Q3 2022 Tucows Inc Investor Q&A Recording

Convenience. This audio file is also available as a transcript in the investors section of our website along with our Q3 2022 financial results and updated reports I would also like to remind investors that if he would like to receive our quarterly reports and Q&A via E. Mail. Please make the request to our IR at <unk> Dot com email. 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 in the Companys documents filed with the SEC specifically the most recent reports on the forms 10-Q and 10-K the company urges you to read it.

Speaker 1: The second question on waveload was whether the economics are the same for us if a mobile customer is postpaid or prepaid. wavelolow would treat those subscribers the same in terms of workflow and we are paid the same for both. I will note that churn is higher on prepaid than postpaid, which byay extension would make postpaid better customers for wavelolow as well as for D.

Security filings for a full description of the risk factors applicable for its business. Today's commentary includes responses to questions submitted to US following the prerecorded management remarks regarding the quarter and outlook for the company. We are grouping similar questions into categories that we feel are addressing common queries. If your questions reached a certain threshold.

Speaker 1: However, from a product perspective,

Speaker 1: both are important offerings for dish to have in the market and both are valuable to Wavelo's growth.

Speaker 1: With Ting, I'll start with a question we had on take rates. Specifically, we had an update to the Ting fiber market study in Holly Springs done in February 2021. You may recall from that market study that to balance out the different ages of neighborhoods, we generate an average age to map to the take rate. Interestingly, in Holly Springs, due to the ongoing greenfield development there,

Or volume, we May ask you to schedule a call instead to ensure we can address the full body of your questions and if you feel that the recorded questions Andrew or any direct email you may receive do not address the meat of your questions. Please let US know go ahead Elliot. Thank you Monica and welcome to our Q&A for our third quarter 2022.

Speaker 1: We're still constructing in brand new neighborhoods today. The average age is three point eight years in holy Springs and the overall take rate is just over 45%.

Financial results, we had a couple of questions that came in on domains.

Domain price increases we referred to in the Q3 management remarks are specifically for our resellers buying domains in euros, where the devalued euro in relation to our U S. Dollar based purchase costs for those domains was impacting our margin increases were implemented September one of this year and another.

Speaker 1: So we continue to see the take rate exceed the trajectory we've set of 50% after five years.

Speaker 1: We see similar results across our markets, with the only exceptions coming in some of the partner markets due to various elements of partner performmancewe again had questions on Ting's cost per past address and whether our previously stated assumption of roughly one teen hundred per home was still accurate. First yes, it's still accurate. I note that this question has come up again and again over the years. I know our investors are both good at math and do their homework. They are not lazy.

Will take effect on December one of this year.

To remind everyone. These transactions are paid upfront, but booked as deferred revenues and recognized over time.

I will note that the decline in the euro has been particularly sharp and fast.

It has been difficult to catch up with price increases.

We were also asked but incremental costs for domains between the gross profit line and adjusted EBITDA. Those costs include things like network expenses tactical operations, SG&A and acquisition and transition costs last quarter. Most of those were in line with the previous year with the exception of <unk>.

Speaker 1: Thus, while I will summarize our answer again, we will also provide a deeper dive in a video before our next quarterly report. Hopefully, that will provide both operational and mathematical detail that will help.

Speaker 1: The summary response is again that much of the CapEx is front-loaded. Huge portions of the bill need take place before an address is serviceable, making any sort of CapEx in period divided by new addresses in period calculation misleading. While the bill pacees is growingagain. We will go into much more detail in the coming video.

G&A, which have increased primarily from our acquisition of <unk> registry platform and inflation related impacts including increased wages. It was also a one time true up expense item that will be lower on a quarterly basis going forward.

Do want to reiterate what we said in the initial management remarks, we've been in the domains business over 20 years, and we recognize growth will be incremental and operational efficiency is key.

Speaker 1: And while we reiterate that we have seen some growth in costs due primarily to increases in labor rates, we are generally still seeing cost per pass in the $1500 range.

We have delivered consistent EBITDA from the domains business by being competitive and tightly managing the business and the current economic.

