Tucows Inc.

Welcome to 2COWS Third 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 Thursday, November 9th. Management will either address your questions directly or provide a recorded audio response and transcript that will be posted to the 2cows website on Tuesday, November 21st at approximately 4 p.m. 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 seven quarters, as well as for full years 2021, 2022, and 2023 year-to-date, 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 2nd, 2Cows issued a news release reporting its financial results for the third quarter ended September 30th, 2023. That news release and the company's financial statements are available on the company's website at 2cows.com under the investor 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. I would now like to turn the call over to 2COWS President and Chief Executive Officer, Elliot Noss. Go ahead, Elliot.

Thanks, Monica. Our third quarter results show continued strong growth of Wavelow and Ting and a steady state for 2COWS domains. We recently signed a new credit agreement for the 2COWS syndicated debt that gave us improved terms and further stability. We have also repaid a net of $6.5 million on the balance on the debt this quarter using the cash flow from Wavelow and 2COW's domains. As we head into Q4, we are on track for our 2023 guidance with EBITDA on the TCX side of $55 to $60 million and with an EBITDA loss on the TING side of $42 to $45 million. This is all happening in a unique economic context where markets, both public and private, are continuing to reshape after 15 years of cheap capital. 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 Warwick, Chief Executive Officer, Two Cows Domains.

Go ahead, Dave. Thanks, Elliot. We continue to return to a normalized business trajectory in 2023. Q3 transactions are up 3%, and domains under management are up slightly year over year. we continue to focus on managing the business for margin. Concurrently, we continue to develop new services to complement our core business and leverage our distribution channels. I'll take a moment now to talk about the business in more detail. Revenue for domain services for the third quarter was 61.1 million, up 1% from 60.3 million for the same quarter last year. And our gross margin was 18.4 million, also up 1% year over year. When you look at a quarter over quarter basis, our gross margin increased 0.4 million or 2.5% in Q3. This increase is an important indicator of the health of the business. In previous quarters, we reported our gross margin was declining. It is now flat to increasing due to deferred revenue and price increases working their way through our accounting. The same items are positively impacting Domain Services adjusted EBITDA, which was $10.9 million in the third quarter, up 5% from Q3 of last year. Now let's look across the segments of our business. In our wholesale channel, revenue for Q3 was unchanged compared to Q3 of last year, and gross margin is down 4% year-over-year. Domain services gross margin remained flat compared to the same period last year, while value-added services gross margin was down 13%. This is due to weaker sales in the domains aftermarket, which continues to be an issue industry-wide. In our retail channel, revenue was up 9% and gross margin was up 17% year over year. A key driver of the outsized retail margin was the sale of a few high-value domain names, which will happen over the course of a year. Net of these sales, gross margin was up 2%. Our combined overall renewal rate, at 78% in Q3 across all Two Cows Domains brands, remains within our historical range and well above the industry average. And finally, within our registry services business, which we acquired in Q4 2021, we recently completed the migration of two new clients onto our platform, .my, the country code top-level domain for Malaysia, and .cloud, a generic top-level domain launched in the last round of new GTLDs. This is an encouraging step forward as we look to grow our registry services business. Now turning to our new value added services. In recent quarters, I have referenced that we have been quietly exploring a few product ideas that would compliment our core business and leverage our distribution channels. At Investor Day earlier this year, I discussed our history and the challenges with adding new services. I also emphasize that we are conducting this work within our current highly efficient cost structure, which continues to benefit from the platform work that we have done. The first area of focus for us is modernizing web hosting for small resellers. While the largest hosting companies long ago transitioned to the cloud, we have tens of thousands of resellers who still operate their businesses using technology between 10 and 20 years old. Since 2015, we have operated a small hosting company within 2Cows, which is representative of a typical reseller and allows us to gain hands-on experience working with the older technologies resellers use. This experience has given us insight into both where the benefits are available and to the difficulties of modernizing. We have developed a set of automation tools that enable resellers to transition to cloud-based services. Additionally, we have enrolled a number of resellers into an early adopter program focused on improving the user experience. More work still remains before an official launch next year, but we have been pleasantly surprised by both the level of interest and engagement in this area. The other product area we are focusing on is creating a new billing and provisioning experience that our resellers can extend to their customers for easier domain purchasing and management. We will continue to iterate and extend the functionality of this service as billing and provisioning is something 2CAS has consistently excelled at in domain names, mobile, and fixed internet. There is both a need and an interest for this type of product offering in our channel, so we are optimistic about its adoption. We're very excited about the direction we are moving in, and it seems our channel is as well. As a mature business in a competitive space, being able to add a complementary revenue stream and new products is important to maintain revenue growth. As I have mentioned previously, the initial contribution to gross margin and the impact on operating expenses will be quite modest, with an expectation that we can scale the new offerings over the coming years. I will continue to keep investors updated on our progress in this area as it evolves. Now, over to Justin Riley, CEO of Wavelow.