Q3 2024 Tucows Inc Earnings Call - Pre-Recorded
Transcript to these remarks with relevant links is also available on the company's website.
Monica: For the company, a Tucows generated transcript of these remarks with relevant links is also available on the company's website. We will begin with opening remarks from Elliot Noss, President and CEO of Tucows and Ting, followed by business remarks from David Woroch, CEO of Tucows Domains, Justin Reilly, CEO of Wavelo, Elliot Noss on Ting, Ivan Ivanov, Tucows new CFO, who will discuss our financial results in detail, and finish with closing remarks from Elliot Noss. In lieu of the live question and answer period following these remarks, shareholders, analysts, and prospective investors are invited to submit questions to Tucows management. Please submit questions by email to ir@tucows.com until Thursday, 14 November. management will either address your questions directly or provide a recorded audio response and transcript that will be posted to the Tucows website on Tuesday, 26 November at approximately 5:00 PM Eastern Time.
We will begin with opening remarks from Elliot Noss, President and CEO of 2010, followed by business remarks from Dave work CEO of Tucows Demeans, Justin Reilly CEO of Wavelets Elliot Noss on Ting, Ivan Ivan off 2000, New CFO, who will discuss our financial results in detail and <unk>.
Finish with closing remarks from Elliot Noss.
In lieu 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 November 14th.
Management will either address your questions directly or provide a recorded audio response and transcript that will be posted to the tucows website on Tuesday November 26 at approximately five 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 seven quarters as well as per full years 2022 2023 and 'twenty 'twenty four year to date and also includes historical financial results is available in the investors section.
Monica: We would also like to advise that the updated Tucows quarterly KPI summary, which provides key metrics for all of our businesses for the last 7 quarters, as well as for full years 2022, 2023, and 2024 year to date, and also includes historical financial results, is available in the Investors section of the website. The updated Ting Build Scorecard and investor presentation are also available. Now from management's prepared remarks. On Thursday, 7 November, Tucows issued a news release reporting its financial results for Q3 ended 30 September 2024. That news release and the company's financial statements are available on the company's website at tucows.com under the Investors section. 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.
<unk> of the website the updated Ting build scorecard and Investor presentation are also available.
Now for managements prepared remarks on Thursday November 7th two cows issued a news release reporting its financial results for the third quarter ended September 30th 2024 that news release and the company's financial statements are available on the Companys website at <unk> Dot com under the investors section.
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.
Monica: 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 Tucows President and Chief Executive Officer, Elliot Noss. Go ahead, Elliot.
Speaker Change: I would now like to turn the call over to <unk>, President and Chief Executive Officer Elliot Noss.
Elliot Noss: Go ahead Elliot.
Elliot Noss: Thanks Monica.
Speaker Change: Last week, we announced major changes to the chicken business.
Elliot Noss: Thanks, Monica. Last week, we announced major changes to the Ting business. We laid off over 40% of the Ting workforce, mostly those involved directly or in support of market expansion and new plant construction. We have also streamlined other functions within the Ting and Tucows businesses, which had impacts within Tucows Shared Services at the parent level. This was the most prudent way to move Ting to a sustainable cost structure with positive and growing adjusted EBITDA. The plan removes around $22 million in cash operating expenses from the business with the bulk of those reductions in people costs. It was done following extensive exploration of strategic and partnership options for the Ting business to secure equity capital to continue network expansion. I note that we were unsuccessful in finding a long-term common equity partner.
Speaker Change: We laid off over 40% of the taking workforce.
Speaker Change: Mostly those involved directly in support of market expansion and new plant construction.
Speaker Change: We have also streamlined other functions within the team and <unk> businesses.
Which had impacts within shared services at the parent level.
Speaker Change: This was the most prudent way to move to a sustainable cost structure with positive and growing adjusted EBITDA. The.
Speaker Change: The plan removes around $22 million in cash operating expenses from the business.
Speaker Change: With the bulk of those reductions in people costs.
Speaker Change: It was done following extensive exploration of strategic and partnership options for the <unk> business to secure equity capital to continued network expansion I note that we were unsuccessful in finding a long term carbon equity partner.
Speaker Change: Now all of you will have seen for specific transactions in the fiber space in the last year too with T mobile and one each with Verizon and Bell, Canada those transactions involve companies much much larger than thing in scope and scale there.
Elliot Noss: All of you will have seen four specific transactions in the fiber space in the last year, two with T-Mobile and one each with Verizon and Bell Canada. Those transactions involve companies much, much larger than Ting in scope and scale. There have been little to no common equity transactions in the fiber mid-market in the last year or two. We will stop all expansion into new markets and take a more conservative approach to capital deployment, focusing on success-based CapEx to load the existing 132,000 owned addresses and the over 40,000 partner addresses, as well as the over 500,000 more addresses that will be added by our partners in Colorado Springs and Memphis. We expect this to lead to significant adjusted EBITDA growth for Tucows in 2025, and for the Ting business to be in and around adjusted EBITDA breakeven in 2025.
Speaker Change: Had been little to no common equity transactions in the fiber mid market in the last year or two.
Speaker Change: We will stop all expansion into new markets and take a more conservative approach to capital deployment.
Speaker Change: Focusing on success based capex to load the existing 132001 addresses.
Speaker Change: And the over 40000 partner addresses.
Speaker Change: As well as the over 500000 more addresses that will be added by our partners in Colorado Springs and Memphis.
Speaker Change: We expect this to lead to significant adjusted EBITDA growth for two <unk> in 2025 and for the Ting business to be in and around adjusted EBITDA breakeven in 2025.
