Q2 2021 Tucows Inc Earnings Call (Pre-recorded)
And kind of fourth quarter, 2020 management commentary, we have prerecorded prepared remarks regarding the quarter and outlook for the company and Tucows generated transcript of these remarks with relevant link is also available on the company's website.
In lieu of a live question and answer period. Following the remarks shareholders analysts and prospective investors are invited to submit their questions to 2 cause management via E Mail and IR at Tucows Dot com until Wednesday February 17th manner.
Management will address your questions directly or in our recorded audio response and transcript will be posted to the Tucows website on Tuesday February 23rd and approximately 4 P M Eastern time.
We would also like to advise that the updated Tucows quarterly Kpis summary, which provides key metrics for all of our businesses for the last 8 quarters as well as 2018.2019, and 2020 is available and the investors section of the website along with the updated Tingled scorecard and investor presentation.
Please note that the Kpis summary husband modified to reflect our transition from a mobile virtual network operator to mobile services enabler of this means the mobile metrics that are no longer applicable to our business have been removed.
Now for managements prepared remarks on Tuesday February 9 Tucows issued a news release reporting its financial results for the fourth quarter ending December 31, 2020 that news release and the company's financial statements are available on the Companys website at Tucows Dot com under the investors section. Please.
Please 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 in detail and the Companys documents filed with the SEC and specifically the most recent reports on the form 10-K and 10-Q the company urges you to read it.
Security filings for a full description of the risk factors applicable for its business.
I would now like to turn the call over to Tucows, President and Chief Executive Officer, Mr. Elliot Noss. Thanks, Monica Q for 2020 was a strong finish to a very solid year across all <unk> businesses.
Domains delivered another quarter of elevated transaction activity on top of the underlying consistency of that business.
And at its highest growth and adjusted EBITDA and years. It was the first full quarter under our new mobile service enabler of MFC bottle and and our fiber Internet business, we nearly matched our highest capex spend to date achieved in Q3 and had by far our highest quarterly app.
On the serviceable addresses of 5100 nearly double that of Q3.
Turning to our financial results as a reminder, with the transition of our mobile business to the MSP model, our reported revenue and gross margin results are negatively impacted with all of that revenue and much of the expenses associated with the mobile business now subsume the other income.
Towards the bottom of the P&L.
We are however, including these earnings and our adjusted EBITDA results and as such adjusted EBITDA may provide a better year over year view on operating results.
For those that might require a refresh of the details of the impact. Please refer to my opening comments and the Q3's once each of <unk> management remarks.
For comparative purposes the.
Best way to view, our revenue and gross margin performance for Q4 is by confining those to the debates and Ting Internet businesses that is absent the impact of focal and <unk>.
Revenue from our domains of the Ting Internet operations for Q4 was $66.8 billion and increase of 3% from $64.8 million for the same period last year and I will remind you the queue for 2019 benefited from the $1.5 billion portfolio sale as we exited that business.
Excluding that portfolio sale Q4 revenue was up 6%.
And for the year revenue for the domains and Ting Internet businesses was 261 billion or up 5%.
Total gross margin for the debate and signature the businesses for Q4 increased 5% year over year to $22.5 billion. However, excluding the contribution of the bulk portfolio sales year over year gross margin for domains and cig intranet was up 13% for.
For the year gross margin for domains of the Ting Internet was $86.2 million up 9% for 2019, including the bulk portfolio sales, but up 13% with those portfolio sales are excluded and.
Including the mobile results total revenue for Q4 was $70.8 million compared to $86 million for the same period of 2019 with the decrease reflecting the shift and our mobile business to the MSE bottle.
Total gross margin was $23.7 million compared with $39 million.
Fourth quarter net income decreased 64% over that of Q4.2019 to $2.1 billion or <unk> 19 per share and thats, including the large portfolio of sale of Q4 of last year. The contributed approximately $1.2 million of after tax.
Excluding the portfolio sale net income decreased 55% net income for the year was $5.8 million for 55, a share compared to $15.4 million for 2019 or $1.45 per share with the decrease due primarily to the bulk portfolio sales of 2019.
Totaling $3.4 billion and incremental $2.2 million of depreciation expense of 2020 related to the build out of the fiber network as well as the $1.5 billion impairment and Q2 of our TV investment and road mobility business and.
