Elliot Noss - President and CEO Mike Cooperman - CFO.

Hubert Mak - Cormark Securities Ryan Downie - Sidoti & Company Shai Dardashti - DCM Aaron Fuchs - Fertilemind Capital Roy Liao - Goudy Park Capital.

Good afternoon, ladies and gentlemen. Welcome to Tucows’ First Quarter 2014 Conference Call. Earlier this afternoon, Tucows issued a news release reporting its financial results for the first quarter. That news release and the financial statements are available on the company’s website at tucows.com under the Investors heading.

Please note that today’s call is being broadcast live over the Internet and will be archived for replay both by telephone and via the Internet beginning approximately one hour following the completion of this call. Details on how to access the replays are available in today’s news release.

Before we begin, let me remind you that matters the company will be discussing include forward-looking statements and as such are subject to risks and uncertainties that could cause the 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 Form 10-K and Form 10-Q. The company urges you to read its security filings for a full description of the risk factors applicable for its business. I would now like to turn the call over to Tucows’ President and Chief Executive Officer, Mr. Elliot Noss. Please go ahead Mr. Noss..

Thank you, operator and thanks everyone for joining us today. With me is our Chief Financial Officer, Michael Cooperman. As per our usual format, I’ll begin today’s call with an overview of the financial and operational highlights for the quarter. Mike will then review our financial results for the quarter in detail.

And I’ll return with some closing thoughts before opening the call to questions. First, a quick note regarding our disclosure.

Ting targets a different market than our domains business and having now reached a sufficient size, about a quarter of our consolidated gross margin in Q1 and grows rapidly; we began breaking out separately for the first time this quarter under the heading, Network Access Services.

All of our domains revenue streams are now reported under the umbrella of domains services. The first quarter of 2014 once again showed consistency and reliability of our business. Our domain services businesses, wholesale, retail and portfolio, continue to deliver solid performance.

Our Retail channel Hover, in particular, had another strong quarter with nearly 25% year-over-year growth in revenue. Ting continued its momentum and outstanding growth with other quarter of customer and account additions. All of this contributed to year-over-year growth in consolidated revenue of 15% to $34.4 million.

Drilling down into each of our businesses, Ting had another great quarter.

It's been now just over two years since the launch of Ting and Ting is now about three quarters of the size of our wholesale domains business in terms of gross margin dollars and we expected to surpass our wholesale domains business to become the largest contributor to gross margin later this year and remember that our domains business is no sludge.

It is an organically grown $100 million in revenue market [later] (ph). Q1 was another record quarter for customer loyalty. We added nearly 13,000 in accounts net and more than 20,000 devices, bringing our totals to more than 61,000 accounts and 94,000 devices at the end of March.

Subsequent to quarter end and well prior to this call, we surpassed the 100,000 device milestone. I remember and some of you probably do too, that when we launched Ting, I used to ask investors to imagine just a 100,000 devices and think of the positive impact it would have on our business.

Importantly, even after lowering our data pricing in February, our gross margin percentage remained in our targeted 45% to 50% range. Our annual customer contribution and customer acquisition cost also continue to right where we would like them.

Of course, this price decrease did cost us something in the short term, but we feel the investment was well worth it. The growing list of high end devices that can be brought to our service continues to fuel additions and enhance the Ting experience.

Our most popular devices, the iPhone 4, 4S and 5, the Samsung Galaxy and the Nexus 5, all offer a certain quality that costs $600 just a year ago or are now under $400 and as low as $200 in the used market or in the case of the Nexus 5 in the Google Play Store.

We recently added the Samsung Galaxy S4 and HTC 1 to the list of eligible Ting devices and we look forward to adding more great values at a wide range of price levels throughout the year. We note that we've been selling the S4 and HTC 1, new since launch and this now allows those who buy these devices in the secondary market to bring them over.

We mentioned last quarter that we will be experimenting with broader advertising, see if we can affordably accelerate our brand awareness and consideration. In the end, these experiments validated our hypothesis that people tend to tune out traditional paid placements and the brand tends to overpay for them.

It has confirmed our belief in social recommendations. Meanwhile, we continue to see growing traffic from new visitors every month, the best indicator of awareness and consideration.