Speaker Change: I do note, Tim will still have over $40 million in interest expense that we will have to pay before spending on success based capex in 2025 at the end of September we.
Elliot Noss: I do note that Ting will still have over $40 million in interest expense that we will have to pay before spending on success-based CapEx in 2025. At the end of September, we had nearly $80 million in cash on hand, including cash restricted for the ABS, and the first debt expiry we will have is 2028. I will talk more about how we view and how investors should view the Ting investment in my closing remarks. On a consolidated basis in the Q3, Tucows had strong year-over-year growth in revenue, gross profit, and adjusted EBITDA. Ivan Ivanov, our CFO, will cover our financial results in detail.
Speaker Change: We had nearly $80 million in cash on hand, including cash restricted for the ABS and the first debt expiry. We will have is 2028.
Speaker Change: I will talk more about how we view and how investors should view that seeing investment in my closing remarks.
Speaker Change: On a consolidated basis in the third quarter <unk> had strong year over year growth in revenue gross profit and adjusted EBITDA.
Ivan Ivan off our CFO will cover our financial results in detail, we continue to prioritize deleveraging the business.
Elliot Noss: We continue to prioritize de-leveraging the business, and in Q3, we made $2.5 million in payments on the Tucows syndicated debt, which was on the low end of what we expect to pay down quarterly and held down by some one-time expenses. I'll now turn over to David Woroch, CEO of Tucows Domains.
Speaker Change: And in Q3, we made $2 $5 million in payments on the two cows syndicated debt, which was at the low end of what we expect to pay down quarterly and held down by some one time expenses.
Speaker Change: I'll now turn it over to Dave Warwick CEO of <unk>.
Dave Warwick: Thanks Elliot.
Dave Warwick: In Q3, two <unk> delivered our seventh consecutive quarter of revenue growth.
David Woroch: Thanks, Elliott. In Q3, Tucows Domains delivered our seventh consecutive quarter of revenue growth. We also had solid year over year gains in gross margin and adjusted EBITDA, a testament to the reliability of our business, the strength of the brand, and consistent attention to cost control. Our domains under management were up marginally, both year over year and quarter over quarter.
Dave Warwick: We also had solid year over year gains in gross margin and adjusted EBITDA.
Dave Warwick: Testament to the reliability of our business the strength of the brand and consistent attention to cost control.
Dave Warwick: Our domains under management were up marginally both year over year and quarter over quarter.
Dave Warwick: And while our transactions were down 2% from Q3 of 2023, they were stable quarter over quarter.
David Woroch: While our transactions were down 2% from Q3 of 2023, they were stable quarter over quarter. Both measures compared favorably to the results from industry counterparts. Revenue for Domain Services for Q3 was $64.7 million, up 6% from $61.1 million for the same quarter last year. Gross margin was $19.8 million in Q3, up 8% from the same quarter last year, with strength across the business. Our year-to-date gross margin is up 6% and ahead of 2023 at this time by $3.4 million, a testament to how we've been able to grow margin in a competitive space, in part due to strong reseller relationships. Domain Services adjusted EBITDA was $11.5 million in Q3, up 6% from Q3 of last year. Looking at the results from the segments of our business.
Dave Warwick: Both measures compared favorably to the results from industry counterparts.
Dave Warwick: Revenue for domain services for Q3 was $64 7 million up 6% from $61 1 million for the same quarter last year.
Dave Warwick: Gross margin was $19 8 million in Q3.
Speaker Change: 8% from the same quarter last year with strength across the business.
Our year to date gross margin is up 6% and ahead of 2023 at this time by $3 4 million.
Speaker Change: A testament to how we've been able to grow margin in a competitive space in part due to strong reseller relationships.
Speaker Change: Domain services adjusted EBITDA was 11 5 million in the third quarter up 6% from Q3 of last year.
Speaker Change: Looking at the results from the segments of our business.
Speaker Change: In our wholesale channel revenue for Q3 was $55 million up 6% compared to $51 9 million for Q3 of last year.
David Woroch: In our wholesale channel, revenue for Q3 was $55 million, up 6% compared to $51.9 million for Q3 of last year. Gross margin was $14.4 million, up 8% from $13.3 million from Q3 of 2023. Within the wholesale channel, domain services gross margin was up 1% in Q3 compared to the same period last year. While value-added services gross margin was up 26% year over year. The large increase in value-added services margin was driven primarily by strong non-recurring sales from our expiry stream and to a lesser extent, from our hosted email service. In our retail channel, revenue for Q3 was $9.7 million, up 5% from $9.2 million in Q3 of last year. Retail gross margin for Q3 was up 8% year over year.
Speaker Change: And gross margin was $14 4 million up 8% from $13 3 million from Q3 of 2023.
Speaker Change: Within the wholesale channel domain services gross margin was up 1% in Q3 compared to the same period last year.
Speaker Change: While value added services gross margin was up 26% year over year.
Speaker Change: The large increase in value added services margin was driven primarily by strong non recurring sales from our expiry stream and to a lesser extent from our hosted email service.
Speaker Change: In our retail channel revenue for Q3 was $9 $7 million up 5% from $9 2 million in Q3 of last year.
Retail gross margin for the third quarter was up 8% year over year.
Speaker Change: Our combined overall renewal rate at 76% in Q3 across all two cows domains brands remains within our historical range and above the industry average.