Speaker 1: With TCX, we had a request to provide some context on the differences between the $23.7 million dollar fibre capex, the $36 million in 2COW's capex increase on the balance sheet, and the $47 million in capital expenditures presented in the statement of cash flows.

Economic environment that becomes more of a challenge and we are vigilantly reviewing all expenses and plan to streamline as much as as prudent to ensure that we continue to deliver consistent cash generation, while still developing new revenue opportunities for our domains business.

Speaker 1: First, the difference between $23.7 million and $36 million is mainly capital inventory, such as spools of fibre, underground vaults and network electronics that we're acquiring ahead of fibre network construction. We don't count that as consumed fibre capex until placed into the ground or used in the network.

The first question on Waveland was again, asking if we were working with dish beyond their boost customer base <unk> is working with dish wireless which houses a number of brands, including their largest customer base brand boost in addition to Ting and Republic wireless wave low supports customers of dishes MMO.

Speaker 1: In 2022, we have been building up that capital inventory balance, given the ongoing supply chain uncertainty, and to ensure we have sufficient raw materials for continuous network construction. Also in the 36 million is capitalized internal and external software related labor in both wave low and domains, and to a lesser extent, servers and networking equipment in our data centers.

Of their <unk> network as well as <unk> customers on the AT&T and T mobile networks.

<unk> wave Lowes platform supported dishes first round of <unk> launches notice project Genesis earlier. This year, we will continue to support this as expansion into the mobile space as the network grows their brands evolved the <unk>.

Second question on wavelength was whether the economics are the same for us if a mobile customer is postpaid or prepaid wave low would treat those subscribers. The same in terms of workflow and we're paid the same for both I will note that churn is higher on prepaid to postpaid, which by extension would make postpaid better customers for wavelength.

Speaker 1: The capitalized labour in wave-low is roughly $5 million per quarter.

Speaker 1: The difference between the $36 million and $47 million is a cash difference.

Speaker 1: US GAAP requires in the statement of cash flows to present actual cash paid for capital assets in a quarter as opposed to showing it on a cruel basis.

As well as for dish. However from a product perspective, both are important offerings for dish to have in the market and both are valuable to waive those growth.

Speaker 1: In late Q2, we deferred some capital-related vendor payments into Q3, and that, added to our regular Q3 payments, makes up the $47 million on the Q3 cash flow statement.

With <unk> I'll start with the question we had on take rates, specifically, we had an update to the <unk> fiber market study in Holly Springs that in February 2021, you may recall from that market study that to balance out the different ages of neighborhoods. We generated an average age to map to the take rate interestingly.

Speaker 1: The 36 million is the increase in the gross book value of all capital assets of the company based on an accrual basis.

Speaker 1: So the cash catch-up was approximately $11 million. Thus, this should not repeat in any way.

Speaker 1: We also received a couple of questions on one of the covenants in our 2021 Credit Agreement. Specifically, the questions asked how we would ensure our debt to EBITDA ratio would stay above the minimum requirement on a rolling 12 month basis.

And Holly Springs due to the ongoing Greenfield development, there, we're still constructing in brand new neighborhoods.

The average age is three eight years in Holly Springs, and the overall take rate is just over 45%. So we continue to see the take rate exceed the trajectory we've set of 50% after five years.

Speaker 1: First, I want to ensure that investors know that I am deeply aware of this.

Speaker 1: I also well understand.

Speaker 1: that this is something that investors will worry about until it is addressed.

We see similar results across our markets with the only exceptions coming in some of the partner markets due to various elements of partner performance.

Speaker 1: I know you all understand.

Speaker 1: that efforts to address it cannot be discussed until they are complete. All I can do is share that our new business structure

We again had questions on things cost per past address and whether our previously stated assumption of roughly 500 per home was still accurate.

Speaker 1: provides additional flexibility to pursue a range of solutions.

Speaker 1: Comfortable this will be resolved. I do not intend to be cavalier with a business that has taken a corner century to bill and I also expect and appreciate that shareholders will have concern until it is addressed.

Yes, its still accurate.

