot he likes. He, more than anyone, knows about the corrections to come in the private markets as PE, VC, and Commercial Real Estate work through the overvalued portions of their portfolios in a process that will take years. More importantly, he suffers from the short term focus of markets more than anyone. It is tough to look for value when the market only rewards scale and short term story. We see these macro trends reinforced at the Fiber market, which had 2 big stories this quarter: Digital Bridge making an unsolicited offer for WideOpenWest and EQT combining with T Mobile to take the Lumos fiber assets and split them into infrastructure and ISP, similar to our partner markets. Speaker 100:28:05Both items are further reminders that the long term nature of building and operating infrastructure like fiber assets is not rewarded to the public markets. In fact, it's clearly viewed negatively. And the latter item is the 1st large deal that validates the split between infrastructure and operating assets that we have been pursuing since 2015. What all of the above reinforces is that the one and arguably successful way to navigate the public markets if you are not one of the biggest 7 companies in the world or are not a stock selling the current story and trading at impossible to maintain multiples is to require low amounts of capital to generate cash on a consistent and ideally growing basis and to use that cash to distribute to your shareholders through either buybacks or dividends. Following that path does not require analysts. Speaker 100:29:06It does not require mainstream institutional investors. This is the approach we followed with great success from 2,008 through 2014 with our 8 Dutch tenders and plenty of open market buyback activity. In 2015, we started another cycle of investing in Fiber. We've done a great job of building a real business at Fiber. We have over 125,000 organic addresses. Speaker 100:29:32We have another 200,000 to build in our current footprints, requiring no more market development, and then well over another $500,000 in our existing partner markets, including 2 large cities in Colorado Springs and Memphis. But a growing fiber business requires capital. We have every indication that the public markets are not the right place to source that capital. If you look at TCX, the market is saying that if we turned over the keys of the Ting Fiber business to its lenders for nothing, then our stock price would likely skyrocket. That is market inefficiency. Speaker 100:30:09Inefficiencies create opportunities. We have a good sense of what the inefficiencies are and a track record of exploiting them. We are looking forward to the rest of 2024 and to the long term future. 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 May 16th and look for our recorded Q and A audio response and transcript to this call to be posted to the Tucows website on Tuesday, May 28th at approximately 4 pm Eastern Time. Speaker 100:30:45Thank you.Read morePowered by