So we are encouraged to keep investing the bulk of our budget and more importantly, our effort in maintaining our core competitive advantages, low rates, usable interfaces and outstanding customer support. We've also identified a short list of strategic opportunities that we think can give us the greatest return on our marketing effort.

These include doing a better job, helping people buy and sell used phones and doing a better job of encouraging and facilitating customer referrals. In addition, we are going to reexamine whether we can make headway selling Ting's small businesses.

In the coming months, we'll launch new product features, content, promotions, sales programs and partnerships, aimed at helping us capitalize on each of these exciting opportunities. For nine straight quarters, since the launch of Ting, we have posted quarter-over-quarter growth in absolute net customer ads.

That speak of [tougher capital] (ph) repeat as we get larger and the same rate of churn starts to materially impact the customer loss in absolute numbers and it gets particularly tough as we head into the second and third quarters, which mobile industry experts tell us are seeing only slow.

We had a relatively slow April, although May seems to have bounced back. Our best guess right now would put Q2 ads somewhere between those of Q3 and Q4 of last year that is still growing our customer base by well over 15% of the quarter, a remarkable rate of growth for any business.

The other part of our business, domain services continue to perform well in Q1. In OpenSRS, our wholesale channel, key metrics including new registrations and domains under management, were relatively flat on a year-over-year basis, which was in line with our expectations.

Average gross margin has begun to tick up and should continue to do so in coming quarters, with higher margin ccTLDs and new gTLDs growing as a portion of our total mix. We also continue to see operating efficiencies as resources are shared across or reallocated to the growing network access business.

Q1 saw the first real quarter of new gTLD introductions. There are now more than 250 new extensions available to the public. Although I will note that these are still only those with no contention or where contention was quickly resolved. One of the metrics that most interests us at a market level is the ratio of new gTLD sales to those of common man.

Here we are just taking easily accessible numbers. The total new registrations in new gTLDs and the publicly reported new registrations in common man. In Q1, new gTLDs accounted for about 6.5% of the total new sales. On one hand, this includes the launch of each of these new gTLDs, which will tend to be larger than their run rate.

On the other hand, these certainly were not the most highly anticipated or most attractive new gTLDs. We have no idea what to expect in Q2, but that number does seem quite encouraging for the program as a whole. Hover's new gTLD registrations were right around that market average of 6.5% of total sales.

Given that we do not participate in any of the land rushes and that we have more attractive margins, especially relative to the businesses that we are driving significant units, we are quite pleased with that performance. OpenSRS was in the 2% to 3% range in Q1 and trending upwards to 3% to 4% in April and May.

This is consistent with our historical performance in new gTLD launches as our broad network of resellers integrate the new offers. The numbers we watch most closely here in the wholesale business, are resale adoption rates -- are resale adoption rates and there we are seeing exactly the trends we want to see.

Again, those numbers are not market shared numbers, but percent of our own new registrations coming from the new extensions. Looking more at Hover now, it continued its steady trend of 20%-plus growth year-over-year.

Hover's value of proposition is a simple, no hassle domains and email solution with outstanding customer service, continues to attract and keep customers. Our customer count at the end of the year was up 12% year-over-year.

New registrations were especially robust during Q1, up 24% year-over-year and 30% sequentially as we benefitted from some very public missteps by a couple of our competitors. Renewals and domains were up 39% and the renewal rate continues to be healthy.

The number of trends we are seeing continues to be several times larger than the number of trends present. Hover continues to be OpenSRS' most eager reseller, adding new gTLD's weekly. Our retail channel now offers more than 120 new gTLD's and by the end of the year, we expect to offer a couple of 100.

The launch of new gTLD's presents the first significant shift in domain sales in more than a decade. For years, we have assumed that most Hover visitors would not find a suitable domain in their first few attempts and therefore, focus much of the customer experience and helping them find the right one.

With the launch of new gTLD's, we now believe most people will be able to find a suitable domain quickly and we're rethinking our search results accordingly. This work will continue through the year. Moving on to the third channel in domain services, our portfolio.

Portfolio business continued its return to 2012 and early 2013 levels after a dip in the middle of 2013. We also recently launched an aggressive program of experimentation on our portfolio landing pages that should push more traffic and sales for our network partners.

I would now like to turn the call over to Mike to review our financial results for the quarter in greater detail.

