Q1 2024 Tucows Inc Earnings Call - Pre-Recorded
After these remarks with relevant links is also available on the company's website.
A little of a live question and answer period. Following these remarks shareholders analysts and prospective investors are invited to submit questions to two cows management.
Please submit questions by E mail to IR at <unk> Dot Com until Thursday may 16th management will either address your questions directly or provide a recorded audio response and transcript will be posted to the Tucows website on Tuesday may 28 at approximately four P M Eastern time.
We would also like to advise that the updated two cows quarterly Kpis summary, which provides key metrics for all of our businesses for the last five quarters as well as for full year, 2022, 2023, and 'twenty 'twenty four year to date and also includes historical financial results is available in the investors section of the web site the <unk>.
Dated Tingled scorecard and Investor presentation are also available.
Now for managements prepared remarks on Thursday may nine two cars issued a news release reporting its financial results for the first quarter ended March 31, 2024 that news release and the company's financial statements are available on the company's website at <unk> Dot com under the investors section. Please.
Please note that the following discussion may include forward looking statements, which are subject to risks and uncertainties that could cause actual results to differ materially. These risk factors are described in detail in the company's documents filed with the SEC specifically the most recent reports on the forms 10-K and 10-Q the company urges you to read its security filings.
For a full description of the risk factors applicable to its business.
I would now like to turn the call over to <unk>, President and Chief Executive Officer Elliot Noss go ahead Elliot.
Thanks Monica.
A comment before our results.
Public markets can still work for capital right now.
Generating businesses.
Two domains like all of our businesses.
Is structured to generate a high volume of subscription based transactions.
After 24 years of operations that business is well established globally generates strong defensible cash flow.
The core segment is low growth, but there are nice opportunities to layer in higher growth.
Stallworth domains business functions within the <unk> family as a driver of the stock price through buybacks made not to support the stock, but rather to invest in existing cash flows at great prices.
It has also been a critical cash generator for building internet businesses with the potential for outsized long term growth it.
It has helped fund the generation of fiber opportunity and early work with wavelength.
The long term capital requirements for multi generational fiber infrastructure are significant and often at odds with the short term view of the markets.
We built resilient future proof of fiber networks, and a standout ISP, but we continue to be heads down on solving the capital needs for further expansion of that business beyond our current resources.
Although there are headwinds there the current interest rate environment fiber remains a generational an outsized opportunity for long term growth that is attracting a lot of capital, though not public capital.
Wave low leverage the existing assets, a traditional strengths of <unk> as well as consolidated cash flows into a nice high margin business with almost unlimited upside potential that is now ramping up its go to market efforts. After a busy year of migrating dishes boost subscriber base.
All of this to say.
We have a clear view of the public markets.
Great Hope for capital light cash generating businesses, we are under no illusions.
Now for our results our first quarter 2024 saw strong year over year performance for revenue gross margin and adjusted EBITDA.
Consolidated net revenue for Q1 2024.
Increased eight 7% year over year to 87 5 billion with strong dollar gains from all three businesses wave LOE benefitted from a fully migrated boost subscriber base.
From another record quarter of subscriber growth and domains from the solid performance for which it is note gross margin in Q1 grew 33% year over year to $18 3 million. The growth came from all three businesses with wave low doing the heaviest lifting adjusted EBITDA for the first quarter of 2020.
Four increased 38, 7% to $4 2 billion. The increase was primarily driven by strong growth of the wave low business.
Behind the positive headline numbers is continued focus on positioning each business for healthy long term growth, while carefully managing operating expenses and paying down our debt.
In Q1, we continued to deleverage the business with $5 $5 million of payments of the syndicated debt.
Now, we'll hear from the heads of each business as well as from our CFO, Dave <unk>, who will cover our financial results in detail.
First speaker as Dave <unk>, Chief Executive Officer, <unk> debates go ahead, <expletive> Thanks, Elliot the first quarter for <unk> domains reflects the consistency of our business. We continue to reliably generate cash while modestly increasing transactions domains under management revenue and margin.
In addition, I will expand on an exciting new joint venture called Orange domains that was announced earlier this year and I will conclude my comments today with some thoughts on this partnership.
In the first quarter of 2024 domains under management and transactions were both up slightly from Q1 of 2023.
We're pleased to see that given flat to declining numbers for the industry, including Verisign.
Revenue for domain services for Q1 was $61 9 million up four 5% from $59 2 million for the same quarter last year.
Gross margin was $18 5 million also up five 8% from the same quarter last year.
Domain services, adjusted EBITDA, which was $10 million in the first quarter was down three 2% from Q1 of last year.
Couple of comments here first we operate critical infrastructure and the scope and scale of attacks on network infrastructure has increased.
This required us to add to our investment in cyber security, which is a step function increase that's not large but in a tight business like this it is a few basis points.
And second there is a timing element to some of our operating expenses this year, which were higher in Q1, we expect these to normalize out over the remainder of the year.
Looking at the results from the segments of our business and our wholesale channel revenue for Q1 was up 4% compared to Q1 of last year and gross margin was up three 2% year over year.
Within the wholesale channel domain services gross margin was up 2% in Q1 compared to the same period last year, while value added services gross margin was up five 9%.
In our retail channel revenue was up seven 2% and gross margin was up 13, 6% year over year.
As I mentioned last quarter. The outsized retail margin continues to be a result of the shift of customers from our wholesale channel to retail which started in Q4 and will positively impact our retail margin numbers over the course of 12 months.
