Earnings call transcript Q3 2022

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Monica Webb

Welcome to Tucows Third Quarter 2022 Management Commentary.

We have prerecorded prepared remarks regarding the quarter and outlook for the company. A Tucows-generated transcript of these remarks with relevant links is also available on the company's website.

In lieu of a live question-and-answer period following these remarks, shareholders, analysts and prospective investors are invited to submit questions to Tucows management via e-mail at ir@tucows.com until November 10. Management will address your questions directly or in a recorded audio response and transcript that will be posted to the Tucows' website on November 22 at approximately 4:00 p.m. Time. Eastern

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

of Finally, Tucows businesses, started Ting, Corporate. as Domains, Tucows this Wavelo in in discussed previously, reporting starting QX and we year, as separate addition to

in Tucows the site I change. so, on watch For this Investor we for and done on have encourage you to those the yet for not that the video additional rationale posted perspective February detail

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

Elliot Noss

is of what is to tough times And was operating uncertainty. control. QX another on in like Monica. solid these, environment. The can focus a world full Thanks, it you important in quarter

cash times useful important We generation be undervalued uncertainty. good times, on extremely of focusing continue if in but in is grateful that to

QX the under new was structure. managing quarter third corporate our the businesses

The and lessons, fact, us learned serve ways, TCX change structure gaining to some budget important efficiency. success, we'll our to in refine cycle, up in businesses. important wrap without we operations XXXX we a in operating losing, in be is As better have flexibility order able operational financial the allowing

our we difficult. addition, Singh, our now To to guidance. provided A one reiterate that four of as these heads would have like changing above guidance rather just point, the provided points part in segments, the reminder previously not financial and will has reporting that business of pleased from In hear unduly proven as our of I well than this in business directly remarks by results detail. cover you who each will CFO, Dave as now our from are

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

David Woroch

a flat pre-pandemic to business Elliot. has The of quarter to Thanks, COVID looking and with continued Tucows boom relatively had return both year-over-year, positive a industry an continue our trend time domain frames. way given over longer to the Domains but as when levels. echo,

was quarter down and the Revenue third was down EBITDA QX gross year. Services' Domain last last was services X%. X% margin of X% same for from the for Domain year, adjusted down from of quarter

approach and expenses. decrease operating increased have reviewing in in the corporate well as with endeavored how new expenses a the efficiently an and and structure, note line gross lower of now will we we adjusted manage especially the the as I margin and anniversary is to streamlining Here, environment, both of as business this inflationary that in result are EBITDA always we

second for have quarter, total the have in at lower off transactions comments the my the business discussed continued we pre-pandemic quarters. levels in Building that previous

U.S. in dollar and broad-based this, economic Connected too the appreciation year the earlier we other impacted challenges. the and industry, European value our of to from has in of rapid our global this many with business uncertainty and the the introduced challenges As see economy. the

apply we dollars. has impacts the For cost in services euros and many gaining have in base strength this, QX, in and currency a against pressure To so we to to quarter. Europe, margin. from that The prices later euro will our in price adjusted address the our and gross have announced we of U.S. resellers U.S. again this downward we dollar continues do have

our down our two Returning to for X%. segments gross margin year-over-year the was QX revenue of with In business. Wholesale unchanged essentially channel,

same while the the down Services gross was was Within unchanged Domain Wholesale year, margin likewise X%. channel, revenue period from last

pre-COVID. Revenue Services margin Wholesale X%. gross Worth services for up was up X% And XXXX lastly, gross while Wholesale rate our all with margin XX% X% margin when component Tucows In brands year-over-year. to above of average. Retail remains in renewal our overall QX the well value-added X% the QX and the of Domain decreased is from gross channel, the noting, channel unchanged Domains combined across compared industry revenue at decreased year-over-year

global integral domain work Internet channel platform, today. and for we've life our in and innovation defined that to how and and early cycles different we've economic distribution access a services. the business global for by consumers have domain XXXX, We've and and with our of founded managing continual and domain we focusing conditions services Since view. become to responsibly businesses our the weathered built regional a Domains provide evolution use We business on related with strong Tucows long-term

I'm tell what as best comments develops. in to can my QX about that customers. Today, grateful more to of how few the do people beyond to in we last that can resources resilient, leverage be always and years, thinking it opportunities business business the our growth create and a you for I'm such we And our stand we on we of the and have consistent about foundation light excited

of Reilly, Justin Now over CEO to Wavelo.