David Woroch: Our combined overall renewal rate at 76% in Q3 across all Tucows Domains brands remains within our historical range and above the industry average. In summary, the key measures of the health of our business demonstrate that our core business is solid and holding its own relative to our competitors and in a mature industry. We continue to balance cash generation for Tucows with investment in both our platform and infrastructure, and in developing additional new and complementary services to generate further growth for the business. These are midterm opportunities for the business, of which our registry services is the furthest along and the one I will have the most to share and discuss in the coming quarters. Over to Justin Reilly, CEO of Wavelo.
Speaker Change: In summary, the key measures of the health of our business demonstrate that our core business is solid and holding its own relative to our competitors and in a mature industry.
We continued a balanced cash generation for two cows with investment in both our platform and infrastructure.
Speaker Change: And in developing additional new and complementary services to generate further growth for the business.
Speaker Change: These are midterm opportunities for the business of which our registry services is the furthest along and the one I will have the most to share and discuss in the coming quarters.
Speaker Change: Now over to Justin Reilly CEO of wavelength.
Justin Reilly: Thanks, Dave and.
Justin Reilly: In Q3 wave low delivered another strong quarter of revenue gross margin and adjusted EBITDA further reminding us of how resilient. These recurring revenue SaaS businesses can be wavelength revenue was $10 1 million in Q3, a 4% decrease from last quarter and a 9% decrease from Q3 2023.
Justin Reilly: Thanks, Dave. In Q3, Wavelo delivered another strong quarter of revenue, gross margin, and adjusted EBITDA, further reminding us of how resilient these recurring revenue SaaS businesses can be. Wavelo's revenue was USD 10.1 million in Q3, a 4% decrease from last quarter and a 9% decrease from Q3 2023. Gross margin was USD 10 million this quarter, a 1.4% decrease from last quarter and a 4.6% decrease from Q3 2023. Adjusted EBITDA for Q3 was USD 3.4 million, a decrease of 12.4% quarter-over-quarter and an 18.5% decrease from Q3 2023. The year-over-year numbers had a couple of drivers. First, in Q3 2023, we built a full quarter of revenue from EchoStar's freshly migrated Boost prepaid subscribers. I note we will now be referring to Dish as EchoStar.
Justin Reilly: Gross margin was $10 million this quarter, a one 4% decrease from last quarter and a four 6% decrease from Q3 2023 adjusted EBITDA for Q3 was $3 4 million a decrease of 12, 4% quarter over quarter.
Justin Reilly: And of 18, 5% decrease from Q3 2023.
The year over year numbers had a couple of drivers first in Q3 2023, we built a full quarter of revenue from Echostar is freshly migrated boost prepaid subscribers.
Justin Reilly: I note, we will now be referring to dish Echostar. Since then echostar has focused on optimizing their base for higher quality subscribers offering postpaid billing and managing the inevitable churn that's all too common in prepaid telecom. This translated into a reduction of subscribers that has now stabilized.
Justin Reilly: Since then, EchoStar has focused on optimizing their base for higher-quality subscribers, offering postpaid billing and managing the inevitable churn that is all too common in prepaid telecom. This translated into a reduction of subscribers that has now stabilized. Following the announcement of the sale of Dish's video distribution business and their subsequent capital raise, EchoStar now has the focus and resources to grow their wireless subscriber base. Also, as we previously noted, we experience outsized revenue recognition annually in Q2 related to bundled professional services included as part of the platform services provided to EchoStar, which impacts our quarter-over-quarter results. Adjusting for these lumpy non-cash impacts, revenue and gross margin actually grew slightly at $0.02 million and $0.29 million, respectively, quarter-over-quarter. On adjusted EBITDA, we continue to thoughtfully manage investment with a focus on margin performance and an eye towards future growth.
Justin Reilly: Following the announcement of the sale of dishes video distribution business and their subsequent capital raise Echostar now has the focus and resources to grow their wireless subscriber base.
Justin Reilly: Also as we previously noted we experienced outsized revenue recognition annually in Q2 related to bundled professional services included as part of the platform services provided to Echostar, which impacts our quarter over quarter results adjusting for these lumpy noncash impacts revenue and gross margin actually grew slightly.
Justin Reilly: <unk> at 0.0, $2 million, and 0.2 9 million respectively quarter over quarter.
Justin Reilly: On adjusted EBITDA, we continue to thoughtfully manage investment with a focus on margin performance at an eye towards future growth.
Justin Reilly: As we enter the back half of the year, we are in our final hiring motion for our MVP sales and marketing team on Echostar more specifically.
Justin Reilly: As we enter the back half of the year, we are in our final hiring motion for our MVP sales and marketing team. On EchoStar more specifically, they've had a busy few months addressing core issues in their capital structure. We are pleased with the progress and the runway they have created to focus on customer acquisition and loading their brand-new 5G network. I note it is now a lower-cost, higher-performing network that all of our US shareholders should be using. We've provided them with unparalleled flexibility in their business to merge their prepaid and postpaid offerings, test out new offers, and optimize their base across three networks. This makes Boost the most dynamic mobile provider in the country, powered by Wavelo's event-driven platform.
Speaker Change: They've had a busy few months addressing core issues in their capital structure. We are pleased with the progress and the runway. They have created to focus on customer acquisition and loading their brand new <unk> network.
It is now a lower cost higher performing network that all of our U S shareholders should be using.
Speaker Change: We provided them with unparalleled flexibility in their business to merge their prepaid and postpaid offerings test out new offers and optimize their base across three networks. This makes boost the most dynamic mobile provider in the country powered by wave of those event driven platform. Our delivery teams have now completed the onboarding of new customers that closed in.