Mike?.

Thanks Elliot. As Elliot mentioned, Ting has now grown to the size where it is more meaningful contributor to our gross margin performance.

Even then it can be differentiated from our domain service offerings by both the market it serves and the regulatory environments in which it operates, beginning this quarter, we have begun breaking that revenue stream out separately in our financials under the heading, Network Access Services.

We will continue to break out our wholesale, retail and portfolio revenue streams in the same detail we had provided in the past under the heading Domain Services. This quarter saw another quarter of year-over-year topline growth with total revenue up $4.4 million of 15% to $34.4 million compared to $30 million for Q1 of last year.

Cost of revenues before network costs were $24.3 million, up $2.2 million or 10% from $22.1 million. This increase resulted primarily from our supporting higher sales of Ting devices and services. Gross margin before network costs increased by $2.2 million or 28% to $10.1 million when compared to the first quarter of last year.

Gross margin as a percentage of net revenue increased to 29% from 26% when compared to Q1 of last year. These increases were largely driven by Ting's performance. I'll now review Ting's -- I'll now review gross margin performance in each of our service categories beginning with our domain services business.

Gross margin for domain services, which again, includes our wholesale, retail and portfolio revenue streams was essentially unchanged from Q1 of last year at $7.7 million.

Gross margin for wholesale, which includes domains and other value added services increased marginally by less than $100,000 or 2% to $5.5 million from $5.6 million for the same quarter of last year. The domains component of wholesale was down less than 1% at $3.4 million and the value added services component was down 3% at $2.1 million.

As a percentage of revenue, gross margin from wholesale services was also unchanged at 23%. Gross margin for retail services, which now consists solely of Hover, increased $200,000 or 17% to $1.4 million or $1.2 million for the first quarter of last year.

The increase is the result of our continued success in adding new customers and growing sales to our existing customers. As a percentage of revenue, gross margin for retail services was 57% compared to 61% for Q1 last year. The result of our undertaking campaigns was slightly more aggressive promotional pricing in the first quarter of this year.

Gross margin for portfolio services was $810,000, down $123,000 or 13% from $933,000 for the first quarter of last year. On a percentage basis, gross margin from our portfolio group was 77%, down from 82% for Q1 of 2013.

Turning to costs, network expenses for the first quarter of this year were $1.3 million, down $100,000 or 17% from $1.4 million for the same period a year ago. The decrease reflects our continuing ability to improve efficiencies in operating and managing our co-location facilities.

Further operating expenses for Q1 were $8 million, up $1.8 million or 29% from $6.2 million for the same period last year. The increase primarily is the result of three factors.

First we invested an incremental $1.2 million when compared to the first quarter of last year in workforce, marketing and other costs related to acquiring and supporting Ting customers.

I think it's important to once again remind listeners that these higher costs are a function of Ting's success as our quarterly customer ads are still relatively large as a proportion of the overall base. Thus our costs are relatively high as a proportion of revenue.

As the size of the additions relative to the base continues to go down, our customer acquisition cost relative to revenue will decrease. Second, we incurred a $317,000 higher loss on foreign currency full of contracts in Q1 of this year compared to last year.

And third, as part of our normal portfolio renewal process and during the quarter, we assess that certain domain names acquired in June 2006 acquisition of Mailbank.com Inc should not be renewed and were allowed to expire.

Accordingly these domain names for the book value of $250,000 had been written off and recorded as an impairment of indefinite life intangible assets during the quarter. As a percentage of revenue, total operating expenses increased to 23% from 21%.

Net income for the first quarter of 2014 was $477,000 or $0.04 per share, compared with $77,000 or $0.01 per share for the same period of last year. I will remind you that our per share figures for both periods reflect the one-for-four reverse stock split that we completed in December 2013.

Cash and cash equivalents at the end of the first quarter of 2014 were $13.5 million up from $12.4 million at the end of the fourth quarter of 2013 and $4.3 million at the end of the first quarter of 2013. We use net cash in operating activities of $39,000.

I would note for you that net cash from operating activities included in excess tax benefit from share-based compensation expenses or $1 million that arose in the exercise of stock options during Q1 of 2014. Cash flow from financing activities reflects the excess tax benefit from share-based compensation expenses as a corresponding inflow.