Justin Reilly

today remarks reemphasizing from Thanks, frame Dave, hello to last my want I and TCX investors. my some quarter. of comments by

migration We have customers of the earnest. in Boost now started

based model about revenue are reoccurring we excited the and and business professional Ting. high-margin transitioning subscribers that we ones. from ramping QX DISH new with scale, customers extremely an from where growth current We're scalable, services on As around one-off in to our potential from the of year, the expect process trajectory reaches revenues a sometime point reach inflection up to DISH business next

Now gross as and Year-over-year, with the from XX% the XX%. and margin respectively. is report. lumpy $X X.X%, we million, gross revenues modestly, $X.X numbers Quarter-over-quarter decline look decline and up for see a QX X.X% of profit revenue where expected, a financial of are million, at QX at

down was Revenue reasons. for two sequentially

to an the the noncash lumpy had As as revenue last transaction. in as This to DISH some QX we professional related of an provided recognition seen accounting noted This recognition terms recognition services of well. was part we quarter, bundled occurs services revenue of QX in DISH. treatment platform as the in included outsized

asset the The second fixed related partial the recognition relative of unwind recognition sequential reversal the of certain note payments. QX fixed for XXXX. renewal asset a to is that contract estimated and of mix the revenue the the components. and impact over contract noncash term of payment in And revenue variable The on varies contract based revenue will is contract, from associated asset which up

the point. more migrated to revenues, On have both and this hoped DISH had Wavelo component at Boost subscribers of subscriber fee

now we As is above, process underway. the noted migration

customers that are been on a pleased putting for Boost We the new DISH has while. platform

their DISH's review shutdown in the we focus QX progress. you the of the of recommend remarks mention and significance their including disclosures, always, to As CDMA

advantage the challenging and unparalleled are time, platform. As parts of retail a integrations, in last gives the integrations DISH network as network customer record compete both migrations. three and We've fourth This most any two reminder as an T-Mobile, agility new DISH engagement time, Wavelo's and highlighting customer AT&T in the XG from completed of MNO. wireless they

In tools DISH integrations, network to addition we've subscribers. world-class built to migration migrate help Boost

around to migrate important finishing more for positive These subscribers As these recently endeavor, over DISH will tools hard and the with we've three bode Wavelo help iterative well future any signs We're from financing and quarters. exercises be that announced next are DISH's build-out customers. seamlessly. seeing completed plans touches

DISH Boost than usage next base products intentions expected postpaid a introduce quarters. over stickier is. has pricing typically Infinite, few announced much with the prepaid, its which unlimited are to Postpaid the current disruptive offering Boost

to believe Wavelo. to on an in compelling for flexible turn and pricing June XX% coverage proposition and XG with high-quality U.S. extensive, of and which is retain mobile DISH benefits from population XXXX coverage attract their their DISH strongly packages and Additionally, of cell XX,XXX the the We sites. in meet track deadlines deployment cell customers,

hours, be inside no compelling regardless service. to ability case platform bill may more the of regardless provisioning like in to a months, when Wavelo's system. DISH's and of offerings and network not than for launching the provides postpaid which plans customer of There prepaid new billing and This means you'd same launch

and they to will key consumers. over score has attempt For Wavelo's this helping an that in market adapt of confident evolving coming in competitors the XX as to be the DISH those plagued years. years last of keeping win We're a enabler flexibility telecom, operators

migration for $X.X And staff where subscribers leadership negative investing out Our million, as QX burn reflects fees support and our of adjusted needed was we number which the transitioned Boost platform, marketing. once burn, customers of the be and to our more to respect are majority the OpEx, important of one accordingly, this with continue and in round core will business reason to our at development point most those of Boost fund the up the growth sales work is in critical and that, EBITDA teams. is we'll the

on focus two and rest building And new go-to-market the our developing for machine. customers, key we're to our launching and continuing anchor for of DISH features Ting, and the year,

and over now for Thanks listening, to Elliot.