Our combined overall renewal rate at 76% in Q1 across all two counts domains brands remains within our historical range and above the industry average.
I want to close with more information on the March announcement of our partnership and Orange domains.
Orange domains as a joint venture with trusts machines and hero systems that is working to seamlessly connect domain names identity and web III.
This is a long term initiative and we are a minority partner, but we are quite excited about its prospects.
I've spoken previously about the evolution of web three <unk> and our interest in participating in the future where elements of identity and functionality related to it are delivered using web three technology.
You may recall I spoke in 2022 about the funding of unstoppable domains, which is offering domain name registrations and strings like dot crypto and dot NFC.
Although we didn't prefer the particular approach they were taking we did see the financing is evidence that investors are looking to the future and the convergence of domain names and identity.
In this venture we're providing our expertise in DNS, our registry platform and distribution through our reseller channel.
Trust machines and hero are bringing their deep expertise in web III.
It's also worth noting that dawn rules have to couch domains alone is the GM at Orange domains.
Don brings his extensive domain name industry experience and entrepreneurial perspective to the role and we're pleased to have him in the leadership seat for this important initiative.
In terms of what investors will see coming from this project, we expect to launch a new TLD later this year with distribution and support across all of our registrar brands and that we see bridging the traditional domain names space web three and identity.
Now over to Justin Reilly CEO of wavelength.
Thanks, Dave.
A year ago at this time, we were in the midst of orchestrating the fastest telecom migration the industry has seen.
Putting to test a muscle that we have honed over decades and domains in teng.
Sitting here today, we can see what a few quarters of a fully loaded based on the wave loan platform looks like and how our team and our platform.
Can deliver this level of scale and operational rigor, it's a long game and we're just getting started.
<unk> revenues were $9 4 million in Q1 up 28, 6% from Q1, 2023 and down one 6% from Q4.
Gross margin was $9 million up 44, 1% year over year and down one 9% from last quarter.
Adjusted EBITDA for Q1 was $2 8 million up 7% from last quarter and up 732% year over year.
The year over year trends reflect the loading ramp of subscribers onto the <unk> platform, which did not finish in earnest until summer of 2023, the quarterly trends represent impacts from the right sizing ambitious subscriber base across prepaid and postpaid as they've shared publicly they expect 2020 forward to be largely a year of transition.
Unlike its competitors, but identical to all successful modern SaaS businesses, the wave low business relies on subscription fees not professional services or maintenance.
When you align your business model to scale up and down based on your customers' subscriber base.
Were highly reliant on their ability to retain customers and to grow.
I'll remind investors that this is a feature not a bug will win in the long run by being the most customer centric platform in the world winning when our customers win while our competitors focus on in year, one time professional services revenues at the customer's expense also impacting the adjusted EBIT trend quarter over quarter is an increased.
Yet conservative investment in our growth teams.
We expect to continue to invest there throughout the year as we position wave low for the next phase of growth I am proud of our management team's ability to manage cost in the quarter, while simultaneously setting the business up to welcome new telecoms onto the wave low platform on go to market our months long search for a growth leader has concluded and I'm proud to announce that Andy.
<unk> has joined us to lead wave low sales efforts and he brings with him 25 years of experience selling telecom software around the world, including storied 10 years at Amdocs and Oracle He shares our thesis of an industry that needs to move from massive professional services to subscription fees like the rest of the Internet and we're excited to have them hit the ground running as <unk>.
Heard me say last quarter.
2024, it's about building an efficient go to market machine that can deliver against our pipeline and provide a seamless and elegant onboarding experience <unk> famous for since December we've added four new customers to the wave low families. Each of these small to midsize Isps or <unk> is looking to expand their business on our platform that promises.
The flexibility and scalability.
Yet to receive from their current vendors.
And as I've said before although we are battling the long procurement cycles that telecom is famous for and that are even more commonplace with the macro conditions. Today, we have some major tailwind the move towards mobile fixed convergence cloud application of critical systems and the need to accommodate both prepaid and postpaid billing.
All of which benefit wavelengths.
And in terms of the pipeline. The team continued the trend from last quarter of generating new qualified opportunities. These are a mix of <unk> Isps and <unk> that are some for the first time picking their heads up to question. If there is a better way to operate.
<unk> is the answer to that question.
I remind investors that <unk> is our big game, they take a long time to work through the pipeline, but are both the most lucrative opportunities in our space and the ones that would most benefit from a wave low provides as I look at the progress we've made and what we've built in a short time I'm incredibly proud.
But I am equally excited for what's to come with a standout platform newly added go to market resources and our mission driven team. We can be laser focused on our singular goal for 2024 to expand and diversify our customer base via a small, but mighty sales team and in industry and tortillas for.
Outrageous CAC spend.
Thanks for listening.
Now over to Elliot.
Thanks, Justin.
Q1 was another strong quarter for new subscriber additions for Ting with 2700, net new subscribers growing 25, 6% year over year and taking us to over 46000 subscribers in total.
We also had a 22, 5% year over year growth of completed serviceable addresses in Q1.
Taking us to 124000 serviceable addresses.
<unk> owned infrastructure.
We are currently being more conservative with our capital, which has moderated our serviceable address additions this quarter.
Our partner markets are continuing to ramp up their bills with over 70% growth in addresses year over year.
This brings us to over 157000 total serviceable addresses across all thing footprints revenue for Q1 grew 19% year over year to $14 1 million and gross margin grew 11% year over year to $8 7 billion adjusted.
