Tucows Inc.

Welcome to 2CAL's first quarter 2024 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. Please submit questions via email to ir at 2cows.com until Thursday, May 16th. 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, May 28th at approximately 4 p.m. Eastern Time. We would also like to advise that the updated 2Cals Quarterly KPI Summary, which provides key metrics for all of our businesses for the last five 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 TingBuild scorecard and investor presentation are also available. Now for management's prepared remarks. On Thursday, May 9th, 2Cows issued a news release reporting its financial results for the first quarter and in March 31st, 2024. 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 2Cal's President and Chief Executive Officer, Elliot Noss. Go ahead, Elliot.

Thanks, Monica. A comment before our results. Public markets can still work for capital light cash generating businesses. 2COW's domains, like all of our businesses, is structured to generate a high volume of subscription-based transactions. After 24 years of operations, that business is well-established globally and generates strong defensible cashflow. The core segment is low growth, but there are nice opportunities to layer in higher growth. The stalwart domains business has functioned within the 2Cows family as a driver of the stock price through buybacks made not to support the stock, but rather to invest in existing cash flows at great prices. It has also been a critical cash generator for building internet businesses with the potential for outsized long-term growth. It has helped fund the generational fiber opportunity and early work with WaveLo. The long-term capital requirements for multi-generational fiber infrastructure are significant and often at odds with the short-term view of the markets. We've built resilient, future-proof fiber networks and a standout ISP. But we continue to be heads down on solving the capital needs for further expansion of that business beyond our current resources. Although there are headwinds there in the current interest rate environment, fiber remains a generational and outsized opportunity for long-term growth that is attracting a lot of capital. though not public capital. WaveLo leveraged the existing assets and traditional strengths of 2Cows, as well as consolidated cash flows into a nice high margin business with almost unlimited upside potential that is now ramping up its go-to-market efforts after a busy year of migrating dishes boost subscriber base. I say all this to say we have a clear view of the public markets as a great home for capital-light, cash-generating businesses. We are under no illusions. Now for our results. Our first quarter 2024 saw strong year-over-year performance for revenue, gross margin, and adjusted EBITDA. Consolidated net revenue for Q1, 2024 increased 8.7% year over year to 87.5 million with strong dollar gains from all three businesses. Wavelow benefited from a fully migrated boost subscriber base. Ting from another record quarter of subscriber growth and Domains from the solid performance for which it is known. Gross margin in Q1 grew 30.3% year over year to $18.3 million. The growth came from all three businesses with Wavelow doing the heaviest lifting. Adjusted EBITDA for the first quarter of 2024 increased 38.7% to $4.2 million. The increase was primarily driven by strong growth of the Wavelow business. Behind the positive headline numbers is continued focus on positioning each business for healthy long-term growth while carefully managing operating expenses and paying down our debt. In Q1, we continued to deleverage the business with $5.5 million in payments on the syndicated debt. 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, 2Cows Domains.

Go ahead, Dave. Thanks, Elliot. The first quarter for 2Cows Domains reflects the consistency of our business. We continue to reliably generate cash while modestly increasing transactions, domains under management, revenue, and margin. In addition, I will expand on an exciting new joint venture called Orange Domains that was announced earlier this year. And I will conclude my comments today with some thoughts on this partnership. In the first quarter of 2024, domains under management and transactions were both up slightly from Q1 of 2023. We're pleased to see that given flat to declining numbers for the industry, including VeriSign. Revenue for domain services for Q1 was $61.9 million, up 4.5% from $59.2 million for the same quarter last year. Gross margin was $18.5 million, also up 5.8% from the same quarter last year. Domain services adjusted EBITDA, which was $10 million in the first quarter, was down 3.2% from Q1 of last year. A couple comments here. First, we operate critical infrastructure, and the scope and scale of attacks on network infrastructure has increased. This required us to add to our investment in cybersecurity, which is a step function increase that's not large, but in a tight business like this, it is a few basis points. And second, there is a timing element to some of our operating expenses this year, which were higher in Q1. We expect these to normalize out over the remainder of the year. Looking at the results from the segments of our business, in our wholesale channel, revenue for Q1 was up 4% compared to Q1 of last year, and gross margin was up 3.2% year over year. Within the wholesale channel, domain services gross margin was up 2% in Q1 compared to the same period last year, while value-added services gross margin was up 5.9%. In our retail channel, revenue was up 7.2% and gross margin was up 13.6% year-over-year. As I mentioned last quarter, the outsized retail margin continues to be a result of the shift of customers from our wholesale channel to retail, which started in Q4 and will positively impact retail margin numbers over the course of 12 months. Our combined overall renewal rate at 76% in Q1 across all Two Cows Domains brands remains within our historical range and above the industry average. I want to close with more information on the March announcement of our partnership in Orange Domains. Orange Domains is a joint venture with Trust Machines and Hero Systems that is working to seamlessly connect domain names, identity, and Web3. This is a long-term initiative and we are a minority partner, but we are quite excited about its prospects. I've spoken previously about the evolution of Web3 and our interest in participating in a future where elements of identity and functionality related to it are delivered using Web3 technology. You may recall I spoke in 2022 about the funding of Unstoppable Domains, which is offering domain name registrations in strings like .crypto and .nft. Although we didn't prefer the particular approach they were taking, we did see the financing as evidence that investors are looking to the future and the convergence of domain names and identity. In this venture, we're providing our expertise in DNS, our registry platform, and distribution through our reseller channel. Trust Machines and Hero are bringing their deep expertise in Web3. It's also worth noting that Don Ruiz, a Two Cows Domains alum, is the GM at Orange Domains. Don brings his extensive domain name industry experience and entrepreneurial perspective to the role, and we're pleased to have him in the leadership seat for this important initiative. In terms of what investors will see coming from this project, we expect to launch a new TLD later this year with distribution and support across all of our registrar brands and that we see bridging the traditional domain name space, Web3, and identity. Now, over to Justin Riley, CEO of WaveLaw.