Elliot Noss

did in The the QX is resolved will serviceable Ting of XXXX. QX, significantly this administrative same to quarter fairly deploying into in nature In close issue address strong another small Justin. was we we QX. as footage quarter fiber in that delivered roughly number that addresses push record of California a fiber Thanks, X,XXX dampened as construction,

CapEx continue total. QX, our was year-over-year X,XXX million nearly is $XX added XX% again net in as from over subscribers $XX.X us last and This to year-over-year. That we in We QX represents XX,XXX XX.X% Our X% build. up taking fiber million. at of near quarter growth accelerating

Ting-owned serviceable additions X,XXX, serviceable total XXX,XXX Our and both to address Ting-partner us was for total taking addresses.

QX to in as above the ramp into and to of numbers XXXX online. those backlog expect referred comes some We

to most they markets, continue view from belief competition addresses to other regard, essential, Internet our customers economic in our are options. uncertainty. reinforces in and be the a feedback that pipeline belief this orders see strong scores engagement In customers that I that United our as truly of Ting to and customer as have States. We note despite ISP service to serviceable, Ting become and customers mature increased superior installs our our satisfied people This to reinforce including continue qualitative the

the growth markets. X versus mature disclosure of in summary, on Starting QX, provided on KPI new Page we

customers North and I how metrics powerful I more have You bottom little of may markets these view that were as line net these as load margins. recall, generate QX of construction Carolina in we said numbers happening two the provide in a largest our they noted footprints. new Colorado, still mature on and grow also a plenty uneven would

is said, and QX contribution from XX% QX being mature XX% year-over-year. That strong. market $X.X for up million, was The QX

More year-over-year importantly, quarter-over-quarter year-over-year X% $XX gross profit Ting's grew revenue by million. to to $X.X and XX% XXX% million. grew XX% quarter-over-quarter and

line This top be bottom as the in will larger continue to to continue on line the uneven little tell footprints. we a mature a more story build on clean and

let We how best to see continue investors on leverage. operating to work

process as using quarter. mechanism have this expect XXXX and forcing budget next to are the on more We a

our Centennial, microtrenching For as California. continues in Colorado Culver market California and markets as markets well updates, in City, partner our in

accelerate in QX our in We microtrenching also there work first XXXX. expected in will QX, in started Virginia and that customers with Alexandria, early

Carolina Springs completed Colorado North also look our of getting We've footage primarily in construction year and Aurora, a Colorado fiber to We're of underway excited to footprint new in XXXX. in also areas. QX this for greenfield start forward connecting their lot

build, Ting work the Encinitas operational strategic foothold in over our and for Solana Ubiquity, with We're markets momentum I'm quarter Encinitas, announced last and a completing in and new financing busy taken Beach a we're has we XXXX. our managing actively Internet partner pleased Generate creating subsidiary, in County. seeing on report engaged San their on fronts Diego with also to nice Capital. the related preparing to teams Generate's

and ISP relatively transition that profitability, offers. it have fiber networks, as in expectation both providing XXXX, is the take the to most services our flexibility on a good position. costs, rates own importantly, As focus that incredible on we coax-to-fiber home rates, interest the overbuilding returns at most our The as worth importantly, our labor round turn news the above-market well increased noting has strong in in and and us head chip started of for away that and others' is

execution Focusing on plays strengths. our to

the a Singh results. over to dive now Dave turn our for call And financial on deeper to I'd like