Adjusted EBITDA came in at negative $9 5 million, which has come down from last quarter as I. Previously stated we plan to continue to reduce this number.
Our first quarter fiber Capex is unchanged from Q4 of 2023.
Just over $18 million.
But continues to be lower than our spend a year ago.
I've spoken about partner markets. The last couple of quarters, and how we're leveraging <unk> expertise to improve partner performance. The next step that we're taking is doing installations for our partners. We signed a deal with Memphis to do installs for <unk> and expect to do this in other markets as well it makes.
And larger partner markets, particularly.
This allows us to deliver the same end to end customer experience partner markets as we do in our organic build markets. The general underperformance of construction and partner markets has impacted our results negatively. So this approach really could have huge benefits.
This is both profitable and will make it easier for the customer experience of partner markets to more closely resemble organic markets.
One of the many of you know is at the core of <unk> Asos is commitment to policies with benefit Internet users.
Actively supported open internet initiatives like net neutrality.
One program, we celebrated a significant progress towards equality of access was the affordable connectivity program enacted under the bipartisan infrastructure loss as the largest intranet affordability program in U S history.
For 23 million households.
The difference between having functional home internet or not.
Way too many poor families rely on mobile data by far the most expensive data what could buy.
Unfortunately inertia in the current U S. Congress has led to discontinue funding the program and with the current funding runs out this month. It may cause many of those households to lose their home access entirely.
Given our historical footprint. This will not have a meaningful impact on our results, but all of Ting and all of two cows views digital equity as part of what makes us proud to be doing what we're doing we will continue to agitate for better outcomes.
Now we will hear from <unk> CFO, Dave <unk>, who will discuss our financial results in detail.
Elliot.
Total revenue for the first quarter of 2020 increased eight 7% to $87 5 million compared to $80 4 million for the first quarter of 2023.
When looking across the different businesses Ting had revenue gains of 19% year over year, increasing to $14 1 million in Q1 2024 from $11 9 million in Q1 2023.
Weibo's revenues increased 21% to $9 4 million in Q1 2024 from $7 3 million in Q1 2023.
And the revenue for two custom means for Q1 was up four 5% increasing to $61 9 million or $59 2 million in Q1 2023.
Corporate revenues were essentially unchanged in Q1 2020 for Q1 2023.
Gross profit for network costs for the first quarter increased 14, 5% year over year to $35 7 million $31 1 million in Q1 2023.
As a percentage of revenue gross profit for network cost increased this quarter to 41% compared to 39% for Q1, we're entering spring break down gross profit by business to custom means gross profit for the first quarter of 2024 increased five 8% from Q1 of last year to $18 5 million from $17 5 million.
As a percentage of revenue gross margin for two custom means remained unchanged year over year at 30% for Q1 2024.
<unk> gross profit increased by 45% to 9 million this quarter from $6 3 million for Q1 2023, reflecting the full transition from professional services to subscriber based revenues on a fully migrated boost subscriber base.
As a percentage of revenue gross margin for wave over 96% this quarter, which is up from 86% in Q1 2023.
Increased margin is it a reflection of weibo's interest efficiency from a fully migrated dish subscriber base.
<unk> gross profit for Q1 increased 11, 1% year over year to $8 7 million from $7 9 million for the same period of last year.
As a percentage of revenue gross margin for Ting was 62% in the first quarter of 224 down from 66% in Q1 of last year.
Network expenses for Q1, or $17 3 million up slightly from $71 million for the same period last year.
Network expenses continued to be driven primarily by the depreciation of our expanding fiber network assets.
I do want to remind investors however that our network expenses in Q1 2023 accounted for impairment costs that included write downs of certain fiber capital inventory due to damage and obsolescence the.
The impact of that write down is that the year over year change in network expenses looks lower than it would've been otherwise.
Total operating expenses for the first quarter of 2024 increased 11, 1% to $34 8 million from $31 3 million for the same period last year.
The increase was primarily the result of the following changes.
People costs were up $3 6 million. The majority of the increase came from teens reduction of workforce in February the cost incurred for nonrecurring charges, consisting of severance payments noticed pay employee benefit contributions and outplacement costs.
The majority of the total restructuring charges and cash payments were incurred in Q1.
Third party contractor costs professional fees travel and facility costs are up $1 million and foreign exchange related expenses increased <unk> 4 million related to the revaluation of our foreign denominated monetary assets and liabilities.
There wasn't offset to operating expenses from stock based compensation, which was down <unk> 3 million and lower amortization of $1 2 million in Q1 2024, as we fully amortized intangible assets related to the Melbourne It acquisition in 2016, and the <unk> acquisition in 2017.
As a percentage of revenue year over year operating expenses were relatively stable at just under 40% for Q1 of this year and 39% from the same period last year.
We reported a net loss for the first quarter of 2024, or $26 5 million or a loss of $2 42 per share compared with a net loss of $19 1 million or $1 77 per share for the first quarter towards the train three.
The net loss was primarily the result of a higher effective tax rate and interest expenses, primarily related to the ABS notes, which were issued in may of 2023 higher network depreciation and a slightly higher but expected operating loss as part of the planned investment in Ting.
These were offset by lower impairment charges in Q1 2024. Please.
Please note that our tax expense reflects our geographic mix with taxes payable in Canada on a legacy <unk> business.
