Tucows Inc.

Welcome to 2COWS First Quarter 2023 Management Commentary. We have pre-recorded prepared remarks regarding the quarter and outlook for the company. A 2COWS-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 2COWS Management via email at ir.2cows.com until Monday, May 15th. Management will address your questions directly or in a recorded audio response and transcript that will be posted to the 2COWS website on Tuesday, May 30th at approximately 4pm Eastern Time. We would also like to advise that the updated 2COWS quarterly KPI summary which provides key metrics for all of our businesses for the last five quarters, as well as for full years 2021, 2022, and 2023 year-to-date, and also includes historical financial results, is available in the Investors section of the website, along with the updated TingBuild scorecard and investor presentation. Now for management's prepared remarks. On Monday, May 8th, 2Cows issued a news release reporting its financial results for the fourth quarter ended March 31st, 2023. 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. I would now like to turn the call over to 2COWS President and Chief Executive Officer, Elliot Noss. Go ahead, Elliot.

Thanks, Monica. One small naming convention. I and many of you are tired of me using the phrase ex-TING. Going forward, I will refer to the businesses as TING for the TING business, 2COWS for the rest of the business or what I've been calling ex-TING, And if I'm referring to domains or Wavelow specifically, I'll say Tukau's domains or Wavelow and TCX for the corporate parent. The beginning of 2023 has been meaningful for each of our businesses, but particularly for Wavelow and Ting. Wavelow has made impressive progress migrating dish subscribers onto the platform and is now contributing to adjusted EBITDA. And Ting announced on May 4th that we have completed a debt syndication for $239 million to continue expanding our fiber business. In addition, we made progress on paying down the Two Cows debt. You'll hear more details about all of those things in today's remarks and tomorrow at our first Investor Day in Toronto. We're excited to do a deep dive on each business and its operations and look forward to seeing so many of the owners of the business again. If you're interested in participating, we do have a live stream link that you can join. Email ir at 2cows.com for details. 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. The first speaker is Dave Warrick, Chief Executive Officer, Two Cows Domains. Go ahead, Dave.

Thanks, Elliot. The first quarter for Two Cows Domains marked a turning point post-pandemic with transactions and domains under management stabilizing. At Investor Day tomorrow, I will talk more about the long-term consistency of our core business as seen through a timeframe before, during, and after the pandemic anomaly. But today, I want to highlight what we've seen over the last four quarters for our business. In each successive quarter in 2022, our transactions and domains under management saw declines, which became smaller as the year progressed. Q1 is the first quarter where total transactions increased, albeit ever so slightly, supporting the idea that we've worked through the excess demand generated by the pandemic and we believe we are back to a normalized business trajectory. The business has performed as expected in Q1, with the exception of the aftermarket for domain sales, which I will speak to in more detail. Revenue for domain services for the first quarter at $59.2 million was down 4% from the same quarter of last year, and gross margin at $17.5 million, down 11% year over year. Domain Services adjusted EBITDA was $10.3 million in the first quarter and down 12% from Q1 of last year. Some notes here. First, the last couple of quarters, we've experienced a weaker aftermarket for domain sales, most notably at the higher end of the price range. And we are actively working with our partner to test adjustments that could drive increased sales. Additionally, there was a one-time large portfolio sale in Q1 2022, and I always like to highlight for investors that these sales are opportunistic and unpredictable. Next, as most of you know, we recognize revenue and margin monthly over the course of the subscription period, always purchased in yearly increments, with an average term being 13 months. As a result, margin as it correlates to transactions typically lags transaction levels. We're nearing the end of the period where the deferred nature of our revenue and margin coupled with the stabilizing of transactions means the business results will trend to flat year over year. We now see this on a build basis where margin from our core domain business, both retail and wholesale, is flat year over year, consistent with transactions. And lastly, we have talked in recent quarters about the impact of the Euro devaluation and the price increases we implemented to address the increased costs of buying in US dollars. The price increases were effective in the latter half of 2022 and will take several quarters as domains are renewed at higher prices and then the effect flows through the deferral process. Looking at the channel segments of our business and our wholesale channel, revenue for Q1 was down 3% from the first quarter of last year and gross margin down 14%. Within the wholesale channel, domain services gross margin was down 11% from the same period last year, while value-added services gross margin was down 21% due to weaker sales in the aftermarket for domain sales. In our retail channel, revenue decreased 7% while gross margin was unchanged year over year, the result of a mix of higher margin products that offset the decline in revenue. And our combined overall renewal rate at 81% in Q1 across all two cows domains brands increased modestly from the previous two quarters and remains well above the industry average. We're at an interesting point in the business following the pandemic swings of the last three years and a challenging macroeconomic environment. It's a time that calls for patience, prudence, and focus. We'll continue to carefully manage expenses in our domains business, both for efficiency and in support of adjusted EBITDA. I'm looking forward to talking with many of you tomorrow at our investor day, where I'll get into more detail on our core business and the plans for the future. Now, over to Justin Riley, CEO of WaveLo.