Davinder Singh

Tucows the of XXXX. million from up was XXXX Thanks, revenue from in third Their $X.X X.X% the for respectively. DISH. were decline third transitional $XX.X XX% Wavelo, services a to year the of million driven in to quarter Corporate of and Total gains QX $XX.X from partially revenue expected for increased decrease in $X.X offset Elliot. quarter X.X% by million Ting year-over-year, last XX% increase and with revenue million by primarily The

million total total at QX last was from the QX for million, $XX.X revenue $XX.X from in is year. year. essentially XXXX end X% flat Year-to-date revenue last at million, year-to-date up of of down million $XXX Tucows $XXX from Revenue the slightly Domains

the at of slightly of for as revenues network same costs $XX.X $XX.X compared million period Cost before to year. QX million last was down for

cost of the revenues This due to before percentage of primarily XX% network to in revenues. costs Ting Internet XXXX. decreased growth in a revenue, QX from was As services XX% high-margin

Ting network the year-over-year before quarter contribution the gross mainly increased profit to costs XX% of profit Internet. higher to for third due million the $XX.X with Gross million, increase from $XX.X

XX% gross of margin increased costs percentage revenue, a XX%. network from As before to

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

for of from XXXX. As X.X% Wavelo gross revenue, QX million Tucows margin XX% $X.X for to $X.X was flat percentage at gross a increased profit Domains year-over-year. million

last compared As Wavelo a XX% QX revenue, in of for XX% gross year. percentage margin was with

gross sequentially DISH. from the down driven profit by amortization asset and contract Wavelo earlier the is QX of by XXXX Justin, referenced QX related As non-cash to

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

QX As margins. Elliot remarks, net discussed contribution the growing Ting's management generating the from is strong mature in markets

last to well as driven from a XX% a quarter revenue, higher by XX% gross capitalization year contribution our as of growth the third Ting and percentage QX from for our expanded stronger of engineering labor. As margin field in in markets

last the Network to QX to well XX% for fiber expenses increase driven both the the increased The continues up the million as million depreciation of increase as year. year-over-year network network. workforce of in higher support XX% our period for assets, $X.X from $XX.X to expanding be fiber by same our

acquisitions Total year. quarter for the support ramp costs of as with well to both growth increase in quarter team, its UNR the related to is operating October the $X.X from increased business to $XX.X primarily cost million and a development XXXX expansion Internet the Ting extent, expenses up same well period to and, XX% last increased result people as for as Simply were Bits third $XX.X the this the workforce XXXX. Wavelo as The million the lesser of million assets continued following:

business $X.X by by in Sales driven and year-over-year, increased mainly investments marketing costs Ting the the Internet million increased expansion.

compensation million, primarily million from Facility primarily assets Bits, up this and while monetary were $X.X $X.X foreign the $X.X year-over-year costs fees stock-based driven up liabilities. million. And and expenses and by lastly, revaluation third-party were exchange million related increased card to increased our credit quarter impacts by impacts foreign-denominated the and Simply of contracting support to $X.X

driven million per As to share or for quarter of a Ting of from depreciation and higher with of expenses. per a of the interest by Internet period ramp XX% for We last of fiber year. including net and operations increased of related last million same expenses, accelerated net net $X.X the operating same Generate reported higher Capital, build $X.XX percentage this share loss our or ongoing third loss of operational the $X period XX% the revenue, and with debt expenses XXXX QX the new income network for the for preferred year. year The of compared was predominantly $X.XX

on expense geographic mix tax Canada taxes reflects our our legacy business. with Note, in payable domains our

adjusted Domains businesses down $XX.X for year. X.X% EBITDA million as from of EBITDA million, X QX QX Adjusted XX% amongst was follows: breaks was QX down Tucows million, total $XX.X our from down last That for $X.X for XXXX.