Adjusted EBITDA for Q1 was $4 2 million up 39% from $3 million for Q1, 2023, driven by the strong growth of the wavelength business year over year. The total breaks down amongst our three businesses as follows.
Adjusted EBITDA for two custom means was $10 million down three 2% from Q1 of last year adjusted EBITDA for whaler was $2 8 million a nine fold increase from surf one $3 million last year adjusted.
Adjusted EBITDA for Ting was negative $9 5 million compared with a negative $9 3 million in Q1 2023, as we continue to invest in fiber network expansion.
And finally, the corporate category had adjusted EBITDA of <unk> 9 million this quarter down from $1 6 million in Q1 last year. The decrease was primarily driven by a lower contribution from legacy mobile base.
Turning to our balance sheet cash and cash equivalents at the end of Q1 2024 were $66 6 million compared with $92 7 million at the end of the fourth quarter of 2023, and $11 8 million at the end of the first quarter of 2023.
In addition to the $66 6 million, we have $12 8 million classified as restricted cash as part of the avs transaction in 'twenty three.
As a reminder of the $12 8 million of restricted cash $8 8 million will signal trust account for the duration of the ABS notes.
The remaining $4 million reflects the cash collections from our securitized assets and its distributed monthly as interest to noteholders piece of third parties and with the remaining funds coming back to tank.
I would also note that we generated $1 million in interest income this quarter.
Okay.
During the quarter, we had negative $5 $7 million in cash from operations compared with negative $5 3 million in Q1 of last year with the increase in negative cash flow driven primarily by the ongoing investment entertain fiber operations.
We invested $14 3 million in property and equipment, primarily for the continued buildout of the Ting fiber network. In addition to the continued investment in the wavelet platform.
Note that this number reflects the actual cash paid for capital assets in the quarter on a cash flow statement and includes capitalized cash interest.
As of March 31, 2024, our syndicated loan bounds for covenant calculation purposes, with a net 200 million when factoring in letters of credit and cash on hand of just over <unk> 5 million.
Which resulted in a leverage ratio of three to five times.
The fourth consecutive quarter, we have reduced leverage ratio, we've repaid a net $5 $5 million on the balance of the loan this quarter and expect quarterly repayments to continue.
Finally deferred revenue at the end of Q1 was $155 million up from $148 million for the fourth quarter of 2023, and also up from $151 million for the first quarter of 2023.
This was primarily due to the stabilization of dominion's revenues out of the pandemic impacts have normalized.
That concludes my remarks, and I'll now turn it back to Elliot.
Thanks, Dave.
Last week was the annual Berkshire Hathaway annual meeting the first without Charlie bunker.
I always view this meeting as a bit of a bellwether and this year was no exception.
There were two things I took away.
Not laurens views on crypto or AI or his views on interest rates or inflation.
What I paid attention to was a huge and growing cash hoard and Apple is there continued largest holding.
Those may seem like non items, but they tell a story to.
The two points combined to reinforce things I've been talking about it.
That the market is exceedingly concentrated.
And that investors at therefore, the market is.
As more short term than it has ever been.
It is a market that has more dollars chasing fewer companies and likely due to the amount of money concentrating in the largest index funds, we see returns concentrating into the largest stocks.
At the same time, we see the world's greatest value investor piling up cash.
Or and famously says we only swing at pitches, we like and it makes clear that if this market it doesn't see a lot he likes.
Key more than anyone knows about the corrections to come in the private markets as PE VC at commercial real estate work through the overvalued portions of their portfolios.
Process that will take years.
More importantly.
He suffers from the short term focus of markets more than anyone.
It's tough to look for value with the market only reward scale its short term story.
We see these macro trends reinforced that the fiber market, which had two big stories. This quarter digital bridge, making an unsolicited offer for wide opened west and EQT, combining with T mobile to take the Lubos fiber assets and split the infrastructure and ISP similar to our partner markets.
Both items are further reminders that the long term nature of building and operating infrastructure like fiber assets is not rewarded at the public markets.
Fact is clearly viewed negatively.
And the latter item is the first large deal that validates the split between infrastructure and operating assets that we have been pursuing since 2015.
With all of the above reinforces.
Is that the one in arguably successful way to navigate the public markets. If you are not one of the biggest seven companies of the world or are not a stock selling the current story and trading and if possible to maintain multiples.
Is to require low amounts of capital to generate cash on a consistent and ideally growing basis and to use that cash to distribute to your shareholders through either buybacks or dividends.
Following that path does not require analysts it does not require mainstream institutional investors. This is the approach we followed with great success from 2008 through 2014, with our eighth Dutch tenders and plenty of open market buyback activity.
In 2015, we started another cycle of investing in fiber, we have done a great job of building a real business of fiber we have over 125000 organic addresses we have another 200000 to build in our current footprints requiring no more market development and then well over another half a million.
In our existing partner markets, including two large cities in Colorado Springs, and Memphis, but.
But a growing fiber business requires capital.
We have every indication that the public markets are not the right place to source that capital if you look at Ccs.
Market is saying that if we turned over the keys of the Tim fiber business to its lenders for nothing.
That our stock price would likely skyrocket that as market inefficiency inefficiencies create opportunities we have a good sense of what the inefficiencies are and a track record of exploiting them.
We are looking forward to the rest of 2024 and to the long term future and with that I look forward to your written questions and exploring areas that interest you at greater detail again. Please send your questions to IR at <unk> Dot com by May 16th and look for a recorded Q&A audio response, a transcript to this call to be.
