Tucows Inc.

Welcome to 2Cows' second quarter 2025 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. We will begin with opening remarks from Elliott Noss, President and CEO of 2Cows and Ting, followed by business remarks from David Warwick, CEO of 2Cows Domains, Justin Reilly, CEO of WaveLo, Elliott Noss on Ting, Ivan Ivanov, 2Cows CFO, who will discuss our financial results in detail, and we will finish with closing remarks from Elliott Noss. 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, August 14th. 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, August 26th at approximately 5pm Eastern Time. We would also like to advise that the updated investor presentation and the 2Cows quarterly KPI summary, which provides key metrics for all of our businesses for the last six quarters, as well as for full years 2023, 2024, and 2025 year to date, and also includes historical financial results, is available in the Investors section of the website. You'll notice that we are no longer adding new owned serviceable addresses, and instead partner serviceable addresses are seeing large additions. As we monetize owned fiber network assets in certain markets, you will see some of our owned serviceable address numbers move to partner serviceable address totals where we have sold our network assets but will remain the ISP. That was the case this quarter as addresses from certain owned markets were sold and became partner serviceable addresses. Now for Management's prepared remarks. On Thursday, August 7th, 2Cows issued a news release reporting its financial results for the second quarter, and did June 30th, 2025. 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 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 10K and 10Q. The company urges you to read its security filings for a full description of the risk factors applicable to its business. Now I would like to turn the call over to 2Cows President and Chief Executive Officer Elliot Noss. Go ahead, Elliot.

Midway through 2025, 2Cows consolidated top-line growth is continuing the trend of the last four fiscal years and first quarter, with a 10% -over-year increase in Q2. Gross profit grew 6% -over-year, and adjusted EBITDA increased 37% to $12.6 million in Q2 and to $26.2 million -to-date. Our -to-date results put us slightly ahead of pace to achieve our full-year adjusted EBITDA guidance of $47 million. Outperformance in both domains and wave load drove the upside, more than offsetting the corporate-level expenses we expect to recognize in the second half. Corporate net debt now stands at $190.3 million, marking a fifth straight quarterly decline and bringing net leverage to 3.14 times, with interest coverage at 3.99 times, comfortably within our governance. Although we chose not to pay down the syndicated loan this quarter, that was a decision to preserve flexibility. Our long-standing record of steadily reducing the facility remains intact, and capital allocation, whether we pay down debt or hold on to our cash for other purposes, is a choice we make on a quarterly basis. We continue to navigate the path of thoughtful execution and choices of direction. And with that, I'll turn it over to Dave Warwick, CEO of 2Cows Domains.

Thanks, Elliot. 2Cows Domains delivered another solid quarter in Q2, with each of revenue, gross margin, and adjusted EBITDA growing -over-year. These gains build on the -over-year growth and momentum in Q1, and highlight the steady, predictable, and reliable nature of our business. In addition, we continue to build our registry services business, and are pleased to share that we recently signed a contract with RADx, a registry operator, to be their technical services provider. Planning is underway, with the migration to our platform expected towards the end of this year. I will talk further about this exciting news in a moment. Revenue rose 8% -over-year in Q2, gross margin expanded 14%, and adjusted EBITDA grew 12%. Through the first half of the year, adjusted EBITDA was $24 million and up 13% -over-year, reflecting the operating leverage within the business. Within Domain Services, both wholesale and retail performed well. Wholesale revenue and margin benefited from healthy reseller demand and higher margin value-added services, while retail posted steady increases in both top line and gross margin. Q2 revenue for the wholesale channel rose 8% -over-year to $57.3 million compared to $53 million for Q2 of last year. Gross margin increased 15% to $15.7 million from $13.6 million last year. Within the wholesale channel, Domain Services delivered gross margin of $10.4 million, up 8% from $9.6 million in Q2 2024. Value-added services had another exceptional -over-year gain in gross margin of 32%, delivering $5.3 million this quarter, driven by strong sales from our expiry stream. Our retail channel saw strong growth in Q2, with revenue increasing 10% -over-year to $10.3 million. Gross margin expanded 11% to $5.9 million, reflecting higher margins in the retail segment. As anticipated, total domains under management and transaction volumes declined modestly, down 2% and 3% respectively, reflecting the continued impact of one reseller that has moved a portion of its portfolio in-house. The overall combined renewal rate for all TLDs across all the two CAS domains brands was 75%, a slight decline from previous quarters but within our normal historical range and above the industry average. Turning to our growth initiatives and returning specifically to our registry services business, we continue to build this business and add new clients, both small and large. In previous quarters, I have talked about being selected by NXI, the National Internet Exchange of India and the registry operator of the .IN Country Code TLD. We completed the migration of NXI's 4 million domains to our platform at the end of May, as planned and scheduled. Our engagement with RADx is equally exciting. RADx is an industry leader. They are the registry operator for a portfolio of 11 TLDs, including marquee extensions like .Online, .Store, .Tech, .Site, .Space and .Fun. RADx is widely recognized for pairing great and meaningful TLDs with world-class marketing that drives broad adoption. Our teams have been collaborating and planning this project for some time now. In total, we will be migrating just over 10 million domains across the 11 RADx TLDs onto our platform toward the end of this year. RADx has the largest market share in the new GTLD segment at 20%. As I've said before, we're focused on the profitability of our business. And while we do not focus on domains under management as a key measurement, it is worth noting that this will lift the 2COWS registry segment to managing close to 17 million domains. This contract makes 2COWS the infrastructure provider of choice for two of the largest registries globally and positions us as a strong contender for backend registry services in the next wave of new GTLDs with applications starting in 2026. In summary, 2COWS Domains continues to demonstrate the strength of its core franchise, delivering consistent revenue, margin and EBITDA gains while securing transformative contracts that help drive our long-term growth trajectory. Looking ahead, we will focus on the execution of the RADx migration, the continued development of our hosting and billing initiatives, a disciplined pursuit of the new GTLD opportunities slated for 2026, and the ongoing operational excellence we are known for. Thanks for listening and now over to Justin Riley, CEO of WaveLow.