Wavelo $X.X asset last as EBITDA of million, reflect noncash impact investment of was the the from the Adjusted in for ramping positive the the well million to DISH. related year. Wavelo a negative as of XXX% contract results $X.X business decrease a amortization ongoing

the contract. We of over term amortize expect asset the the remaining to

Adjusted million and negative XXXX to EBITDA QX fund with in for million our adjusted $X.X $X level, Ting compared was fiber we expansion. expect as network we negative EBITDA continue

margins And $X.X the year, primarily the with churn, finally, the this QX sale lower contract. slightly and to in Ting supplier last the for lower a adjusted with expected, had retained million from lower of compared Corporate services EBITDA onetime customers quarter renegotiation continue of by decline by, driven recovery offset the as DISH earnout the transition and a from customers Mobile the as subscribers of to mobile $X.X contribution category million

at end Turning $XX.X were $X.X of addition million of Cash third to to business. balance XXXX. in at the from sheet. of a $X.X the second funding the at quarter our equivalents and the XXXX, QX use million of due the compared and of quarter the million cash Ting end for the is cash facility with Generate end with This of

along from had net the the last $X.X compared due decrease million million to in receivable year being deferred with and income inventory. negative operations with accounts we in During with in quarter, QX taxes, cash the loss positive $X this increases quarter, our

of book of timing increased payments $XX including quarter. reflects was actual as of assets Wavelo and in our related the equipment build Our cash this property primarily Ting $XX capital the network continued than QX. in build-out the Internet by paid cash for million of offset number the Fiber Note well for accelerated assets, investment inventory the the platform. of was more million in gross The as fixed to outsized value this capital which quarter,

Finally, QX of million, $XXX for end year. deferred the $XXX at million revenue the down at and $XXX X.X% XXXX down X% the of the second was from from of of last quarter end quarter million third

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

Elliot Noss

and turned to last XX took turned first raise Thanks, a I Dave. until I for it XX month before month, equity the time.

So are make public years call, detail on valuation capital we the we'll into feels like another as to XX not in and now of investor settle This investors in planning, our something as done with about have we we departure will role since ago. turned the TCX and over I allocator. have any immersed this talk conversation right I XXXX

we to that and to want I share the more context place the way of where about is thinking are in role it world the generally.

First, let's talk the high about at a level. operating three businesses

valuation and are A We fooled a too precisely to by, precision. of numbers models. being wall generally prefer by allowing offer right of be can to placebo, We not comforted complex of wrong. fans people sort often,

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had mature a Domains, successfully be acquisitions, since has generator also Ting and other compete. to to has flows, solid business business other business Ting Wavelo. than it It has funded reliable order we margin is it grow, Mobile cash funded from efficient low This launched to of on in alpha, not a It launched XXXX. the to With it net in acquisitions in very Tucows has business, easy been is a beta. low incredibly has basis that number to and cash Domains a every Internet

to market to I characteristic be the EBITDA what easy obvious, our is relevant expect the efficiency acquired. view for to turns same Domains. the us we the when allowed consolidation. fiber be we valuation Historically, than note multiple as metric rather Tucows acquirer operating this

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appropriate even as multiple or last think a revenue. behind In input. When insurance telecom as this we valuation right or We the it recurring banking. metric, annualized the month view most is we the last annual of regard, view of quarter

as We multiple also view strong size market pipeline, customers, by and team. being the influenced profitability,

exhaustive an not is list. this course, Of

rates, best a valuation With Ting, the massive in EBITDA during will method to multiples customers. Once of the The profitability. multiple. is of the value the typically place here taking United homes complete, build-out on the is to these industry quickly way are a passed and take build-out churn we coax-to-fiber shift States, businesses in multiple function the and/or believe expected

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the economy of where get around world with above significant headwind the a entering be impact modern are There inequality, time also the expecting the When a There on recession the the happening creating are history, not are uncertainty, you progress economic uncertainty. of period technology like are uncertainty. climate will opportunities. growth a change of things for will be period call I course, we Finally, factors the a global rates, continued expansion. and economic interest of the in primarily it demographics that a first you drag economy. would that or geopolitical combine in

are most uncertain, cash important times generation. times focus generation cash the good, When good but cash often When thing uncertainty, on are is to generation undervalued. is great. In is

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

Tucows (TCX) 3 Nov 222022 Q3 Earnings call transcript