Posted to the <unk> website on Tuesday May 28 at approximately four P M Eastern time.
Thank you.
in EBITA for the first quarter of 2024 increased 38.7% to 4.2 million. The increase was primarily driven by strong growth of the wave loan business.
Behind the positive headline numbers is continued focus on positioning each business for healthy long-term growth while carefully managing operating expenses and paying down our debt.
In Q1, we continue to de-leverage the business with $5.5 million in payments on the syndicated debt.
Speaker Change: Now we'll hear from the heads of each business, as well as from our CFO , Dave Singh, who will cover our financial results in detail.
Speaker Change: The first speaker is Dave Warwick, Chief Executive Officer, Two Cow's Domains. Go ahead, Dave. Thanks, Elliot. The first quarter for Two Cow's Domains reflects the consistency of our business.
Speaker Change: We continue to reliably generate cash while modestly increasing transactions, domains under management, revenue, and margin.
Dave Warwick: In addition, I will expand on an exciting new joint venture called Orange Domains that was announced earlier this year, and I will conclude my comments today with some thoughts on this partnership.
In the first quarter of 2024, domains under management and transactions were both up slightly from Q1 of 2023.
Dave Warwick: We're pleased to see that given flat to declining numbers for the industry, including Veracine.
Dave Warwick: Revenue for Domain Services for Q1 was 61.9 million, up 4.5% from 59.2 million for the same quarter last year.
Dave Warwick: Gross margin was 18.5 million, also up 5.8% from the same quarter last year.
Dave Warwick: Domain Services adjusted EBITO, which was 10 million in the first quarter, was down 3.2% from Q1 of last year.
Speaker Change: A couple comments here. First, we operate critical infrastructure and the scope and scale of attacks on network infrastructure has increased.
Speaker Change: This required us to add to our investment in cybersecurity, which is a step function increase that's not large, but in a tight business like this, it is a few basis points.
Speaker Change: And second, there is a timing element to some of our operating expenses this year, which were higher in Q1. We expect these to normalize out over the remainder of the year.
Speaker Change: Looking at the results from the segments of our business, in our wholesale channel, revenue for Q1 was up 4% compared to Q1 of last year, and gross margin was up 3.2% year over year.
Speaker Change: Within the wholesale channel, domain services gross margin was up 2% in Q1 compared to the same period last year, while value added services gross margin was up 5.9%.
Speaker Change: In our retail channel, revenue was up 7.2% and gross margin was up 13.6% year over year.
Speaker Change: As I mentioned last quarter, the outsized retail margin continues to be a result of the shift of customers from our wholesale channel to retail, which started in Q4 and will positively impact retail margin numbers over the course of 12 months.
Speaker Change: Our combined overall renewal rate at 76% in Q1 across all two cows' domains brands remains within our historical range and above the industry average.
Speaker Change: I want to close with more information on the March announcement of our partnership in Orange domains.
Speaker Change: Orange Domains is a joint venture with Trust Machines and Hero Systems that is working to seamlessly connect domain names, identity, and Web3. This is a long-term initiative and we are a minority partner, but we are quite excited about its prospects.
Speaker Change: I've spoken previously about the evolution of Web3 and our interest in participating in a future where elements of identity and functionality related to it are delivered using Web3 technology.
Speaker Change: You may recall I spoke in 2022 about the funding of unstoppable domains, which is offering domain name registrations in strings like dot crypto and dot NFT.
Speaker Change: although we didn't prefer the particular approach they were taking we did see the financing as evidence that investors are looking to the future and the convergence of domain names and identity
Speaker Change: In this venture, we're providing our expertise in DNS, our registry platform, and distribution through our reseller channel.
Speaker Change: Trust machines and Hero are bringing their deep expertise in Web 3.
Speaker Change: It's also worth noting that Don Ruiz, a two-cows domains alum, is the GM at Orange Domains.
Speaker Change: Don brings his extensive domain name industry experience and entrepreneurial perspective to the role, and we're pleased to have him in the leadership seat for this important initiative.
Speaker Change: In terms of what investors will see coming from this project, we expect to launch a new TLD later this year with distribution and support across all of our registrar brands and that we see bridging the traditional domain name space, Web 3, and identity.
Speaker Change: Now, over to Justin Riley, CEO of Wave Law.
Justin Riley: Thanks, Dave.
Justin Riley: A year ago at this time, we were in the midst of orchestrating the fastest telecom migration the industry is seen.
Justin Riley: Putting to test a muscle that we have honed over decades and domains in Ting,
Justin Riley: Sitting here today, we can see what a few quarters of a fully loaded base on the Wave Low platform looks like and how our team and our platform.
Justin Riley: can deliver this level of scale and operational rigor. It's a long game and we're just getting started.
Justin Riley: WaveLow's revenues were 9.4 million in Q1, up 28.6% from Q1, 2023, and down 1.6% from Q4.
Justin Riley: Gross margin was 9 million, up 44.1% year-over-year and down 1.9% from last quarter.
Justin Riley: Adjusted EBITA for Q1 was 2.8 million, up 7% from last quarter, and up 732% year every year.
Justin Riley: The year-over-year trends reflect the loading ramp of subscribers onto the Wave-low platform, which did not finish in earnest until summer of 2023.
Justin Riley: The quarterly trends represent impacts from the right-sizing on Dishes subscriber base across prepaid and postpaid. As they've shared publicly, they expect 2024 to be largely a year of transition. Unlike its competitors, but identical to all successful modern SaaS businesses.