Justin Reilly: Our delivery teams have now completed the onboarding of new customers that closed in H1 of the year, and all new logos are now live on the Wavelo platform. I'll remind investors that these are smaller ISPs, and while the revenues are not material relative to our anchor customers, these efforts prove Wavelo's software works well for all sizes of telecoms, and that our migration muscle, built up over two decades, continues to be a differentiator when compared to our competitors. That said, as I shared last quarter, our sales teams have focused their efforts upmarket on larger prospects. These are larger MNOs, MVNOs, and ISPs whose systems complexity is at a near breaking point. While these sales cycles are naturally elongated, both the deal and delivery complexity work in our favor as our platform is uniquely positioned to help solve enterprise-grade problems at scale.
Speaker Change: In the first half of the year and all new logos are now live on the wave low platform.
I'll remind investors that these are smaller Isps and while the revenues are not material relative to our anchor customers. These efforts proved wave low software works well for all sizes of Telecom and then our migration muscle built up over two decades continues to be a differentiator when compared to our competitors.
Speaker Change: That said as I shared last quarter, our sales teams have focused their efforts upmarket on larger prospects.
Speaker Change: These are larger <unk>, and Isps, who system complexity is at or near breaking point. While these sales cycles are naturally elongated both the deal and delivery complexity work in our favor as our platform is uniquely positioned to help solve enterprise grade problems at scale. These conversations are deeper in our funnel than ever.
Speaker Change: Before and now that we have are mostly hired go to market team. We expect the funnel to grow with more of these opportunities over the next few quarters.
Justin Reilly: These conversations are deeper in our funnel than ever before, and now that we have a mostly hired go-to-market team, we expect the funnel to grow with more of these opportunities over the next few quarters. These are the places where we can have the most impact on the most telecom customers, as the inefficiency of this legacy software is felt in every part of the customer journey. Telecom is heading into an era of compounding inefficiency as it contends with convergence, consolidation, and a shift in customer needs. Customers are looking to be rewarded for bringing their share of wallet to a single provider, annual device upgrades are waning in popularity, and the M&A activity is naturally furthering the software bloat inside of these assets. The legacy systems providers are complicit here, and the only way forward is through.
Speaker Change: These are the places where we can have the most impact on the most telecom customers as the inefficiency of this legacy software is felt in every part of the customer journey.
Speaker Change: Telecom is heading into an era of compounding inefficiency as it contends with convergence consolidation and a shift in customer needs.
Customers are looking to be rewarded for bringing their share of wallet to a single provider annual device upgrades are waning in popularity and the M&A activity is naturally furthering the software bloat inside of these assets the.
Speaker Change: The legacy systems providers are complicit here and the only way forward is through.
Speaker Change: Simply bolting AI on top of a broken back office will compound decades of telecom and efficiency. The fallout is hard to even imagine if we do not fundamentally fix the core billing and provisioning systems. There is no business case for <unk> immaterial value to be gleaned from AI and a clumsy future for Isps wave Lewis.
Justin Reilly: Simply bolting AI on top of a broken back office will compound decades of telecom inefficiency. The fallout is hard to even imagine. If we do not fundamentally fix the core billing and provisioning systems, there is no business case for 6G, immaterial value to be gleaned from AI, and a clumsy future for ISPs. Wavelo is purpose-built to delete significant portions of the technology stack and set operators up to receive the value of this next era of AI-enabled products and services. The future is bright, and we've never been more excited to be doing this work here and now. Thank you for listening. Now over to Elliot.
Purpose built to delete significant portions of the technology stack and set operators up to receive the value of this next era of AI enabled products and services.
Elliot Noss: The future is bright and we've never been more excited to be doing this work here and now thank you for listening and now over to Elliot.
Speaker Change: Justin Kim.
Elliot Noss: King's focus now shifts from increasing our fiber footprint, raising capital and running an ISP simply running in ISP.
Elliot Noss: Thanks, Justin. Ting's focus now shifts from increasing our fiber footprint, raising capital, and running an ISP to simply running an ISP. This focus will serve us well. In Q3, Ting added 1,400 net new subscribers, growing 21% year-over-year and taking us to almost 50,000 subscribers in total. We also had over 15% year-over-year growth in completed serviceable addresses in Q3, taking us to 132,000 serviceable addresses for Ting-owned infrastructure. Our partner markets are continuing to ramp up their builds, with 60% growth in addresses for Q3 year-over-year. This brings us to 172,600 total serviceable addresses across all Ting footprints. Revenue for Q3 grew 19% year-over-year to $15.3 million, driven by a healthy increase in subscribers over the same period.
Elliot Noss: This focus will serve us well.
Elliot Noss: In Q3, seeing added 1400, net new subscribers growing 21% year over year and.
Elliot Noss: And taking us to almost 50000 subscribers in total we also had over 15% year over year growth in completed serviceable addresses Q3, taking us to 132000 serviceable addresses for Ting owned infrastructure, our partner markets are continuing to ramp up their bills with 60%.
Elliot Noss: <unk> growth and addresses for Q3 year over year.
Elliot Noss: This brings us to 172600 total serviceable addresses across all thing footprints.
Revenue for Q3 grew 19% year over year to $15 3 million driven by a healthy increase in subscribers over the same period gross margin in Q3 increased 38% to $11 million year over year, and an adjusted EBITDA loss of $5 million, which was seven.