Thanks, Dave. The second quarter of 2025 now marks our best quarter since inception, surpassing the record we set just last quarter. WaveLow's revenue was $12.7 million in Q2, an .1% increase from last quarter and a .5% increase from Q2 2024. Gross margin was $12.6 million this quarter, an .6% increase from last quarter and a .6% increase from Q2 2024. Adjusted EBITDA for Q2 was $5.4 million, an increase of .5% -over-quarter and a 37% increase from Q2 2024. The growth -over-year and -over-quarter is fueled by existing customer subscriber growth, as well as the new EchoStar rate card introduced as part of the four-year renewal at the start of 2025. As a reminder, we experience outsized revenue recognition annually in Q2, related to bundled professional services included as part of the platform services provided to EchoStar. Adjusting for this, revenues grew .9% compared to last quarter, as we saw additional subscribers come onto the platform. Our Q2 results are a testament to our team's discipline and agility that we've continued to drive growth and profitability amid a dynamic macro environment. On organic growth, we are seeing continued momentum across Tier 1 and Tier 2 opportunities, with several advancing steadily through our pipeline. We've made the conscious decision to deprioritize smaller MVNO and ISP opportunities, where pricing pressure dominates and our enterprise-grade platform is underutilized. This both frees up our -but-mighty sales team's time to work larger deals and rightly focuses our R&D capacity with efforts consistent with our long-term growth strategy. The pipeline now consists of two distinct customer profiles, large greenfields, MVNOs, and ISPs, and separately established Tier 1 and Tier 2 fixed and mobile operators that are constrained by chronic vendor lock-in. The latter cohort is one that will most benefit from an AI-first future, but is unable to access its most valuable data and is underserved by today's AI solutions, which are mostly built for a general-purpose audience. WaveLoad's Event Stream and Tier 1-grade platform are perfectly positioned to help unlock this future for large operators. On inorganic growth, many of our competitors were founded in the 80s and 90s. Their business models, much like their technology, were built for an era in which large human workforces custom-tailored software for not only each operator, but for each line of business. If SaaS has started to disrupt this model, then AI will put it to bed. In the last 12 months, I've seen more businesses consider moving into a process than in the previous three years, largely due to aging business models and aging founders. I expect that the next few years will be full of M&A, as the cost to refactor old software stacks with AI races to zero. Last quarter, I talked about the important task of retraining the modern internet workforce software engineers. I also shared that WaveLoad benefits from a culture of curiosity, which acts as a tailwind in the face of generational change. For our most curious engineers, this means that more than 40% of their code is written by AI today. As we roll out more powerful tools that are trained on WaveLoad's code base, rather than the aggregate code of the internet, we expect adoption to increase. This is important, as we've solved event-driven problems in our software that no one else has been able to solve. Democratizing our expert knowledge across our engineering teams widens the aperture for efficiency and further lays the groundwork for WaveLoad's AI-first future. Thanks for listening, and now over to Elliot. Thanks, Justin.

