Tucows Q2 2025 Prepared Remarks Earnings Call Transcript

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Provided by Quartr
August 7, 2025

Key Takeaways

  • Positive Sentiment: Tucows delivered 10% year-over-year revenue growth in Q2 with a 37% increase in adjusted EBITDA to $12.6M, and net debt fell for a fifth consecutive quarter to $190.3M, placing leverage at 3.14x.
  • Positive Sentiment: The Domains segment grew revenue 8% and gross margin 14% year-over-year, and secured a transformative contract with Radix to migrate over 10 million domains to our platform, bolstering registry services.
  • Positive Sentiment: WaveLocal reported its best quarter since inception, with Q2 revenue up 20.5% year-over-year to $12.7M and adjusted EBITDA rising 37%, driven by subscriber growth and the new EchoStar rate card.
  • Positive Sentiment: Ting achieved 12% revenue growth and an 8% subscriber increase to 52,100, improved marketing efficiency and realized over $15M from nonstrategic asset sales, while moving toward a pure-play ISP model.
  • Neutral Sentiment: Management reaffirmed full-year adjusted EBITDA guidance of $47M and emphasized a prudent and conservative capital allocation approach amid mixed economic signals, inviting written questions for a detailed follow-up.
AI Generated. May Contain Errors.
Earnings Conference Call
Tucows Q2 2025 Prepared Remarks
00:00 / 00:00

There are 5 speakers on the call.

Operator

Welcome to Tucows' Second Quarter twenty twenty five Management Commentary. We have pre recorded prepared remarks regarding the quarter and outlook for the company. A Tucows generated transcript of these remarks with relevant links is also available on the company's website. We will begin with opening remarks from Elliot Noss, President and CEO of Tucows and Ting. Followed by business remarks from David Warwick, CEO of Tucows Domains.

Operator

Justin Reilly, CEO of Wave Low. Elliot Noss on Ting Ivan Ivanov, Tucows' CFO, who will discuss our financial results in detail. And we will finish with closing remarks from Elliot Noss. In lieu of a live question and answer period following these remarks, shareholders, analysts and prospective investors are invited to submit questions to Tucows management. Please submit questions via email to irtucows dot com until Thursday, August 14.

Operator

Management will either address your questions directly or provide a recorded audio response and transcript that will be posted to the Tucows website on Tuesday, August 26 at approximately 5PM Eastern Time. We would also like to advise that the updated investor presentation and the Tucows 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.

Operator

Now for management's prepared remarks. On Thursday, August 7, Tucows issued a news release reporting its financial results for the second quarter ended 06/30/2025. That news release and the company's financial statements are available on the company's website at tucows.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 10 ks and 10 Q.

Operator

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 Tucows president and chief executive officer Elliot Noss. Go ahead Elliot.

Speaker 1

Midway through 2025, Tucows consolidated top line growth is continuing the trend of the last four fiscal years and first quarter with a 10% year over year increase in q two. Gross profit grew 6% year over year and adjusted EBITDA increased 37% to 12,600,000.0 in q two and to 26,200,000.0 year to date. Our year to date results put us slightly ahead of pace to achieve our full year adjusted EBITDA guidance of 47,000,000. Outperformance in both domains and waveload drove the upside, more than offsetting the corporate level expenses we expect to recognize in the second half. Corporate net debt now stands at a 190,300,000.0, marking a fifth straight quarterly decline and bringing net leverage to 3.14 times with interest coverage at 3.99 times comfortably within our covenants.

Speaker 1

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 Tucows Domains.

Speaker 2

Thanks, Elliot. Tucows Domains delivered another solid quarter in q two with each of revenue, gross margin, and adjusted EBITDA growing year over year. These gains build on the year over year growth and momentum in q one 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 Radix, 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.

Speaker 2

I will talk further about this exciting news in a moment. Revenue rose 8% year over year in Q2, gross margin expanded 14% and adjusted EBITDA grew 12%. Through the first half of the year, adjusted EBITDA was 24,000,000 and up 13% year 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.