Justin Riley: The WaveLow business relies on subscription fees, not professional services or maintenance.
Justin Riley: When you align your business model to scale up and down based on your customer's subscriber base,
Justin Riley: you are highly reliant on their ability to retain customers and to grow.
Justin Riley: I'll remind investors that this is a feature, not a bug. We'll win in the long run by being the most customer-centric platform in the world, winning when our customers win, while our competitors focus on in-year, one-time professional services revenues at their customer's expense.
Justin Riley: Also impacting the adjusted EBITA trend quarter over quarter is an increased yet conservative investment in our growth teams.
Justin Riley: We expect to continue to invest there throughout the year as we position Wave Low for the next phase of growth. I am proud of our management team's ability to manage cost in the quarter while simultaneously setting the business up to welcome new telecoms onto the Wave Low platform.
Justin Riley: On GoTo Market, our months-long search for a growth leader has concluded, and I'm proud to announce that Andy UA has joined us to lead Wavelow sales efforts.
Justin Riley: Andy brings with him 25 years of experience selling telecom software around the world, including storied 10 years at Amdocs and Oracle. He shares our thesis of an industry that needs to move from massive professional services to subscription fees like the rest of the internet, and we're excited to have him hit the ground running.
Justin Riley: As you've heard me say last quarter,
Justin Riley: 2024 is about building an efficient go-to-market machine that can deliver against our pipeline and provide the seamless and elegant onboarding experience two cows is famous for.
Justin Riley: Since December , we've added four new customers to the WaveLow family.
Justin Riley: Each of these small to mid-sized ISPs or MV&Os is looking to expand their business on a platform that promises the flexibility and scalability that they've yet to receive from their current vendors.
Justin Riley: And, as I've said before, although we are battling the long procurement cycles that telecom is famous for,
Justin Riley: and that are even more commonplace with the macro conditions today, we have some major tailwinds. The move towards mobile fixed convergence, cloudification of critical systems, and the need to accommodate both prepaid and postpaid billing, all of which benefit wavelop.
Justin Riley: And in terms of the pipeline, the team continued the trend from last quarter of generating new qualified opportunities. These are a mix of MV&Os, ISPs, and MNOs that are, some for the first time, picking their heads up to question if there is a better way to operate. Wave low is the answer to that question.
Justin Riley: I remind investors that M&Os are big game. They take a long time to work through the pipeline, but are both the most lucrative opportunities in our space and the ones that would most benefit from what Wave Low provides. As I look at the progress we've made and what we've built in a short time, I'm incredibly proud.
Justin Riley: But I'm equally excited for what's to come.
Justin Riley: With a standout platform, newly added go-to-market resources,
Justin Riley: and a mission-driven team, we can be laser-focused on our singular goal for 2024.
Justin Riley: to expand and diversify our customer base via a small but mighty sales team and an industry notorious for outrageous CAC spend.
Justin Riley: Thanks for listening. Now over to Elliot.
Elliot: Thanks, Justin.
Elliot: Q1 was another strong quarter for new subscriber additions for Ting with 2,700 net new subscribers growing 25.6% year over year and taking us to over 46,000 subscribers in total.
Elliot: We also had a 22.5% year-over-year growth of completed serviceable addresses in Q1, taking us to 124,000 serviceable addresses for Ting-owned infrastructure.
Elliot: We are currently being more conservative with our capital, which has moderated our serviceable address additions this quarter.
Elliot: Our partner markets are continuing to ramp up their bills with over 70% growth in addresses year over year.
Elliot: This brings us to over 157,000 total serviceable addresses across all Ting footprints.
Elliot: Revenue for Q1 grew 19% year over year to 14.1 million, and gross margin grew 11% year over year to 8.7 million.
Elliot: adjusted epita came in at negative 9.5 million, which has come down from last quarter. As I have previously stated, we plan to continue to reduce this number.
Elliot: Our first quarter fiber CAPEX is unchanged from Q4 of 2023 at just over $18 million, but continues to be lower than our spends a year ago.
Elliot: I've spoken about partner markets the last couple of quarters and how we're leveraging Ting's expertise to improve partner performance.
Elliot: The next step that we're taking is doing installations for our partners. We've signed a deal in Memphis to do installs for Meridium and expect to do this in other markets as well. It makes sense in larger partner markets particularly.
Elliot: This allows us to deliver the same end-to-end customer experience in partner markets as we do in our organic built markets.
Elliot: The general underperformance of construction in partner markets has impacted our results negatively. So this approach really could have huge benefits.
Elliot: This is both profitable and will make it easier for the customer experience in partner markets to more closely resemble organic markets. It's a win-win.
Elliot: One thing many of you know is that the core of Two Cow's ethos is commitment to policies that benefit Internet users.
Elliot: We've actively supported open internet initiatives like net neutrality.
Elliot: One program we celebrated as significant progress towards equality of access was the Affordable Connectivity Program, enacted under the bipartisan infrastructure law as the largest Internet affordability program in U.S. history.
Elliot: For 23 million households, ACP meant the difference between having functional home internet or not. Way too many poor families rely on mobile data, by far the most expensive data one can buy.
Elliot: Unfortunately, inertia in the current U.S. Congress has led to discontinue funding the program. And when the current funding runs out this month, it may cause many of those households to lose their home access entirely.