Elliot Noss: Gross margin in Q3 increased 38% to $11 million year over year and an adjusted EBITDA loss of $5 million, which was $7.1 million less in Q3 of this year compared to Q3 of 2024. In part driven by the reduction in workforce from Q1 of this year as well as a reduction in sales and marketing spending as we pulled back to analyze the effectiveness of our tactics used in customer acquisition. We started decelerating our fiber CapEx spend in Q2 as we began to conserve capital. Again, in Q3, our CapEx spend was reduced from just over $12 million in Q2 to $8.2 million in Q3. We expect to finish off some work responsibly in a couple of markets, and then you will see CapEx become near exclusively success-based. I talked about focus. We now move our focus to penetration, churn, and ARPU.
Elliot Noss: $1 million less in Q3 of this year compared to Q3 of 2024.
Elliot Noss: In part driven by the reduction in workforce from Q1 of this year as well as a reduction in sales and marketing spending as we pulled back to analyze the effectiveness of our tactics used in customer acquisition.
Elliot Noss: We started decelerating our fiber capex spend in Q2, as we began to conserve capital.
Elliot Noss: Again in Q3, our Capex spend was reduced from just over 12 million in Q2 to $8 2 million in Q3.
Elliot Noss: We expect to finish off some work responsibly in a couple of markets and then you will see capex become near exclusively success based.
Elliot Noss: I talked about focus we.
Elliot Noss: We now move our focus to penetration churn and <unk>, we will be putting thought into how to present those metrics going forward, but we are no longer building new organic footprints.
Elliot Noss: We will be putting thought into how to present those metrics going forward. We are no longer building new organic footprints. The existing scorecard is no longer the right presentation. You will see a new presentation for Q4 earnings in February. We'll hear from our new CFO, Ivan Ivanov, who will discuss our financial results in detail.
Elliot Noss: The existing scorecard is no longer the right presentation, you will see a new presentation for Q4 earnings in February.
Speaker Change: Now we will hear from our new CFO, Ivan Ivan off who will discuss our financial results in detail.
Ivan Ivanoff: Thank you Elliot.
Ivan Ivanoff: Our third quarter results showed strong year over year performance for revenue gross profit and adjusted EBITDA.
Ivan Ivanov: Thank you, Elliot. Our Q3 results showed strong year over year performance for revenue, gross profit, and adjusted EBITDA, while reflecting our continued focus on profitable growth. Starting with revenue, total consolidated revenue for Q3 2024 increased 6.1% to $92.3 million, compared to $87 million for Q3 2023, primarily driven by revenue gains from the Ting and Domains businesses. Tucows Domains revenue was up 5.9%, increasing to $64.7 million from $61.1 million the prior year, primarily driven by an expiry auction sale in Q3 of this year. Ting grew revenue 19% year over year, increasing to $15.3 million from $12.9 million in the same quarter last year, thanks to a 21% increase in subscribers over the same period.
Ivan Ivanoff: Reflecting our continued focus on profitable growth.
Ivan Ivanoff: Starting with revenue total consolidated revenue for the third quarter of 2004 increased six 1% to $92 3 million compared to $87 million for the third quarter of 2003, primarily driven by revenue gains from the tank and domains businesses.
Ivan Ivanoff: Two calls domains, where revenue was up five 9% increasing to $64 7 million from 61 1 million the prior year.
Ivan Ivanoff: Primarily driven by an ex carry option sale in Q3 of this year.
The ink grew revenue, 19% year over year, increasing to $15 3 million from $12 9 million in the same quarter last year.
Ivan Ivanoff: Thanks to a 21% increase in subscribers over the same period.
<unk> revenue decreased 9% to $10 1 million from $11 1 million in Q3 of 'twenty three.
Ivan Ivanov: Wavelo's revenue decreased 9% to $10.1 million from $11.1 million in Q3 2023, reflecting churn from Dish's Boost subscribers from their peak post-migration in Q3 2023, as well as a transition to subscriber-based revenues without the professional services included a year ago. Finally, corporate revenue was up 12% to $2.2 million in Q3 2024 versus $2 million last year. The consolidated gross profit was $22.2 million, up 32.4% versus Q3 2023. The increase was driven by year-over-year gross margin gains from the Ting and Tucows Domains businesses totaling $4.4 million, were partially offset by declines of $1 million from Wavelo and corporate. Consolidated gross profit as a percentage of revenue increased to 24% in Q3 2024 from 19% in Q3 2023, driven primarily from Ting and Wavelo. Gross profit before network costs for Q3 increased 9.1% year-over-year to $39.7 million from $36.3 million in Q3 2023.
Ivan Ivanoff: Afflicting churn from Decius, both subscribers from their peak post migration in Q3 F 'twenty three.
Ivan Ivanoff: As well as it transitioned to subscriber base driving as we doubt the professional services included a year ago.
Ivan Ivanoff: Finally, corporate revenue was up 12% to $2 2 million in Q3 'twenty four.
Ivan Ivanoff: $2 million last year.
Ivan Ivanoff: The consolidated gross profit was $22 2 million up 32, 4% versus Q3 23.
Ivan Ivanoff: The increase was driven by year over year gross margin gains from the tank and domain stays and assess Feltl, Inc. $4 4 million.
Ivan Ivanoff: Were partially offset by declines of $1 million from wavelengths and corporate.
Consolidated gross profit as a percentage of revenue increased 24% in Q2 'twenty four.
Ivan Ivanoff: From 19% in Q, <unk>, three driven primarily from Teng and <unk>.
Ivan Ivanoff: Gross profit before network costs for the third quarter increased nine 1% <unk> to $39 7 million from $36 2 million in Q2 'twenty three.
Ivan Ivanoff: At an efficiency level gross profit before network costs increased to 42% of revenue from 42% in the prior year.