Adjusted EBITDA for Q4 was $12.8 million compared with $16.1 million of last year and for the year was $51 million compared with $52 million for 2019, and slightly ahead of our guidance of $50 million and.
Finally cash flow from operations.
We note that there is of 1 time balance sheet adjustment of roughly $9 billion 7 billion, resulting from our partnership with dish. This is simply waiting of additional 30 days for monies generated by mobile customers.
And $2 million, resulting from our Culver city launch and excluding.
Excluding the 2 items above cash flow from operations was $10.6 million compared with $13.2 million of last year due to the reduction in EBITDA from Q4 of 2019, which I remind was outsized for a few reasons reported cash flow from operations was $1.6 billion for the fourth quarter of 2002.
For the full year, excluding those items cash flow from operations was $45.1 million compared to $40.4 million for 2019, once again underscoring the ability of the domains and mobile services businesses to consistently generate cash to invest and the outsized growth opportunities.
The inherits the Ting Internet.
Reported cash flow from operations was $36.1 billion.
Turning to our individual businesses Q4 was another solid quarter for the debates business capping off a very good year.
The reported numbers, which include the contribution of the portfolio business for 2019 that we exited at year end. The however mask the true underlying performance of the business.
Of the deferred revenue generated by the previously mentioned transaction volume earlier of the year.
The impact of the pandemic contributed to another very healthy quarter for new registrations in particular, which were up 17 per cent year over year, but as expected down from the 40 per cent and 30 per cent increases we saw of quarters, 2 and 3 is that growth continues to decelerate as expected.
And we expect that growth to further decelerate and Q1 and I've seen that and the numbers thus far of the quarter.
Our wholesale of renewal of rate for queue for held steady at 79 per cent once again solidly above the industry average and once again the underscoring the quality of both of our resellers and the high attachment rate of their domains to real businesses.
A retail domains channel also continue to benefit from the higher transaction activity, resulting from the pandemic.
Total registrations for queue for were up 5 per cent year over here to 362000, and with new registrations up 8 per cent again of deceleration from the growth of quarters, 2 and 3.
As for the wholesale channel we saw the benefit of the deferred revenue impact of the elevator transaction activity earlier of the year.
Excluding the impact of of deferral related accounting adjustment in queue for 2019 gross margin increased by 1% and notably in line sequentially with 2.3 despite queue for being of seasonally softer quarter.
The retail channel renewal of rate also continues to perform solidly above the industry average coming in the 79 per cent continuing it's consistent performance around the 80 per cent Mark.
On our year and call last year, I talked about the benefits of scale and efficiency and are the means business alongside our focus on high quality customers to support the profitability of the business.
This has enabled us to continue to invest and our platform to strengthen our competitive advantage and offer competitive price. It will still generating a meaningful profit to further invest for the future health and growth of the business and contribute to the overall profitability of the company.
Our employee of those capabilities to grow from 250000 and satisfied customers to tens of billions.
With the transition from retail to platforms, we take of mobile business unit that had plateaued and turned it into 1 that we fully expect to grow.
As a reminder, we've changed the content of our public reported for the mobile business.
With our mobile business tied to dish the best way to project, our mobile fortunes is to follow their public disclosure.
And we'll report on Ting mobile subscribers and other metrics and will also give updates on boost and other N V and O subscribers destined for our MSC platform. Meanwhile, I can tell you that the legacy base continues to perform as expected and bore and importantly, the dish relationship is proceeding well.
Both companies have a lot of work in front of the and a very dynamic environment and I'm pleased to say that the people side of this transaction is meeting lofty expectations.
We think of this as a long term partnership and are much more focused on building the connective tissue between our 2 organizations and we are of the financial results and a 90 day period.
To remind the platform fees will not ramp materially until we start migrating boost customers onto the MSC and the second half of the year.
That development work is going well.
I want to warn again that the financials will be noisy for the next few quarters at least you will see this and 2021for work, we're doing to integrate boost mobile stores on our platform.
Long term the financials will be driven by small platform fees on a large base and will offer consistency and predictability more similar to our domains business.
Moving on to Ting Internet the.
The results for the fourth quarter and year over year were strong across the board, reflecting the high demand for <unk> fiber product and appreciation of our industry best customer experience and our early work scaling the operation.
But we don't view this as enough and are continuing to keep our foot on the accelerator and are in fact pushing harder.
