Tucows Inc.

Welcome to 2Cal's third quarter 2022 management commentary. We have pre-recorded prepared remarks regarding the quarter and outlook for the company. A 2Cal's generated transcript of these remarks, with relevant links, is also available on the company's website. In lieu of a live question and answer period following these remarks, shareholders, analysts, and prospective investors are invited to submit questions to 2Cal's management via email at ir at 2cals.com until November 10th. Management will address your questions directly or in a recorded audio response and transcript that will be posted to the 2Cals website on November 22nd at approximately 4 p.m. Eastern Time. would also like to advise that the updated 2CALS quarterly KPI summary, which provides key metrics for all of our businesses for the last seven quarters, as well as for full years 2020 and 2021, and also includes historical financial results, is available in the investor section of the website, along with the updated TingBuild scorecard and investor presentation. Now for management's prepared remarks. On Thursday, November 3rd, 2Cows issued a news release reporting its financial results for the third quarter and in September 30th, 2022. That news release and the company's financial statements are available on the company's website at 2cows.com under the Investors section. Please note that the following discussion may include forward-looking statements, which as such are subject to risks and uncertainties that could cause actual results to differ materially. These risk factors are described in detail in the 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 for its business. Finally, as discussed previously, starting in Q1 of this year, we started reporting as separate businesses, Ting, Wavelow, and Tukaz Domains, in addition to Tukaz Corporate. For those that have not yet done so, I encourage you to watch the video we posted on the Tukaz Investors site in February for additional detail and perspective on the rationale for this change. I would now like to turn the call over to Tukaz President and Chief Executive Officer, Elliot Noss. Go ahead, Elliot.

Thanks, Monica. Q3 was another solid quarter in a tough operating environment. The world is full of uncertainty, and in times like these, it is important to focus on what you can control. We continue to be grateful that focusing on cash generation is useful if undervalued in good times, but extremely important in times of uncertainty. Q3 was our third quarter managing the businesses under the new corporate structure. As we wrap up our 2023 budget cycle, we have learned important lessons and will be able to refine TCX operations in order to better serve the operating businesses. The change in structure is a success, allowing us important financial flexibility without losing, in fact, in some ways, gaining operational efficiency. In addition, I would like to reiterate our previously provided guidance. To the above point, we have now provided four points of guidance rather than just one and are pleased that this has not proven unduly difficult. A reminder that as part of changing our reporting by business segments, you will now hear directly from the heads of each business in these remarks, as well as from our CFO, Dave Singh, who will cover our financial results in detail. The first speaker is Dave Warrick, Chief Executive Officer, 2Cows Domains. Go ahead, Dave.

Thanks, Elliot. 2Cows Domains had a relatively flat quarter year over year, as both the domain industry and our business continue to return to pre-pandemic levels. The boom of COVID has given way to an echo, but with a continued positive trend when looking over longer timeframes. Revenue for domain services for the third quarter was down 1% from the same quarter of last year, and gross margin was down 2%. Domain Services adjusted EBITDA was down 9% from Q3 of last year. Here I will note that the decrease in adjusted EBITDA is a result of both the lower gross margin as well as increased operating expenses. And in line with how we have always endeavored to manage this business efficiently, and especially now as we approach the anniversary of the new corporate structure and in an inflationary environment, we are reviewing and streamlining expenses. Building off my comments in the second quarter, total transactions for the business have continued at the lower pre-pandemic levels that we have discussed in previous quarters. As with many in our industry, we too see the broad-based economic and other challenges and the uncertainty of the global economy. Connected to this, the rapid appreciation from earlier this year in the value of the US dollar has impacted our European business and introduced challenges. For many of our resellers in Europe, we price services in Euros and have a cost base in US dollars. The currency impacts from the US dollar gaining strength against the Euro has and continues to apply downward pressure to our gross margin. To address this, we have adjusted prices in Q3 and we have announced that we will do so again later this quarter. Returning to the two segments of our business, in our wholesale channel, revenue for Q3 was essentially unchanged year over year, with gross margin down 2%. Within the wholesale channel, domain services revenue was likewise unchanged from the same period last year, while gross margin was down 4%. Revenue for the value-added services component of the wholesale channel was unchanged year-over-year, with gross margin up 2%. Worth noting, the gross margin from wholesale domain services is up 8% when compared to Q3 of 2019 and pre-COVID. In our retail channel, revenue decreased 4%, while gross margin decreased 1% year-over-year. And lastly, our combined overall renewal rate at 80% in Q3 across all 2Cows Domains brands remains well above the industry average. Since we founded the 2Cows Domains business early in 2000, we've weathered different global and regional economic cycles and conditions by focusing on managing our business responsibly and with a long-term view. We provide access to domain and related services that have become integral to how consumers and businesses use the internet for life and work today. We've defined innovation with continual evolution of our domain platform, and we've built a strong global distribution channel for our domain services. Today, in light of the last few years, I'm grateful we can stand on the foundation of such a resilient, consistent business, and that we have the people and resources to always be thinking about how we leverage what we can do best to create growth opportunities for our business and our customers. And I'm excited to tell you more about that beyond my comments in Q2 as it develops. Now over to Justin Riley, CEO of Wavewell.