Ivan Ivanov: At an efficiency level, gross profit before network costs increased to 43% of revenue from 42% in the prior year. The reduction in network expenses from $19.5 million in Q3 2023 to $17.5 million this quarter reflects a non-recurring asset impairment charge in Q3 of last year. Breaking down gross margin by business, Tucows Domains gross margin increased 7.8% to $19.8 million from $18.4 million in Q3 2023. As a percentage of revenue, gross margin for Tucows Domains increased slightly year-over-year from 30% to 31%. Ting gross margin for Q3 increased 38% year-over-year to $11 million from $8 million for the same period last year. As a percentage of revenue, gross margin for Ting was 72% in Q3 2024, up from 62% in Q3 of last year.
Ivan Ivanoff: The reduction in network expenses from $19 5 million in Q2.
Ivan Ivanoff: <unk> III and.
Ivan Ivanoff: $17 $5 million this quarter.
Ivan Ivanoff: Flex and non recurring asset impairment charge in Q3 of last year.
Breaking down gross margin by business two calls domains gross margin increased seven 8% with 19.8 million from $18 4 million in could take one to three.
As a percentage of revenue.
Ivan Ivanoff: Gross margin for two calls domains increased slightly year over year from 33, 1%.
Ivan Ivanoff: <unk> gross margin for Q3 increased 38% year over year to $11 million from $8 million for the same period last year.
Ivan Ivanoff: As a percentage of revenue gross margin per tank was 72% in the third quarter of 24.
Ivan Ivanoff: Up from 62% in Q3 of last year.
Ivan Ivanoff: Over the past four quarters, we have seen continued increases in <unk> gross margin as a percentage of revenue.
Ivan Ivanov: Over the past four quarters, we have seen continued increases in Ting's gross margin as a percentage of revenue as Ting continues to reduce costs while growing top-line revenue. Wavelo's gross margin decreased 4.6% to $10 million this quarter from $10.5 million in Q3 2023. Gross margin as a percentage of revenue continues to increase for Wavelo. In Q3 2024, it was 99%, up from 95% in Q3 2023 and up from 94% in Q3 2022. Total consolidated operating expenses excluding network costs decreased 5% to $32.2 million from $32.9 million in Q3 2023. The decrease is primarily the result of a $2.1 million reduction in sales and marketing costs, primarily from decreased marketing spend in Ting, as well as a $1.4 million in fully amortized intangible assets from the eNom brand and customer relationships.
Ivan Ivanoff: Inc continues to reduce costs, while growing topline revenue levels gross margin decreased four 6% the $10 million this quarter from $10 5 million in Q3 23.
Ivan Ivanoff: Gross margin as a percentage of revenue continues to increase for <unk>.
Ivan Ivanoff: In 2024, it was 99% up from 95% in Q3 and up from 94% in Q3 of 'twenty two.
Ivan Ivanoff: Total consolidated operating expenses, excluding network costs decreased 5% to $32 2 million from $32 9 million a $3 93.
Chris is primarily the result of a $2 1 million a reduction in sales and marketing costs, primarily from decreased marketing spend in tank as well as a $1 4 million in fully amortized intangible assets from the <unk> brand and customer relationships.
Ivan Ivanoff: The overall operating expenses reduction was partially offset by increased costs from professional fees, including audit fees and certain other services.
Ivan Ivanov: The overall operating expenses reduction was partially offset by increased costs from professional fees, including audit fees and certain other services in conjunction with our Ting transformation. As a percentage of revenues, operating expenses declined to 35% in Q3 of this year from 39% in Q3 of 2023. We reported a net loss for Q3 of $22.3 million, or a loss of $2.03 per share, compared with a net loss of $22.8 million or $2.09 per share for Q3 of 2023. The decreased loss was primarily driven by strong growth in adjusted EBITDA. Adjusted EBITDA for Q3 was $8.7 million, up 94% from $4.5 million in Q3 2023, primarily driven by profitability improvements at Ting and Domains. The adjusted EBITDA breakdown amongst our three businesses is as follows.
Ivan Ivanoff: In conjunction with our tank transformation as a percentage of revenues operating expenses declined to 35% in Q2. This year from 39% in Q3 of 'twenty three.
Ivan Ivanoff: We reported a net loss for the third quarter of $22 3 million or a loss of $2 and <unk> <unk> per share.
Ivan Ivanoff: Compared to wheat, and net loss of $22 8 million or $2 <unk> per share for the third quarter of 2003.
Ivan Ivanoff: The decreased loss was primarily driven by strong growth in adjusted EBITDA.
Ivan Ivanoff: Adjusted EBITDA for Q3 was $8 7 million up 94% from $4 5 million in 2023.
Ivan Ivanoff: Primarily driven by profitability improvements at pink and domains. The adjusted EBITDA breakdown amongst our three businesses is as follows.
Ivan Ivanoff: Adjusted EBITDA for two calls domains was $11 5 million.
Ivan Ivanov: Adjusted EBITDA for Tucows Domains was $11.5 million, up 5.6% from Q3 of last year, largely thanks to the expiry auction sale. Adjusted EBITDA for Ting was -$5.1 million compared to a -$12.2 million in Q3 2023, reflecting top-line growth along with continued expense focus. Adjusted EBITDA for Wavelo was $3.4 million, down 18.5% from $4.2 million, from less one-time professional services and lower subscribers count as explained earlier. The corporate adjusted EBITDA was -$1.2 million this quarter, down from $1.5 million in Q3 last year. The decrease is primarily driven by lower contribution from the mobile base. Turning to our balance sheet, cash and cash equivalents at the end of Q3 2024 were $75.2 million, compared with $39.3 million at the end of Q2 2024 and $110.7 million at the end of Q3 2023.