In addition, we generated $911,000 from the exercise of stock option. These sources of funds were partially offset by our repaying $617,000 of our bank line, our repurchasing $82,000 of our stock through our recently announced stock buyback program and our investing $69,000 in equipment purchases.

Deferred revenue at the end of the first quarter of 2014 was $72.8 million, up slightly from $72.4 million when compared to the first quarter of last year, but was up by $2.8 million or 4% from $70 million when compared to the fourth quarter of 2013. And with that, I would now like to turn the call back to Elliot.

Elliot?.

Thanks Mike. With the movement in the Canadian dollar over the past six or so months, I wanted to take this opportunity to provide an update on our hedging program. As a reminder, we generate revenue in U.S.

dollars, but the majority of our operating expenses are in Canadian dollars and therefore, we engage in foreign exchange hedging to provide certainty around future costs. The appreciation of the Canadian dollar has been a bit of a headwind really over the last decade or so, as our expenses were that much higher relative to our revenues.

You see that reflective in our 2014 numbers and our guidance. However, with the recent weakening of the Canadian dollar, we now have a bit of a tailwind. We have typically hedged out 18 months or so, but are now only hedged through the end of 2014.

Thus, if the foreign exchange rate stays more or less in its current range, EBITDA could benefit by as much as $1 million to $1.5 million in 2015 relative to this year. We notice in the context of our continuing commitments to return capital to shareholders. During Q1, we announced the annual renewal of our normal course stock buyback program.

That is essentially the same program we’ve had in place for a number of years now. It is put in place and reviewed annually. This year we've upped the size of the program to $20 million, which is twice as large than its previously been. The larger amount is reflective of our larger market cap and the larger dollar volume of shares traded.

Once these programs are in place, but we then do on quarterly basis at the Board level is discussed whether we are going to be in the market during the quarter and at what price range. Sometimes, we have those discussions and the market moves away from us and we might not reconvene the Board to revisit those targets inside of the quarter.

As a result, investors should never read too much into what we’ve done in terms of buybacks in any particular quarter. We remain committed to returning capital to shareholders and our buybacks remain the best means by which to do this. Of course this open market program is an addition to any dust tenders we may choose to initiate.

Looking at the remainder of the year, we are quite comfortable reiterating our guidance for 2014 at $13 to $13.5 million. The first quarter of 2014 was right on track.

In each unit of our Domains Business there were smart projects underway, which will continue to help make the most out of our relatively mature business and with Ting, it was still so much Blue Ocean that each quarter our learning and adapting continues to be excited. With that, I’d like to open the call to questions.

Operator?.

(Operator Instructions) Your first question comes from line of Hubert Mak from Cormark Securities. Your line is open..

Hey, guys..

Hi, Hubert..

Hey. Just maybe I’ll start off with the Ting. Obviously it was a good sub growth here.

And I think I just heard that obvious we’re going to be a little bit [too from the softer – this] (ph) Q2, but what is your thinking in the contrast of your strategy that you guys would like to rollout in terms of partnering enterprise and all the other strategy you put -- you look like you’re going to be putting in place.

Where you see like Q4 ending, I guess maybe that’s the better metrics and looking at that its usually the highest quarter I think in terms of sub ads, so do you think that's our go back to like this quarter level or if not higher or what's your thinking there?.

Well, part of the final challenge of this business is we’re really in their every day and every week to slug it out. So I’m really thinking about this quarter not Q4. I want to make a couple of more comments there. First we didn’t say enterprise or I didn’t say enterprise like a small business..

Sorry, okay, right..

Enterprise is a very particular creature in terms of sales effort and the way you go about it etcetera. The things we are doing are really focused on small business. So many of our customers work in small businesses and we need to be able to take the love we get at that direct level and figure out a way to channel us into those small businesses.

And I think that we are still new enough in this business that we’re -- we don’t have enough experience to say, hey, seasonality or here’s where it's going to be two or three or four quarters. And the base is still small enough relative to the number of ads every quarter, that it’s not something we want to fall into.

And I can tell you, I said on the call, April was relative soft and we saw a pickup in May, it’s a great example. If I was doing this call three weeks ago I probably would have been more negative than I am here just two or three weeks later and seeing the trends. So, two or three weeks from now, who knows, I maybe – I might have be more buoyant.