We hope and expect our Capex spend passed addresses and net new subscribers will double the 'twenty 'twenty 1.
Our investment and Capex remained steady at Q4 of $10.3 billion down slightly from the record $10.7 million spent in Q3, representing an increase of 28% from Q4 of 2019.
Capex was up 18% year over year.
The diversification and customer acquisition strategies and established markets and.
November you may have seen that we added experienced fiber executive Joel Schumacher to head up our networks T. The construction business inside our Internet business I've known Joe for many years and consider her a fellow traveller of the fiber journey.
And we share of vision of not just the business of fiber networks, but the role they play and society more broadly and Jill has come to thing Internet and 2 cows at a critical time and our business growth the need for fast reliable Internet access has never been more apparent twenty-twenty squeezed years and change it for months.
The U S is clamoring for fiber Internet and hungry for the 10 quality experience and Jill is precisely the leader, we need to ramp and scale thing Internet and fulfill these opportunities.
Jill joining 2 cows follows. The addition of other experienced industry executives, including just the rally is cheap product the officer at 10, and 2 cows and Neil Shaw Vice President of product the ticket your debt they and other key members of the team of all experienced what could be with fiber networks. If only they were done right.
The share of deep belief and the coax the fiber transition and also share of vision for applying the 2 cows lens of innovation and software development to tried and true best practices from traditional telecom and cable.
There was consensus among those participating of the coax the fiber transition infrastructure funds private equity for bankers consultants and suppliers that the scarce resources dot capital of dot opportunity, but rather management and we continue to believe that we have the best management team of the world.
And the the early I S. P experience of many of US serve this differently from those with roots of cable for a more traditional telecom and.
And now like to turn of the call over to our C. F O day <unk> to review our financial results for the corner and greater detail day. Thanks Elliot.
Again, as a reminder of fourth quarter results reflect the transition of on mobile business to the Embassy mall total revenue for the fourth quarter of $2027.28 million and 18% decrease from 85 for 9 million for the same period of 2019 with the majority of the decrease attributable to the sale of of thing mobile customer relationships during the third quarter.
Which therefore and did not contribute any revenue and queue for of the sure but also do and part of the large bulk of me and say I'm gonna portfolio of business and queue for 2019, which we subsequently exited at the end of that here.
Those decreases were partially of stop by continued strong growth and thing Internet revenue lots of the result of the Cedar acquisition January of 2020, but also on the result of of continued growth and the Internet services customer base, which notably cross the 50000, Mark and the fourth quarter.
Cause Elliot discussed when factoring out the impact on the revenue of the change and the mobile model revenue for the combined the main continue internet businesses, including the portfolio sales increased the 6 per cent.
Customer of news before and network costs decreased 14 per cent to $47.1 million from $55 million for 2 for the prior year with the decline primarily due to the lower revenue.
As a percentage of revenue cost of revenues for network costs increased slightly to 67 per cent from 64 per cent has improved mixed and the demands business was offset by the shift and mobile revenues, including the addition of low margin and transition services to dish.
Gross margin for and that will cost for the fourth quarter decreased 23 per cent of 22.7 million I'm 30.9 million with the decrease primarily related to the sale of taking mobile assets and to a lesser extent the outsize performing the sale and queue for 2019.
As a reminder of the margin generated by the mobile customers Salt. The dish is now incorporated and the earn out recorded and other income.
The percentage of revenue gross margin before and network costs decreased the 33 per cent from 36 per cent on queue for 2019.
I'll not review of gross margin for each of the demand services and network access of businesses.
Starting with the main services gross margin for the fourth quarter of 2020 was essentially unchanged from the fourth quarter of 2019 and 19.4 million. However.
However, excluding the large bulk demand sale and queue for 2019 and gross margin increased 8 per cent of a percentage of the revenue gross margin for domain services was unchanged and queue for 2019 at 31 per cent, but when excluding the queue for 2019 bulk to me and so of course margin was up about 160 basis points.
Within the domain services business gross margin for the wholesale channel was up 12 per cent to $14.8 million and $13.2 million for the same period of prior year. The result of the year over year growth and the number of demand the under management.
And the success of our continued focus on my end of the business for gross margin.
As a percentage of revenue gross margin for wholesale increased to 28% from 26 per cent.