Ivan Ivanoff: Five 6% from Q3 of last year, largely thanks to the X periodically sell.
Ivan Ivanoff: Adjusted EBITDA for tank was negative $5 1 million compared to a negative $12 2 million in <unk> of 'twenty three.
Ivan Ivanoff: Reflecting topline growth along with continued expense focus.
Ivan Ivanoff: Adjusted EBIT for word LOE was $3 4 million down 18, 5% from $4 2 million.
Ivan Ivanoff: From less one time professional services and lower subscribers count as explained earlier.
Ivan Ivanoff: The corporate adjusted EBITDA was negative $1 $2 million this quarter down from $1 5 million in Q3 last year.
Ivan Ivanoff: The decrease is primarily driven by lower contribution from the mobile base.
Turning to our balance sheet cash and cash equivalents at the end of Q3 dollars 24 were $75 2 million compared to week $39 3 million and handle the second quarter of 24, and $110 7 million at the end of the third quarter of 2003.
Ivan Ivanoff: In addition to the $75 2 million, we have $15 9 million classified as restricted cash.
Ivan Ivanov: In addition to the $75.2 million, we have $15.9 million classified as restricted cash as part of the ABS transactions in 2023 and 2024. As a reminder, of the $15.9 million of restricted cash, $11.6 million will sit in a trust account for the duration of the ABS notes. The remaining $4.3 million reflects the cash collections from the securitized assets. It is distributed monthly as interest to the note holders and fees to third parties, with the remaining funds coming back to Ting. In Q3 of this year, we had -$4.6 million in cash from operations compared with -$6.9 million in Q3 of last year. We invested $14.5 million in property and equipment, primarily for Ting Fiber, in addition to continued investment in the Wavelo and Tucows Domains platforms.
Ivan Ivanoff: Part of the ABS transactions in 'twenty, three and 'twenty four.
Ivan Ivanoff: As a reminder.
Ivan Ivanoff: The $15 9 million of restricted cash at.
$11 6 million, we'll see in a trust account for the duration of the ABS notes.
Ivan Ivanoff: The remaining $4 3 million reflects the cash collections from the securitized assets and it is distributed Monte as interestingly enough holders and fees to third parties with the remaining funds coming back to tank.
Ivan Ivanoff: In the third quarter of this year, we had negative $4 6 million in cash from operations compared with negative $6 9 million in Q3 of last year.
Ivan Ivanoff: We invested $14 5 million in property and equipment, primarily for Tim fiber.
In addition to continuing investment in the wavelength in two domains platforms.
Ivan Ivanoff: Note that this number reflects the actual cash paid for capital assets in the quarter.
Ivan Ivanov: Note that this number reflects the actual cash paid for capital assets in the quarter on our cash flow statement and includes capitalized cash interest. As of 30 September 2024, our syndicated loan balance for covenant calculation purposes was a net $192 million when factoring in letters of credits and cash on hand of up to $7.5 million, which resulted in a leverage ratio of 3.29 times. We repaid a net $2.5 million on the balance of the loan this quarter, which was partially held down by a large amount of one-time expense in the quarter. That concludes my remarks. I'll now turn it out to Elliot for the closing thoughts.
Ivan Ivanoff: On our cash flow statement and includes capitalized cash interest finally as of September 30th 24, our syndicated loan balance for covenant calculation purposes.
Ivan Ivanoff: Was a net 192 million when factoring in letters of credit cash on hand of up to $7 5 million, which resulted in a leverage ratio of $3 29 times.
Ivan Ivanoff: We have repaid a net $2 $5 million on the balance of the loan this quarter, which was partially held down by a large amount of onetime expenses in the quarter.
Elliot Noss: That concludes my remarks, I'll now turn it up to Elliot for the closing thoughts.
On <unk> adjusted EBITDA guidance year to date, we're at over $22 million.
Elliot Noss: On TCX adjusted EBITDA guides year to date, we are at over $22 million, which puts us on track to approximately double in 2024 from the $15.5 million of adjusted EBITDA for 2023. I want to share with outside investors how I think of TCX. I think of a business in two parts, Tucows, which includes the domains business, Wavelo, the Ting Mobile, and the corporate overhead, and then Ting, where the Ting debt is firewalled structurally for the rest of the business. I believe that most or all of the people listening to these remarks have a good understanding of how to think about the Tucows part. I want to share how I think about the value of the equity in Ting. At the end of the day, valuing a fiber business is simple but not easy.
Elliot Noss: Which puts us on track to approximately double in 2024 from the $15 5 million of adjusted EBITDA for 2023, I want to share with outside investors, how I think of Tcs.
Elliot Noss: I think of the business in two parts two counts, which includes the domains business wave low the mobile tail the corporate overheads and then T.
Elliot Noss: The thing that is firewall structurally for the rest of the business I believe that most or all of the people listening to these remarks I have a good understanding of how to think about the two cows part.
I want to share how I think about the value of the equity.
Elliot Noss: The end of the day valuing a fiber business is simple, but not easy.
Elliot Noss: It is the value of our fiber hole.
Elliot Noss: It is the value of a fiber home, which again, is a simple formula. It is the terminal penetration times the average revenue per user, times the net margin, all divided by churn. With partner homes, we would simply use net revenue or revenue after the lease payment to the partner instead of revenue. Of course, this is the fully realized economic value, not what someone will necessarily pay for it. That could be more or less, depending on the circumstances. We have said numerous times that every fiber footprint has three components, capital, construction, and ISP. We are now moving to focusing on only one of those components. This is a change in the operating paradigm for Ting. For the first decade of Ting, we actively worked on all three components. Going forward, we can focus solely on the ISP.