Speaker 2

Q2 revenue for the wholesale channel rose 8% year over year to 57,300,000.0 compared to 53,000,000 for Q2 of last year. Gross margin increased 15% to 15,700,000.0 from 13,600,000.0 last year. Within the wholesale channel, domain services delivered gross margin of 10,400,000.0, up 8% from 9,600,000.0 in Q2 twenty twenty four. Value added services had another exceptional year over year gain in gross margin of 32%, delivering 5,300,000.0 this quarter driven by strong sales from our expiry stream. Our retail channel saw strong growth in Q2 with revenue increasing 10% year over year to $10,300,000 Gross margin expanded 11% to 5,900,000.0 reflecting higher margins in the retail segment.

Speaker 2

As anticipated, total domains under management and transaction volumes declined modestly down 23% 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 Tucows 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've talked about being selected by Nixie, the National Internet Exchange of India and the registry operator of the .in country code TLD. We completed the migration of Nixie's 4,000,000 domains to our platform at the May as planned and scheduled.

Speaker 2

Our engagement with Radix is equally exciting. Radix 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. Radix 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.

Speaker 2

In total, we will be migrating just over 10,000,000 domains across the 11 Radix TLDs onto our platform toward the end of this year. Radix 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 Tucows registry segment to managing close to 17,000,000 domains. This contract makes Tucows 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.

Speaker 2

In summary, Tucows 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 Radix 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 Reilly, CEO of WaveLock.

Speaker 3

Thanks, Dave. The 2025 now marks our best quarter since inception, surpassing the record we set just last quarter. Wave Law's revenue was 12,700,000.0 in Q two, an 11.1% increase from last quarter and a 20.5% increase from Q2 twenty twenty four. Gross margin was 12,600,000.0 this quarter, an 11.6% increase from last quarter and a 23.6% increase from q two twenty twenty four. Adjusted EBITDA for q two was 5,400,000, an increase of 20.5% quarter over quarter and a 37% increase from q two twenty twenty four.

Speaker 3

The growth year over year and quarter 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 experienced 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 0.9% 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 one and tier two opportunities, with several advancing steadily through our pipeline.

Speaker 3

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 small but mighty sales team's time to work larger deals and rightly focuses our R and D capacity with efforts consistent with our long term growth strategy. The pipeline now consists of two distinct customer profiles, large greenfield NVNOs and ISPs, and separately, established Tier one and Tier two 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. Wavellos Event Stream and tier one grade platform are perfectly positioned to help unlock this future for large operators.

Speaker 3

On inorganic growth, many of our competitors were founded in the eighties and nineties. 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 twelve 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 the next few years will be full of M and A as the cost to refactor old software stacks with AI races to zero.

Speaker 3

Last quarter, I talked about the important task of retraining the modern Internet workforce software engineers. I also shared that WaveLow 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 Wavelo'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.

Speaker 3

Democratizing our expert knowledge across our engineering teams widens the aperture for efficiency and further lays the groundwork for Wavellow's AI first future. Thanks for listening. And now over to Elliot.

Speaker 1

Thanks, Justin. Year over year, Ting's top line growth and large improvement in adjusted EBITDA continued in q two. Revenue hit 16,400,000.0 in q two, 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 gross margin grew from 9,800,000.0 to 10,400,000.0, excluding a one time 2,700,000.0 non cash lease accounting adjustment.

Speaker 1

Ting's adjusted EBITDA also continues to trend in a positive direction with a small loss of $600,000 in q two, down from 6,400,000.0 in 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 Simplybits and Cedar acquisitions.

Speaker 1

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 q two twenty twenty five, this segment generated $3,900,000 in revenue and 1,300,000.0 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 $6,000,000 in annual revenue. As we flagged last quarter, we've been pursuing the sale of nonstrategic assets.

Speaker 1

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 nonstrategic assets for a total value in excess of $15,000,000 in three separate transactions. These transactions covered noncore assets in Arizona and in our Cedar footprint in Southwest Colorado and Northern New Mexico. We place 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.

Speaker 1

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 approved 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 q two, 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.