Year over year, Ting's top-line growth and large improvement in adjusted evidence continued in Q2. Revenue hit $16.4 million in Q2, a 12% increase year over year. Growth was driven by small ARPU improvements, growth in enterprise revenue, and most impactfully, an 8% increase in subscribers, taking us to 52,100 total subscribers. Ting's gross margin grew from $9.8 million to $10.4 million, excluding a one-time $2.7 million non-cash lease accounting adjustment. Ting's adjusted EBITDA also continues to trend in a positive direction, with a small loss of $600,000 in Q2, down from $6.4 million in Q2 of 2024. As above, that loss is before the non-cash adjustment I mentioned. I will also start to regularly, but likely not each quarter, share information on the part of the Ting business that is outside of the residential fiber ISP. This includes enterprise as well as fixed wireless. Fixed wireless is primarily through our SimpliBits and Cedar acquisitions. I think this is useful for investors as it identifies a small but profitable element of the Ting business that is generally overlooked. I will refer to this as enterprise and other. In Q2 2025, this segment generated $3.9 million in revenue and $1.3 million in contribution margin, a $720,000 improvement year over year, driven by a significant reduction in people costs and continued growth in enterprise and bulk customers. We also signed a landmark contract with the third largest US senior living operator that, once fully online in 2027, will add $12,700 bulk units and over $6 million in annual revenue. As we flagged last quarter, we've been pursuing the sale of non-strategic assets. These are assets that we had previously acquired or developed, where we no longer have the capital to build. To this point, we have successfully sold non-strategic assets for a total value in excess of $15 million in three separate transactions. These transactions covered non-core assets in Arizona and in our Cedar footprint in southwest Colorado and northern New Mexico. We placed them in the hands of those who will build fiber in those footprints as appropriate. Our transformation from building networks to a pure play ISP is increasingly visible this quarter, particularly in reduced expenses, year over year improvements in adjusted EBITDA and serviceable address totals. In our partner markets of Memphis and Colorado Springs, our partners are now delivering addresses consistently at the expected cadence, and we are heads down working on improved marketing in those two footprints. Last year, I spoke about pausing marketing to analyze which customer acquisition tactics delivered returns and which did not. That review is complete. And by late Q2, much of the structural work is also complete. And we are now operating where we are not only again driving brand value, but also driving net ads. It is time to start building on winning tactics. Early Q3 metrics show subscriber momentum returning, and we view Q2 as the trough for net ads. Our marketing team is now fully staffed and executing at pace, And we expect the biggest near term efficiency gains to come from applying AI tools that lower acquisition costs and improve conversion. Comparing June of this year to January of 2024, the last full month before we started to affect change, we see dramatic improvements in key KPIs in both direct marketing and door to door. We see CAC per order improving by nearly 40% with people costs in marketing being cut by over 75%. We increased conversion from the top of the funnel significantly, and marketing content is both better and produced more efficiently. We brought door to door in-house and have seen orders per rep increased by 20% and cost per order reduced by nearly 40%. Door to door is the most important tactic in fiber to the home sales, and we are limited here only by our ability to recruit. Finally, we continue to see the longer term trend towards partnership models and infrastructure markets with KKR, BlackRock, Brookfield, EQT, and many other major players all leaning into separating infrastructure construction for provision of services. We see this as a validation of our pivot and a tailwind for pure play ISP models like Ting. Now we'll hear from our CFO Ivan Ivanov, who will discuss our financial results in detail.