Elliot: Given our historical footprint, this will not have a meaningful impact on our results, but all of Ting and all of two cows views digital equity as part of what makes us proud to be doing what we are doing. We will continue to agitate for better outcomes.
Elliot: Now we'll hear from Tukau CFO , Dave Singh, who will discuss our financial results in detail.
Dave Singh: Thanks, Elliot.
Dave Singh: Total revenue for the first quarter of 2024 increased 8.7% to 87.5 million compared to 80.4 million for the first quarter of 2023.
Dave Singh: When looking across the different businesses, Ting had revenue gains of 19% year-over-year, increasing to 14.1 million in Q1, 2024, from 11.9 million in Q1, 2023.
Dave Singh: Weibo's revenues increased 29% to $9.4 million in Q1 2024 from $7.3 million in Q1 2023.
Dave Singh: And the revenue for two-cous domains for Q1 was up 4.5% increasing to 61.9 million or 59.2 million in Q1 in 2022.
Dave Singh: Corporate revenues were essentially unchanged in Q1 2024 from Q1, 2023.
Dave Singh: Gross profit for network costs for the first quarter increased 14.5% year over year to 35.7 million, 31.1 million in Q1,223.
Dave Singh: As the percentage of revenue, gross profit for network costs increased this quarter to 41% compared to 39% for Q12023.
Dave Singh: Breaking on gross profit by business,
Dave Singh: 2000's gross profit for the first quarter of 2024 increased 5.8% from Q1 of last year to 18.5 million from 17.5 million.
Dave Singh: As a percentage of revenue, gross margin for 2,000 domains remain unchanged year-over-year at 30% for Q1, 2024.
Dave Singh: Waiveless gross profit increased by 44% to 9 million this quarter from 6.3 million for Q1, 2023, reflecting the full transition from professional services to subscriber-based revenues on the fully migrated boost subscriber base.
Dave Singh: As a percentage of revenue, gross margin for wave low was 96% this quarter, which is up from 86% in Q1, 2023.
Dave Singh: The increased margin is a reflection of Waivel's increased efficiency from the fully migrated DISH subscriber base.
Dave Singh: Ting gross profit for Q1 increased 11.1% year-over-year to 8.7 million from 7.9 million for the same period of last year.
Dave Singh: As a percentage of revenue, gross margin for Ting was 62% in the first quarter of 2024, down from 66% in Q1 of last year.
Dave Singh: Network expenses for Q1, or 17.3 million, up slightly from 17.1 million for the same period last year. Network expenses continue to be driven primarily by the depreciation of our expanding fiber network assets.
Dave Singh: I do want to remind investors, however, that our network expenses in Q1, 2020, and account for impairment costs that included write downs of certain fiber capital inventory due to damage and obsolescence.
Dave Singh: The impact of that write down is that the year-over-year change in network expenses looks lower than it would have been otherwise.
Dave Singh: Total operating expenses for the first quarter of 2024 increased 11.1% to 34.8 million from 31.3 million for the same period last year.
Dave Singh: The increase is primarily the result of the following changes.
Dave Singh: People costs were up 3.6 million. The majority of the increase came from Ting's reduction in workforce in February . The costs incurred were non-recurring charges consisting of severance payments, notice pay, employee benefit contributions, and outplacement costs.
Dave Singh: The majority of the total restructuring charges and cash payments were incurred in Q1.
Dave Singh: Third-party contractor costs, professional fees, travel, and facility costs were up $1 million and foreign exchange-related expenses increased $0.4 million related to the revaluation of our foreign-denominated monetary assets and liabilities.
Dave Singh: There was an offset to operating expenses from stock-based compensation, which was down 0.3 million, and lower amortization of 1.2 million in Q1, 2024, as we fully amortizing tangible assets related to the Melbourne IT acquisition in 2016 and the Enum acquisition in 2017.
Dave Singh: As a percentage of revenue, year-over-year operating expenses were relatively stable at just under 40% for Q1 of this year and 39% for the same period last year.
Dave Singh: We reported a net loss for the first quarter of 2024 or 26.5 million or a loss of $2.42 per share compared with a net loss of $19.1 million or $1.77 per share for the first quarter of 2023.
Dave Singh: The net loss is primarily the result of a higher effective tax rate and interest expenses primarily related to the ABS notes, which were issued in May of 2023, higher network depreciation, and a slightly higher but expected operating loss as part of the plan investment in Ting.
Dave Singh: These were offset by lower impairment charges in Q1 20204.
Dave Singh: Please note that our tax expense reflects our geographic mix with taxes available in Canada on our legacy domains business.
Dave Singh: A justi Dibodaf for Q1 was 4.2 million, up 39% from 3 million for Q1, 2022, driven by the strong growth of the wavelow business, year or year. The total breaks down amongst our three businesses as follows.
Dave Singh: Adjustee to be redoubt for two cost domains was 10 million down 3.2% from Q1 in last year.
Dave Singh: Adjustee redouffer wave low was 2.8 million and ninefold increase from 0.3 million last year. Adjustee read off for Ting was negative 9.5 million compared with the negative 9.3 million in Q1, 202023, as we continue to invest in Ting's fiber network expansion.
Dave Singh: And finally, the corporate category had a justity of a DA of 0.9 million this quarter, down from 1.6 million in Q1 last year. The decrease is primarily driven by a lower contribution from the legacy mobile base.