Gross margin for retail the main services decreased 6 per cent to $4.4 million and $4 and 7 million for queue for for 19, Although I will note that the retail gross margin and queue for the prior year benefited from and out 5 quarter as we had a day for overlay the positive accounting of adjustments and queue for 2019, excluding that impact gross margin increased the 1%.
Over here at.
As a percentage of revenue gross margin was 51 per cent compared to 54% and queue for 2019 with the decrease due to the adjustment and the prior quarter just noted.
Turning now and network access gross margin for the fourth quarter of 2020 was for $3 million a decrease of 62% from 11 and finally, the 2 for 2019 and.
Again, the vast majority of the decrease is the result of the opposite around and margin and queue for of this year as a result of the sale of of the taking of our customers to dish and our transitions on M. S. T model of Joe the third quarter of the share.
Mobile services gross margin was 1 for $2 million a decrease of 87% from 9 point Formula and the result of the difference on the 2 mobile models we.
We did however, generate 6.5 million and the gain on this day and I'll take a customer assets, which represents the burnt out on the customer base and which appears on the heading other income and the piano and.
And the 5 of intimate terms of business gross margin increased 52% to $3.1 million from 2.1 million and queue for 2019 with growth attributable to the incremental contribution of the Cedar networks acquisition at the beginning of of 2020 as well as continuous expansion on the <unk> Internet subscriber base.
As a percentage of revenue gross margin for all of the network access was unchanged of 40th per cent compared to the queue for all of the prior year with mobile services decreasing to 31 per cent on 45 per cent for the reasons stated earlier and 5 of Internet services decreasing the 62 per cent from 68 per cent, primarily due to the sales mix as a result of the theater acquisition turning on.
Of course network expensive for queue for 2020 increased 28% to 6.3 million from $4.9 million for the corresponding period and 2019 with the increased being primarily due to higher amortization, resulting from the continued build out of the fiber network as well as the incremental impact from the Cedar acquisition.
Total operating expenses for the fourth quarter of 2020 increased 15% for $18.5 million and 16 for $1 million for the fourth quarter of last year. The increase of the result of the following excluded and the impact from the acquisition of Cedar on January 1st of 2020 people costs increased by 2.2 million, primarily for and increase work force will support business expansion included.
Adjusted EBITDA for the fourth quarter was $12.8 million down 21% from $16.2 million for Q4.2019, the reduction of EBITDA was largely driven by the prior year of bulk domain name sales noted earlier.
Turning to our balance sheet cash flow of cash and cash equivalents of the end of the fourth quarter of 2020 was $8.3 million compared with $10.2 million at the end of the third quarter of 2020 and $24 million at the end of the fourth quarter of 2019 during the fourth quarter, we generated $1.7 million and cash from operations compared with $13.2 million and the same peer.
For the 2019.
We also drew down $8 million on our loan which was more than offset by our investment of an additional $11.7 million and property and equipment primarily related to the Internet buildup note cash flow from operations. This quarter was impacted by the transition of the <unk> operations, including daily cash collections to dish and the fourth quarter after 2 months.
Post close the transition period cash flow from operations are expected to return to normal levels from Q1 of 2021.
Finally deferred revenue at the end of the fourth quarter was $152 million down slightly from $154 million at the end of the third quarter of this year and up from $149 million at the end of the fourth quarter of last year.
I'll conclude my remarks, I will now turn it back to Elliot.
At the close of our corporate planning cycle after goals and measurement setting and <unk>.
Budgeting a.
A detailed product Roadmaps comes communication throughout the organization.
Coming out of this year's communications to the whole company I find myself, feeling particularly optimistic.
The budget numbers are good share the.
And the opportunities are plentiful and each business.
But when I tried to identify the source of by the optimism I realized that it was the feeling that the business was closer to what it should be that at any time in the past.
Starting with the Q1.2021 results, we will be presenting the business to investors and segments and.
This first year of communicating to you with the results presented by segment I want to set the table both for the year and for my optimism.
And to ask for your patience as we learn a new language together.
And domains. The story of the last few years has been 1 of steady growth.
And even that has masked the improvement and revenue quality, specifically, we no longer have revenue from portfolio sales and we have lower revenue from some of the lower quality E Mail <unk> retail streets, we have more of the data for both of these declines with growth of the core offerings.
Well it continues to be of moderate growth business. The foundation keeps getting stronger and the opportunities for outsized growth continue to increase with the improvements and our underlying technology.
