Tucows Inc.

Welcome to 2Cal's 4th Quarter 2023 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 2Cows Management. Please submit questions via email to ir at 2cows.com until Thursday, February 29th. 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, March 12th 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 eight quarters, as well as for full years 2021, 2022, and 2023, 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, February 22nd, 2Cows issued a news release reporting its financial results for the fourth quarter ended December 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 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. We finished 2023 with positive momentum in all of our businesses. 2COWS adjusted EBITDA for 2023 outside of Ting was $59.6 million and with Ting was $15.5 million at the higher end of our annual guidance range. This was driven by robust growth from WaveLo and consistent performance of 2COW's domains and offset by our continued investment in Ting. 2COW's consolidated revenue grew 10% year over year, and a strong finish to the year helped drive 2COW's operating cash flow to $9 million in the fourth quarter, up from $2.9 million in Q4 of last year. We also repaid a further $11.5 million on the balance of the non-Ting syndicated loan this quarter, which takes us to $28 million paid down in 2023. Now that we've continued deleveraging and are squarely focused on addressing the financing challenges of the Ting business, which spilled over to TCX, we are more and more getting back to two cows being a cash-generating machine. which is the right place to be in today's macroeconomic environment. Again this year, we've authorized a buyback program for up to $40 million in 2COW stock. We do this every year, whether or not we can foresee using it at the time we do the authorization. This is a formality. 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. As we close out our fiscal 2023, I'm particularly pleased that Two Cows Domains grew revenue and gross margin on a quarter-over-quarter basis through successive quarters of 2023. Our core business is healthy, and we're rolling out new products for our resellers. And importantly, 2COW's domains continues to generate cash for the company that is being used to pay down the debt and build the runway for 2COW's long-term growth. In Q4, we saw slight gains across all our top-level metrics, including domains under management and transactions. Revenue for domain services for the fourth quarter was $61.8 million. up 2.5% from $60.3 million for the same quarter last year. Gross margin was $18.9 million, also up 2.5% from the same quarter last year. and domain services adjusted EBITDA, which was 10.8 million in the fourth quarter, was up 2% from Q4 of last year, as we continue to be attentive to managing expenses. The results were driven by an increase in the number of transactions in Q4, up 2%, and domains under management that were up slightly year over year. I would like to highlight that within our industry, there is a range in the quality of new domains being registered. and our growth continues to be concentrated in higher quality and legitimate domain registrations. Looking at the results from the segments of our business, in our wholesale channel, revenue for Q4 was up 2% compared to Q4 of last year, and gross margin was essentially unchanged year over year. Within the wholesale channel, domain services gross margin was up 4% in Q4 compared to the same period last year, while value-added services gross margin was down 8%. I'll note that the decline in the domains aftermarket that I covered in the last couple of quarters is no longer a factor for value-added services. The Q4 decline in value-added services was actually a result of something we periodically do at the reseller's request, which is to move their customers from the wholesale business to our retail business, which shifts the associated revenues and margin from value-added services to retail. In our retail channel, revenue was up 4.5% and gross margin was up 8% year over year. The outsized retail margin was a result of the shift of customers I mentioned, which started in Q4 and will impact retail margin numbers over the course of 12 months. Our combined overall renewal rate at 76.5% in Q4 across all 2COWS domains brands remains within our historical range and above the industry average. I also have a short update and further background on the new billing and provisioning service and the automation tools that enable resellers to transition to cloud hosting. We have these in the hands of a number of resellers who are providing us feedback and helping us iterate. If you would like more detail on these new services, please refer to my comments last quarter. And as a reminder, we've developed these new products within our existing cost structure, which means we're able to prove the concept with investment that is invisible to investors and improve it along the way without major cost impacts. It is the margin of these new products that is so compelling to us. Two cows domains has been generating about 75 million in gross margin for several years in a mature and competitive industry with limited prospects for growth. We've been very comfortable operating with the razor thin margins of our current domains business. In fact, as many of you know, we have successfully turned this into a moat around the business. However, the margins from these two new opportunities are significantly higher than our typical domain name margins. Deploying higher margin products is critical for us to meaningfully get beyond the $75 million gross margin range. I am optimistic about the potential for these new services, and I will keep you apprised of their progress. Now, over to Justin Riley, CEO of Wavela.