Q2 2022 Tucows Inc Management Q&A Pre-Recording

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Go ahead Elliot Thank you Malika and welcome to our Q&A for our second quarter 2022 financial results.

All of our questions this quarter related to the Ting Internet business and most of those were looking for more specifics on <unk> recent financing.

With respect to the size of the financing and the <unk>.

Original announcements and the quarterly management remarks with details on the up to 200 million U S dollars and financially from generate.

In the Q2 remarks, we discussed up to an additional $400 million in network partnerships to clarify this is completely separate from the 200 million financing of kings owned projects.

Additional up to $400 million that generate has agreed to invest is it new networks routine and generate would partner similar to the existing partnerships. We have in Westminster Fullerton Solana Beach, and its Adidas with generate financing building and owning the networks.

Seeing acting as an anchor ISP tenants.

We note the partner networks are becoming more and more popular at least in terms of companies wanting to build and finance networks. There still seems to be a dearth of Isps to ride those networks.

The significance of the 400 million figure is to allow for a simple linear calculation of the interest rates you will hear us mostly talk about the cost of this financing is 13%.

That's because we comfortably expect to partner on a minimum of $400 million worth of those networks in fact, I wouldn't be surprised if the number far exceeded that if we partner on $400 million worth of networks or more the interest rate will be 13%.

We partner on none it will be 17%.

It will be linear between those numbers.

Ah projects could come from either teams, one city engagement pipeline or from generates subsidiary ubiquity.

And finally for clarity.

We have complete discretion over which projects, we bring to generate at which projects we decide to build ourselves.

I would like to talk about the $600 million valuation. We have noted that we did not include common equity in this financing, which we feel very good about as we expect the common equity of Chi to appreciate significantly over the next year or two.

This is not boastful, but rather simple math.

As like ours are valued within a defined range of dollars per past <unk> dollars per customer.

Given the pace that we are building out 12 months from now we expect to have 50% to 100% more homes passed and more customers.

We expect a corresponding increase in the equity value of <unk>.

That is far in excess of the coupon on the preferred equity with a very comfortable buffer around it.

Finally, the $600 million is a pre money valuation.

There were questions about the tax deductibility of the preferred equity coupon.

The payments on the preferred equity are tax deductible based upon the structure of the security.

I would also like to share some comments about our mature versus growth market disclosure as a reminder, in Q1 of this year, we provided additional disclosure on our fiber business by differentiating between mature and growth market contributions and page two of our Kpis summary.

A mature market is one where the average age of addresses in the market exceeds two years and a growth market is up to two years.

We are using the two year, mark because thats around the time, where we start to see the transition from a high investment phase in that market, where we've had growing EBITDA losses into a period, where cash starts to powerfully swap net.

<unk> network construction spend diminishes and further capex is mostly success base subscriber.

Subscriber penetration continues to increase and our operational costs are low.

You can also reference my initial explanation in the fibers section of the Q1 transcripts.

This quarter after the finance team concluded the heavy lift from the <unk> financing.

We realized we needed to make a couple of adjustments in the way we were reporting this data.

We digested that the matching of revenues and expenses was difficult as we track customers and therefore revenue by neighborhood and we track expenses at <unk>.

Footprint level.

This may be citywide regional or even at the state level.

To best understand this in our North Carolina, and South Denver footprints, we are still building significant numbers of new homes, many of which are in greenfield developments.

Thus have lots of growth related operating expenses associated with it.

We appreciate that investors are interested in seeing both revenue growth and profitability rep.

Revenues eases.

However, going forward, we have to give more thought to how to best let investors see the profitability.

Also the cedar footprint in Colorado, and the simply bits footprints in Arizona, both of which had been acquired by <unk> and includes significant non fiber footprints were reflected in the fiber growth market contribution numbers, but neither is yet active fiber construction, we're looking at how to.

Most accurately capture the revenue and discuss it in the next quarter.

We will look to find more practical ways to enable investors to follow profitability for.

For now I will note that we continue to achieve the lofty targets, we have set for ourselves on take rates.

We are seeing the profitability, we thought possible on a net level.

Leave this with us.

I'd also like to cover a related issue that is a result of the timing of the thing financially.

<unk> heard me say that in my view, the financing took too long probably a quarter too long.

You also know us as responsible operators.

Accordingly in the latter part of the quarter really through the back half of the quarter on an increasing basis, we slowed down the build machines.

We did this for all the reasons that you would want us to.

There were a couple of financial implications of this did come up in questions first and simplest accounts payable was high.

And I will note that this was particularly true with a couple of the very largest vendors in the fiber space.

You know that we pride ourselves on our relationships with all of our stakeholders and it's times like this where the benefits of our focus of relationships comes into play.

It helped us manage payables as we address the financing you will see that number normalize next quarter and we appreciate our partner support.

The second place, where this had an impact and where we had a couple of questions was around Ting Internet revenue.

Although this business continues on its path of robust growth there was a slight deceleration in revenue growth this quarter driven by a couple of factors first in any given quarter, our installs come from both orders generated in the quarter and from existing preorders.

Because of our tactical decision slowdown to build machine, we made fewer addresses serviceable with preorders attached to them the.

The performance of our orders in existing serviceable footprint was completely on pace in fact, it was our best quarter ever.

Point remains that the.

Implication of slowing down the build machines meant less new serviceable addresses and particularly those that included preorders, which meant decelerated revenue growth.

Still significant growth thank.

Thank you for listening in on our Q&A and a reminder, that if you feel that the recorded answers <unk> any direct E. Mail you may receive do not address your questions. Please follow up with us at IR at <unk> Dot com.