Thank you, Elliot, and thank you everyone for joining us today. I am pleased to report another strong quarter that demonstrates the strength and resilience of our diversified business model. The second quarter kept us firmly on the path we laid out at the start of the year of continued top line momentum, growing adjusted EBITDA, and disciplined capital allocation. At the consolidated level, revenue reached 98.5 million, a 10% -over-year increase, marking our fourth consecutive quarter of double-digit top line growth, driven by strong contributions from each business unit. Gross profit rose to 22.1 million, up 6% -over-year, despite absorbing a one-time 2.7 million non-cash lease expense adjustment at Ting. Adjusted EBITDA expanded 37% to 12.6 million, lifting -to-date adjusted EBITDA to 26.2 million. That leaves us slightly ahead of the run rate required to meet our full-year guidance of 47 million, moving to each business unit's performance highlights. The domain's business continued to drive earnings with top line revenue of 67.6 million, an increase of 8% -over-year. Gross margin grew 14%, driven by continued strong wholesale performance, as well as increased contributions from both our retail channel and value-added services, which also include our expiry auction stream. As a result, the main adjusted EBITDA improved 12% -over-year to 12.5 million. Weblo recorded its best quarter to date. Revenue increased 21% to 12.7 million, gross margin increased 24% to 12.6 million, and adjusted EBITDA rose 37%, reflecting the upgraded rate card with DISH, subscriber growth, and reduced churn, along with a careful cost control across the business. Moving on to TING. TING generated 13% revenue growth to 16.4 million on an 8% subscriber lift and higher ARPU. Gross margin was reduced this quarter to 7.7 million from 9.8 million in Q2 of 24 by the one-time lease expense adjustment I mentioned earlier. Excluding that item, margin would have risen both sequentially as well as -over-year. TING reported adjusted EBITDA loss of 3.7 million for the quarter. Excluding the impact of the non-cash lease adjustment, TING's adjusted EBITDA improved by 5.5 million -over-year. We remain hyper-focused on bringing TING to profitability. And finally, the corporate segment reported revenues of 1.8 million, down slightly from 2 million a year ago, with an adjusted EBITDA loss of 1.7 million. Moving on to cash and balance sheet. During the second quarter, we generated 6.6 million in cash from operating activities and ended June with 52 million in cash and equivalents, as well as an additional 16.6 million in restricted cash and secured not reserve funds. Capital expenditures remained low at 3.5 million for the quarter, consistent with our shift to partner markets in Fiber, and we continued to recycle capital by selling non-strategic assets. In fact, during the second quarter, we sold property and equipment, along with inventory for total proceeds of 11 million. The sale resulted in a gain of 2.1 million. In addition, subsequent to the second quarter, we completed an additional sale of certain property and equipment and intangible assets for 7 million, generating a gain of 3.6 million, which will be reflected in the third quarter's results. Our corporate net debt, as defined under our covenants, fell to 190.3 million, down for the fifth consecutive quarter, giving us net leverage of 3.14 times EBITDA and improved interest coverage of 3.99 times, and leaving us well inside our covenants. Separately, as of quarter end, on a net basis, the Think Fiber business carried 289.6 million in asset-backed securitized notes and 122.2 million in redeemable preferred equity. Looking ahead, we have clear catalysts that give us line of sight to continued margin expansion. These include the 10 million domain radix migration to 2Cows domains starting in November, wave loss, continued momentum of growth, and things pivot to a capital-wide demand-driven model. These factors combined position us well to achieve our 47 million adjusted EBITDA goal while continuing to improve our corporate leverage. With that, thank you, and now I'll turn it back over to Elliot. Thank you, Ivan.

We finished the first half of 2025 with the company performing in line with expectations. Domains and wave low are ahead of plan, while TING continues its significant transformation. Through the first half of the year, the economy is sending mixed signals with the shape of the yield curve and the stock market telling very different stories. I can list multiple economic indicators on each side of the ledger, but we continue to view the world as one where we should be prudent and conservative. We know our balance sheet does not reflect that yet. Our focus is on improving it. TING's first half was defined by change. We reduced operating expenses by approximately 60% -over-year. We further streamlined operations through the sale of smaller non-core footprints and simplified the business. Customer service has become more efficient while retaining industry-leading churn and high ARPU. We also completed a full reset of our marketing function. After extensive testing, we're now ready to ramp spend again with a focused, efficient, data-driven approach aimed at reaching the right customers at the right times. This marks a fundamentally different posture from a year ago. TING's team remains one of its greatest strengths. As AI reshapes how work is done, from producing marketing content to better customer experience to improving -to-door recruitment, we believe our smart, committed workforce gives us an edge relative to both incumbents and smaller players like ourselves. More broadly, the US fiber market is transitioning from hype to hard execution. With roughly half the country still to be built, capital is consolidating. Strategies are shifting and spreadsheet assumptions are being rethought. At the same time, demand continues to grow. Cable is losing ground to both fiber on the high end and fixed wireless on the low end of the market. While mobile convergence strategies remain prominent, with only TING actually offering a converged customer experience. And TING customers with mobile churn 30 to 40% less. TING stands out in this environment. Our churn is well below industry norms. Our penetration in many markets exceeds what others target long-term. And our converged fiber mobile product uses mobile to drive fiber, not the other way around. Our constraint is capital. TING is lean, differentiated and resonating with customers. But our ability to scale is limited by our balance sheet. We are actively evaluating strategic paths to unlock the value we've built and support long-term success. And with that, I look forward to your written questions and exploring areas that interest you in greater detail. Again, please send your questions to IR at 2Cows.com by August 14th and look for our recorded Q&A audio response and transcript to this call to be posted to the 2Cows website on Tuesday, August 26th at approximately 5pm Eastern Time. Thank you.