Which again is a simple formula.
It is the terminal penetration times, the average revenue per user times, the net margin all divided by churn.
Elliot Noss: With partner hoped we would simply use net revenue our revenue after the lease payments of the partner instead of revenue.
Elliot Noss: Of course this is the fully realized economic value.
Elliot Noss: With someone who will necessarily pay for it.
That could be more or less depending on the circumstances.
Elliot Noss: We have said numerous times.
Elliot Noss: Every fiber footprint has three components capital construction and <unk>.
Elliot Noss: P.
Elliot Noss: We are now moving to focusing on only one of those components.
Elliot Noss: This is a change in the operating paradigm for Ting for.
Elliot Noss: For the first decade of team we actively worked on all three components.
Elliot Noss: Going forward, we can focus solely on the ISP.
Elliot Noss: And thinking about <unk> today, we have 132010, one serviceable addresses at over 40000 serviceable partner addresses.
Elliot Noss: In thinking about Ting today, we have 132,000 Ting owned serviceable addresses and over 40,000 serviceable partner addresses, and we have over half a million serviceable addresses coming online over the next few years from our partner networks in Colorado Springs and Memphis. We have almost 50,000 subscribers. We can now focus on how far we can push penetration, what we can do with value added services to increase our ARPU, and how we can take our churn and lower it even further. We already perform well in these areas, and pushing these KPIs even further is something that all of us are greatly looking forward to. Most all of the footprints are profitable now and produce enough cash to cover the national costs and marketing costs for new customers.
Elliot Noss: And we have over half a million serviceable addresses coming online over the next few years from a partner networks, Colorado Springs in Memphis, we have almost 50000 subscribers.
Elliot Noss: We can now focus on how far we can push penetration.
Elliot Noss: What we can do with value added services to increase ARPA and how we can take our churn and lower it even further.
We already performed well in these areas and pushing these kpis even further.
Elliot Noss: Something that all of us are greatly looking forward to.
Elliot Noss: Most all of the footprints are profitable now and produce enough cash to cover the national costs and marketing costs for new customers.
National costs in particular are highly leveraged as this level of national operating expense could support a significantly greater level of customers.
Elliot Noss: National costs in particular are highly leveraged as this level of national operating expense could support a significantly greater level of customers. With the changes implemented last week, we expect Ting to be around EBITDA breakeven in 2025. This shows the continued operating leverage in this business. On the other side of the ledger, we have roughly $40 million a year in interest payments, and almost every customer we add requires success-based CapEx. Being a fiber ISP is a fantastic business with an incredible moat. It is also expensive to create that moat. At the end of Q3, Ting had nearly $80 million in cash in the bank, including ABS reserves.
With the changes implemented last week, we expecting to be around EBITDA breakeven in 2025. This shows the continued operating leverage in this business on the other side of the ledger, we have roughly $40 million a year in interest payments and almost every customer we add.
Elliot Noss: Higher success based Capex.
Elliot Noss: Being a fiber ISP is a fantastic business with an incredible mode.
Elliot Noss: It is also expensive to create that lift.
Elliot Noss: And at the end of Q3 seeing had nearly $80 million in cash in the bank, including Avs reserves.
Elliot Noss: The simplest way to think about the Ting operating paradigm.
Elliot Noss: The simplest way to think about the Ting operating paradigm is we will load the existing footprints with new customers, create additional cash and ABS capacity, pointing to a reduction of the Generate preferred which is due in August 2028. We will do all of this while grinding to improve the operating variables that make up the value of a fiber home. That is the linear path. I also expect a very dynamic environment for the hundreds of small fiber ISPs like us in 2025. All of this takes place in the context of TCX, where we have a long history of operating capital-light, cash-generating businesses. While fiber can never be quite as capital-light as a business like domains, Ting today and beyond looks a lot more like the businesses we are used to successfully operating than it has to date.
Elliot Noss: We will load the existing footprints with new customers create additional cash and ABS capacity points.
Elliot Noss: <unk> two a reduction of the generate press, which is due in August of 2028.
Elliot Noss: We will do all of this while grinding to improve the operating variables that make up the value of our fiber Ho.
Elliot Noss: That is the linear path I'd also expect a very dynamic environment for the hundreds of small fiber Isps like us in 2025.
Elliot Noss: All of this takes place in the context of Tcs, where we have a long history of operating capital light cash generating businesses, while fiber can never be quite as capital light as a business like domains Ting today and beyond looks a lot more like the businesses. We are used to successfully operate.
Elliot Noss: <unk> then it has to date and this lets us get back to thinking like operators with capital Allocators and an environment that we are used to.
Elliot Noss: This lets us get back to thinking like operators and capital allocators in an environment that we are used to. We are all looking forward to this into 2025. With that, I look forward to your written questions and exploring areas that interest you in greater detail. Again, please send your questions to ir@tucows.com by 14 November, and look for our recorded Q&A audio response and transcript of this call to be posted to the Tucows website on Tuesday, 26 November at approximately 5:00 PM Eastern Time. Thank you.
Elliot Noss: We're all looking forward to this into 2025.
Elliot Noss: I look forward to your written questions and exploring areas that interest you in greater detail.
Elliot Noss: Again, please send your questions to IR at <unk> Dot Com by November 14th and look for a recorded Q&A audio response and transcript to this call to be posted to the <unk> website on Tuesday November 26 at approximately five PM Eastern time. Thank you.