Speaker 1

It is time to start building on winning tactics. Early q three metrics show subscriber momentum returning and we view q two 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 to January 2024, the last full month before we started to effect change, we see dramatic improvements in key KPIs in both direct marketing and door to door.

Speaker 1

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 from provision of services.

Speaker 1

We see this as a validation of our pivot and a tailwind for pure play ISP models like TIG. Now we'll hear from our CFO, Ivan Ivanov, who will discuss our financial results in detail.

Speaker 4

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 $8,500,000 a 10% year 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 22,100,000.0 up 6% year over year despite absorbing a onetime EUR 2,700,000.0 noncash lease expense adjustment at TINK.

Speaker 4

Adjusted EBITDA expanded 37% to $12,600,000 lifting year to date adjusted EBITDA to $26,200,000 That leaves us slightly ahead of the run rate required to meet our full year guidance of 47,000,000 Moving to each business unit's performance highlights. The Domains business continued to drive earnings with top line revenue of EUR 67,600,000.0, an increase of 8% year over year. Gross margin grew 14%, driven by continued strong wholesale performance as well as increased contribution from both our retail channel and value added services, which also include our expiry auction stream. As a result, Domains adjusted EBITDA improved 12% year over year to 12,500,000.0. Hueblo recorded its best quarter to date.

Speaker 4

Revenue increased 21% to $12,700,000 gross margin increased 24% to $12,600,000 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. Thing generated 13% revenue growth to EUR 16,400,000.0 on an 8% subscriber lift and higher ARPU. Gross margin was reduced this quarter to EUR 7,700,000.0 from EUR 9,800,000.0 in 2024 by the onetime lease expense adjustment I mentioned earlier. Excluding that item, margin would have risen both sequentially as well as year over year.

Speaker 4

Ting reported adjusted EBITDA loss of EUR 3,700,000.0 for the quarter. Excluding the impact of the noncash lease adjustment, Ting's adjusted EBITDA improved by EUR 5,500,000.0 year over year. We remain hyper focused on bringing Ting to profitability. And finally, the corporate segment reported revenues of EUR 1,800,000.0, down slightly from EUR 2,000,000 a year ago with an adjusted EBITDA loss of $1,700,000 Moving on to cash and balance sheet. During the second quarter, we generated $6,600,000 in cash from operating activities and ended June with EUR 52,000,000 in cash and equivalents as well as an additional EUR 16,600,000.0 in restricted cash and secured note reserve funds.

Speaker 4

Capital expenditures remained low at 3,500,000.0 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 EUR 11,000,000. The sale resulted in a gain of EUR 2,100,000.0. In addition, subsequent to the second quarter, we completed an additional sale of certain property and equipment and intangible assets for EUR 7,000,000, generating a gain of EUR 3,600,000.0, which will be reflected in the third quarter's results. Our corporate net debt as defined under our covenants fell to EUR 190,300,000.0, 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.

Speaker 4

Separately, as of quarter end, on a net basis, the TinkFibre business carried $289,600,000 in asset backed securitized notes and $122,200,000 in redeemable preferred equity. Looking ahead, we have clear catalysts that give us line of sight to continued margin expansion. This include the EUR 10,000,000 domain Radix migration to Tucows domains starting in November, Wevelos continued momentum of growth and things pivot to a capital light demand driven model. These factors combined position us well to achieve our 47,000,000 adjusted EBITDA goal while continuing to improve our corporate leverage. With that, thank you and now I'll turn it back over to Elliot.

Speaker 1

Thank you Ivan. We finished the 2025 with the company performing in line with expectations. Domains and Wavellower 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.

Speaker 1

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% year over year. We further streamlined operations through the sale of smaller non core footprints and simplified the business.

Speaker 1

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.

Speaker 1

As AI reshapes how work is done from producing marketing content to better customer experience to improving door 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.

Speaker 1

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.

Speaker 1

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@2cows.com by August 14.

Speaker 1

And look for our recorded q and a audio response and transcript to this call to be posted to the Two Cows website on Tuesday, August 26 at approximately 5PM eastern time. Thank you.

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