In mobile we are consumed with helping dish migrate boost and launched their <unk> network as noted above things are progressing and an impressive pace, but the timing of all of the moving parts is quite dynamic.
In addition, there is some reliance on third parties outside of either our or dishes control.
And that will make 2021, both unpredictable and uneven in terms of revenue.
Accordingly, I will be waiting until next quarter to provide financial guidance and this business and it is not impossible that I will be asking for your indulgence again next quarter.
Most importantly, the developments of the U S mobile phone business since last summer have greatly reinforced that we've made the right decision to pivot where we did we have played to our strengths and away from our weaknesses and this move is both pushed us of the direction that feels right and has created more leverage and synergies with.
The rest of the business and.
On fiber the story is a simple 1.
Lots of growth lots of opportunity and fact, the greatest opportunity I have seen in my lifetime.
And lots of hard work needed to take advantage of these opportunities.
2021will include our largest capex spend by fire.
And we would love to see Capex double this year.
Of course that means corresponding growth and fiber customers.
But the work underneath of that growth is more important as we continue to build the construction billing and provisioning platform that can scale to meet the massive opportunity that is the coax and fiber conversion taking place of the U S.
As capex and the fiber business scales.
So will the Abbott of burn.
Investors will now need to retrain themselves to look at each of the 3 business segments separately.
We understand that we are asking more of our investors and we will do our best to provide them with more tools to make their jobs easier.
And this vein on for.
February 16th we will be providing of video deep dive into our experienced and Holly springs over the last for years.
We've chosen to use of narrated video format with some significant financial disclosure embedded in order to balance the needs of investors with competitive dynamics, we noted last quarter the weird.
Unique as a public company competing of this space.
Finally in light of our new assessment of segments and related financial disclosures in 2020.1.
I want to talk for the first time of the corporate overheads.
These include the obvious things like finance and HR as well as networks and facilities. They also include shared technology elements like security authentication and payments infrastructure, we have 3 billing and provisioning platforms domains mobile and internet.
We are doing a significant amount of work this year to centralize and share when it's appropriate and create excellence and the business unit for what is unique.
Think about being great at provisioning of domain registry service on account of the Verizon or T mobile platform for.
On a circuit on fiber of electronics from a particular manufacturer.
That technology will always reside of the business units.
Process and the payment for managing a subscription for any of those services will be done and a shared the payment service.
In terms of guidance for the year, we will provide it by business unit.
The domains business delivered $46.8 million of adjusted EBITDA and 2020, we expect that to be around $48 million and 2021 the.
And the mobile business delivered $18.8 million and adjusted EBITDA and 2020 as noted above we expect some timing to settle and will share guidance for 2020, 1 next quarter and.
And the Internet business, we spent roughly $4 million and adjusted EBITDA and 2020, we expect that deficit to rise to nearly $14 million in 2020, 1 as we significantly ramp up our capex spend and our footprint.
Finally, we spent $10.7 million on corporate overheads and 2020.
As we grow the scope and scale of our business that number will increase to over $14 million in 2020, 1, but the increase is primarily coming and growth and our people practice and growth and spending on our share transactional infrastructure.
This includes of real investment this year and remote work and a new world.
We are aware the presenting our information by line of business. Both gives the investors more visibility into our 3 businesses and makes the business tougher to Paulo for now like everything else, we will find our stride and making this easier to understand and you the investor will both get more used to it and help us with your feed.
Back in improving our telling of the stories for numbers the.
The Holly Springs video I've mentioned above will be of clear part of that process.
And I started the section talking about how to cows more than any other time and by quarter century felt like it was what and where it should be.
And this feeling extends to all 3 businesses.
And the deep learning for me is that the more help we have the more we meet our potential.
And our potential.
My dreams for this business of always been greater than what they appear to be.
The right way to finish here is to make sure you all understand that I am grateful for all of the success. We have had all of the employees' lives. We've changed all of the customers. We have served all of the investors that we have made money for it.
And in my eyes, the future looks much brighter than the past the future starts now.
And with that I look forward to your written questions and exploring areas of the interest you in greater detail again. Please send your questions. The IR at Tucows Dot Com by February 17th and look for a recorded Q&A audio response and transcript of this call to be posted to the Tucows website on Tuesday.
February 23rd at approximately 4 P M. Eastern time, thank you.