So it’s not difficult at this early stage of a young business..

Okay.

And then just maybe on the financials then, are you able to sort of break down what the hardware revenue is, so you guys broke out the Ting services?.

Mike, did you make any comments about the hardware revenue?.

At this stage, we haven’t broken out any of the hardware revenue. So I don’t have those stats here. But it is something we could consider for future course..

Yeah, it's not a terrible idea here, because again you know the way we view that revenue a pass-through. I think that it would make it cleaner for everyone..

What we can say to you – what we can say is that we do not look at hardware as a traditional generator of gross margin for ourselves. We rather look at it as enabler of us getting to the service revenue. So they are not -- they are no meaningful contributions to gross margin in hardware throughout the offices that cost us a bit of money..

Okay. I know I asked this question before, but maybe I just circle back again.

I know that, most of you certainly have been obviously increasing more competitive especially in the prepaid market, are you seeing any direct impact on that or not at all like you are still trying to gain share here?.

Yeah. We -- it's very tough to parse it and so where we have to do that is anecdotally -- and I don’t, when you say especially in the prepaid market, that we still think that our competition comes from primarily in our -- the important place to keep focused are AT&A and Verizon.

If anything has had an impact competitively, it's been T-Mobile, but there’s nothing really that I can quantify. We’re really – I think that the other MVNOs especially the very low end of the prepaid market, we don’t know that we’re seeing a lot of impact there..

Okay.

Switching over to Domain and correct if I’m wrong, I think I heard that, am I right that you’re saying, you’re seeing sort of 3% to 4% growth coming back here and have grown back in the back half of year is that what you’re seeing?.

I did not say that. The 3% to 4% was simply a comment about what wholesale is seeing with the percentage of new gTLD..

Okay..

And there's a percentage of new sales coming from new gTLD. I wanted to -- it's a number we’re starting to track internally here. So you can look at -- there are public sources for the zone files in new gTLDs and then Verizon reports their comment net numbers, which are a pretty good proxy for the existing gTLD market.

And comparing those two numbers, we want to put that out into how guys follow along with us in terms of the impact the gTLDs are having or not..

Okay. So I think obviously you had mentioned that you guys are seeing 6.5% in terms of the new gTLD like, so what is your outlook here in terms of domain market share.

Where do you see the growth coming in the context of the new gTLD?.

I think its performing to our expectations in terms of sort our planning. The program is doing what we’d hope for in terms of contribution. I think that the contribution that we’re seeing from the whole domains business and in fact each of the elements of the business is right about where we want it.

So it's right about where we’ve been talking about growth in terms of profitability. So we are just talking about that kind of low to mid single-digits type range for the wholesale business that’s what we are saying..

Okay.

And in terms of the bigger impact of the new gTLD are we still thinking maybe its more 2015 – later in 2015?.

I think that what we -- absolutely, you’re seeing again I think about 6.5% and that just in new.

Remember that where the bulk of the revenue and gross margin comes from is in renewals, right? So 6.5% of new which is relatively speaking a smaller percentage of the whole pie, right? So what I’m trying to do is put that out there, so we can see how this is going to come along..

Okay. And then….

As you return and jump in, not just 2015; 2015, 2016, 2017 is where we see that, kind of ramping it and really layering in some growth..

All right. Okay. And then just on the expenses like, is there a way to how you guys -- like obviously expenses it looks like I think it ticked up a little here in terms of the OpEx, is this – do you think this is baseline level that we can use or do you think there’ll be some continue to increase here or do you think it's going to be flat circle or….

Yeah, I think the only thing we’re going to see really moving OpEx in any sort of way it's going to jump out two you, is going to be customer growth let's say..

Okay. But arguably then -- so I would see continue increase along with like I’m just trying to figure out the level….

No, no. Remember that the cost grow with the level of growth. So if we added the same level of customers, you’d see the same level of spend that's not rolling with the base, that’s growing with the rate of growth..

Okay.

And lastly just on the tax like it looks like it's like 35%, is that the rate that we think obviously just going for it in terms of the tax rate?.

We aren’t really focusing, it would be a prudent rate to use..

Sorry, so I missed that.

What was that number again?.

Around 34% could be a prudent rate to use..