Dave Singh: Turning to our balance sheet, cash and cash equivalents at the end of Q1, 2024, or 66.6 million, compared with 92.7 million at the end of the fourth quarter of 2023 and 11.8 million at the end of the first quarter of 2023.
Dave Singh: In addition to the 66.6 million, we have 12.8 million classified as restricted cash as part of the ABS transaction in 20203.
Dave Singh: As a reminder of the $12.8 million of restricted cash, $8.8 million will sit in a trust account for the duration of the ABS notes.
Dave Singh: The remaining 4 million reflects the cash collections from the securitized assets and is distributed monthly as interest to note holders, fees to third parties, and with the remaining funds coming back to Ting.
Dave Singh: I will also note that we generated one million in interest income this quarter.
Dave Singh: During the quarter we had negative 5.7 million in cashment operations compared with negative 5.3 million in Q1 in last year, with the increase in negative cash flow driven primarily by the ongoing investment into Ting Fibre operations.
Dave Singh: We invested 14.3 million in property and equipment primarily for the continued build-out of the Ting Fiber Network, in addition to the continued investment in the wavelow platform.
Dave Singh: Note that this number reflects the actual cash paid for capital assets in the quarter on a cash statement and includes capitalized cash interest.
Dave Singh: As of March 31st, 2024, our syndicated loan bounds for covenant calculation purposes was a net $200 million when factoring in letters or credit and cash on hand of up to $7.5 million, which resulted in the leverage ratio of 3.25 times.
Dave Singh: This is the fourth consecutive quarter we have reduced the leverage ratio. We repaid a net 5.5 million on the balance of the loan this quarter and expect quarterly repayments to continue.
Dave Singh: Finally, deferred revenue at the end of Q1 was $155 million, up from $148 million for the fourth quarter of 2023, and also up from $151 million for the first quarter of 20203.
Dave Singh: This is primarily due to the stabilization of domains revenues now that the pandemic impacts have normalized.
Dave Singh: That concludes my remarks and I'll turn it back to Elliot.
Elliot: Thanks, Dave. Last week was the annual Berkshire Hathaway annual meeting, the first without Charlie Munger.
Elliot: I always view this meeting as a bit of a bellwether, and this year was no exception. There were two things I took away.
Elliot: Not Warren's views on crypto or AI, nor his views on interest rates or inflation.
Elliot: What I paid attention to was a huge and growing cash hoard and Apple as their continued largest holdings.
Elliot: Those may seem like non-items, but they tell a story. The two points combine to reinforce things I've been talking about.
Elliot: that the market is exceedingly concentrated and that investors, and therefore the market, is more short term than it has ever been.
Elliot: It is a market that has more dollars chasing fewer companies and likely due to the amount of money concentrating in the largest index funds. We see returns concentrating into the largest stocks.
Elliot: At the same time, we see the world's greatest value investor piling up cash. Warren famously says, we only swing at pitches we like. And he makes clear that in this market, he doesn't see a lot he likes.
Elliot: He, more than anyone, knows about the corrections to come in the private markets as PE, VC, and commercial real estate work through the overvalued portions of their portfolios in a process that will take years.
Elliot: More importantly,
Elliot: He suffers from the short-term focus of markets more than anyone. It is tough to look for value when the market only rewards scale and short-term story.
Elliot: We see these macro trends reinforced to the fiber market, which had two big stories this quarter.
Elliot: Digital Bridge making an unsolicited offer for Wide Open West, an EQT combining with T-Mobile to take the Lumo's fiber assets and split them into infrastructure and ISP similar to our partner markets.
Elliot: Both items are further reminders that the long-term nature of building and operating infrastructure like fiber assets is not rewarded to the public markets.
Elliot: In fact, this clearly viewed negatively.
Elliot: And the latter item is the first large deal that validates the split between infrastructure and operating assets that we have been pursuing since 2015.
Elliot: what all of the above reinforces
Elliot: is that the one, an arguably successful way to navigate the public markets, if you are not one of the biggest seven companies in the world, or are not a stock selling the current story and trading it impossible to maintain multiples,
Elliot: is to require low amounts of capital to generate cash on a consistent and ideally growing basis and to use that cash to distribute to your shareholders through either buybacks or dividends.
Elliot: Following that path does not require analysts. It does not require mainstream institutional investors. This is the approach we followed with great success from 2008 through 2014 with our eight Dutch tenders and plenty of open market buyback activity.
Elliot: In 2015, we started another cycle of investing in Fiverr. We've done a great job of building a real business at Fiverr.
Elliot: We have over 125,000 organic addresses. We have another 200,000 to build in our current footprints requiring no more market development. And then well over another half a million in our existing partner markets, including two large cities in Colorado Springs and Memphis.
Elliot: But a growing fiber business requires capital.
Elliot: We have every indication that the public markets are not the right place to source that capital. If you look at TCX, the market is saying that if we turned over the keys of the Ting Fibre business to its lenders for nothing,
Elliot: that our stock price would likely skyrocket. That is market inefficiency. Inefficiencies create opportunities. We have a good sense of what the inefficiencies are and a track record of exploiting them.
Elliot: We are looking forward to the rest of 2024 and to the long-term future. And with that, I look forward to your written questions and exploring areas that interest you at greater detail. Again, please send your questions to IR at 2cows.com by May 16th.
Elliot: and look for our recorded Q&A audio response and transcript to this call to be posted to the Two Cow's website on Tuesday, May 28th at approximately 4 p.m. Easter time.
Speaker Change: Thank you.