That this question has come up again and again over the years I know our investors are both good at math and do their homework. They are not lazy, thus, while I will summarize our answer again, we will also provide a deeper dive into video before our next quarterly report hopefully that will provide both operational.

Speaker 1: We have work in front of us in terms of capital structure on both the Ting and non-Ting or existing sides of the business.

Speaker 1: We have never had more opportunities in front of us across all three businesses, and our current stock price provides us with a significant additional opportunity.

And mathematical detail that will help the.

The summary response is again.

Much of the Capex is frontloaded huge portions of the bill need take place before and address a serviceable, making any sort of capex in period divided by new addresses in period calculation misleading, while the billed patients growing.

Speaker 1: This economic correction is different. What is different is that, unlike all of the others that I have lived through 1987, two point zero zero two million and 8- this one comes with a lot of opportunity for growth in those previous periods.

Again, we will go into much more detail in the coming video.

Speaker 1: All the trends went in one direction.

And while we reiterate that we have seen some growth in costs due primarily to increases in labor rates were generally still seeing cost per pass and the 500 dollar range.

Speaker 1: This time it is more complicated.

Speaker 1: We approached 2023 clear-eyed and with a lot of excitement.

Speaker 1: and with a lot of work to do.

Speaker 1: As a reminder, you can find my initial discussions on guidance for this year in the Q4 2021 management remarks and the Q4 2021 Q&A. I will be providing guidance for 2023 in next quarter's management remarks.

With Tcs, we had a request to provide some context on the differences between the $23 7 million fiber capex to $36 million in two cows capex increase of the balance sheet and the $47 million and capital expenditures presented in the statement of cash flows first.

Speaker 1: initial discussions on guidance for this year in the Q4 2021 management remarks and the Q4 2021 Q&A. I will be providing guidance for 2023 in next quarter's management remarks. Thank you.

The difference between $23 7 million a $36 million is mainly capital inventory such as spools of fiber underground vaults and network electronics that we're acquiring ahead of fiber network construction.

We don't count that as consumed fiber capex until placed into the ground are used in the network. In 2022, we have been building up that capital inventory balance given the ongoing supply chain uncertainty.

To ensure we have sufficient raw materials for continuous network construction also in the $36 million is capitalized internal and external software related labor in both way low end domains and to a lesser extent servers and networking equipment in our data centers the capitalized labor and wavelength is roughly five.

<unk> per quarter.

The difference between the $36 million and $47 million is the cash difference U S. GAAP requires in the statement of cash flows to present actual cash paid for capital assets in the quarter as opposed to showing it on an accrual basis in late Q2, we deferred some capital related vendor payments into Q3 and that added.

To a regular Q3 payments makes up to $47 million of the Q3 cash flow statement. The $36 million is the increase in the gross book value of all capital assets of the company based on accrual basis. So the cash Ketchum was approximately $11 million.

Thus this should not repeat and anyway.

We also received a couple of questions on one of the covenants in our 2021 credit agreement specifically the questions asked how we would ensure our debt to EBITDA ratio, which stay above the minimum requirements on a rolling 12 month basis.

First I wanted to ensure that investors know that I have deeply aware of this I also well understand that this is something that investors will worry about until it is addressed.

I know you all understand that efforts to address it cannot be discussed until they are complete all I can do is share that our new business structure provides additional flexibility to pursue a range of solutions.

Comfortable this will be resolved.

I do not intend to be Cavalier with a business that has taken a quarter century to bill and I also expect and appreciate that shareholders will have concern until it is addressed.

We have work in front of us in terms of capital structure on both the team and non thing or exiting sides of the business. We have never had more opportunities in front of us across all three businesses in our current stock price provides us with a significant additional opportunity.

<unk> economic correction is different.

Is different is that unlike all of the others that I have lived through 1987 2000 2008. This one comes with a lot of opportunity for growth in those previous periods. All the trends went in one direction.

At this time it is more complicated we approach 2023 clear eyed and with a lot of excitement.

And with a lot of work to do.

As a reminder, you can find my initial discussions on guidance for this year in the Q4 2021 management remarks, and the Q4 2021, Q&A I will be providing guidance for 2023 and next quarter's management remarks. Thank you.