Tucows, Inc. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Ting Business Adjustments: Laid off over 40% of Ting workforce, mostly involved in market expansion and new plant construction. Streamlined functions within Ting and Tucows. Plan removes around $22 million in cash operating expenses. Stopped expansion into new markets and will take a more conservative approach to capital deployment, focusing on success-based CapEx. Expect Ting to be in and around adjusted EBITDA breakeven in 2025.
• Tucows Domains Performance: Delivered seventh consecutive quarter of revenue growth. Had solid year-over-year gains in gross margin and adjusted EBITDA. Domains under management were marginally up year-over-year and quarter-over-quarter. Transactions down 2% from Q3 2023 but stable quarter-over-quarter.
• Wavelo Situation: Q3 revenue, gross margin, and adjusted EBITDA decreased. Drivers included EchoStar's focus on optimizing subscriber base, churn in prepaid telecom, and lumpy noncash impacts from professional services recognition.

Segment Performance

• Tucows Domains: In Q3, revenue was $64.7 million, up 6% from $61.1 million in the same quarter last year. Gross margin was $19.8 million, up 8% from the same quarter last year. Adjusted EBITDA was $11.5 million, up 6% from Q3 of last year. Revenue contribution: Tucows Domains' revenue in Q3 was $64.7 million, accounting for a significant portion of the consolidated revenue.
• Ting: Q3 revenue grew 19% year-over-year to $15.3 million, driven by a 21% increase in subscribers. Gross margin in Q3 increased 38% to $11 million year-over-year. Adjusted EBITDA was -$5.1 million, which was an improvement from -$12.2 million in Q3 of 2023. Revenue contribution: Ting's $15.3 million revenue in Q3 contributed to the consolidated revenue.
• Wavelo: Q3 revenue was $10.1 million, a 9% decrease from Q3 2023. Gross margin was $10 million, a 4.6% decrease from Q3 2023. Adjusted EBITDA was $3.4 million, a 18.5% decrease from Q3 2023. Revenue contribution: Wavelo's $10.1 million revenue in Q3 was part of the consolidated revenue.

Guidance

• Expect significant adjusted EBITDA growth for Tucows in 2025 and Ting business to be in and around adjusted EBITDA breakeven in 2025.
• TCX adjusted EBITDA year-to-date is over $22 million, on track to approximately double in 2024 from the $15.5 million of adjusted EBITDA for 2023.

Risks

• Unsuccessful in finding a long-term common equity partner for the Ting business.
• Industry competition and potential impacts on business performance, such as in the fiber mid-market where there have been few common equity transactions in the last year or 2.

Q: Please submit questions to Tucows management by e-mail to ir@tucows.com until Thursday, November 14. Management will either address your questions directly or provide a recorded audio response and transcript that will be posted to the Tucows website on Tuesday, November 26, at approximately 5:00 p.m. Eastern Time.

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