He’s saving a percent there..

Okay. Thank you..

Thanks..

I’ll pass by..

Your next question comes from Ryan Downie from Sidoti & Company. Your line is open..

Hi, good evening..

Hi, Ryan..

Taking a look at the Hover gross margin, it was down as a percentage of revenues, because of some promotional activity.

Can we expect that sort of extend throughout rest of the year?.

I think you’ll see a little bit of that. We don’t know. I think we’ve got to take a step back. We will look at the impact -- how positive was the impact then, was is then on customers and you’re going to see some of that -- some experimentation as the range of gTLDs come out.

So, there’s going be those kind of competing thing with promotions and mix and it’s really tough to say where that’s going to come out..

Okay.

Regarding taking changes from small business customers, does that -- is there a material change in the types of marketing strategies you guys are going to employ or does that just work because it’s similar to what you do for consumers?.

Well I think -- one of the things I was trying to put an emphasis on, more on my voice than the words on the call was this will be less about money and more about efforts.

So when we did some of the things we did through December, January and February, those programs that I’ve talked about all, of those programs took people’s time and effort on top of the dollars that went into them. So you’re going to see some of that time and effort focused on some small business programs.

So that could relate to a whole range of things that could -- will be things like programs into the base to try and leverage referrals up into small businesses where people are employed that will be effort around identifying small business niches where we’re actually making a little bit of traction and then trying to go further on those niches.

So it’s going to be about taking an effort there..

Okay. Sort of more generally on the domain registration side, we’ve seen the ICANN conference was earlier this quarter and then there is the [NetKnown] deal in Brazil.

Could you may be just comment on how you see the discussions on internet governance playing out and is that favourable for you guys so far?.

Sure, I’ll start by saying those discussions absent some real negative material change, won’t have much of an effect on us as a business. They do however are of great importance for all of us for the internet. I think that the [Netknown] deal to me not really surprisingly.

I don’t know how closely you were following it, but the final report was actually leaked before the conference even started. So it was a little bit of set piece, but there was a fairly rigorous reinforcement and blessing of multi-stakeholders. I can’t tell you that we have the next ICANN meeting in London towards the end of June.

And the agenda was changed recently at public forum is kind of the big punctuation mark on the ICANN meeting. And fully half of the public forum has been hired off to discuss all of these internet governance issues. So, I think what you’re going to see, this is a long term dialogue. You’re really talking about a very long-term trend in governance.

This really transcends -- the internet is really, I don’t want to be two grand, but the next phase of democracy and so I think you’re not going to see this happen in quarters or even years..

All right. Thanks. That's all from me..

Thank you, Ryan..

Your next question comes from line of Shai Dardashti from DCM. Your line is open..

Hi, good evening. I actually have six questions. I’d like to ask two and then go back queue and ask the other four..

Thanks Shai..

My first question is that, you’ve reached the 100,000 customers of Ting from a standing start, I would imagine that going from 100,000 to 200,000 customers, is that actually easier than going from zero to 100. So I’m curious to what degree you find that having a larger customer base actually makes it easier to get additional customers please..

A question I haven’t thought about. That’s good. I think I probably have two comments. All of the -- so much of machinery, the day-to-day business processes are in place. We’ve tried a number of things now, like any -- from my perspective, any good business, we’ve sorted through a bunch of things that worked and didn’t.

So there's certainly, those efficiencies that come from all that. A lot of the vagaries are out. I don’t know that there are -- we didn’t really have a lot of who are you and will you still be in business in a year. That might be because there’s some familiarity with Tucows.

That might be because we’ve always done a fairly professional level of design and usability. I don’t know if there's much benefit there. I do think like anything else, it's more a well oiled machine. I would certainly be disappointed if we didn’t get to 200,000 a lit bit quicker that we got to a 1,000, to the first 100,000.

On the other side though, I mentioned on the call that, there is some law of big number and sure just on an absolute numbers basis starts to become more of a headwind. X percent off of 10,000 is a much small number than X percent off of a 100,000.

And so each quarter to deliver that same net number, the higher net number, you got to do a little bit and a little bit better. It’s a problem I am thrilled to have and it's a problem I hope gets a lot worst, but that’s also a reality of the math. So I think that that's what sitting in front of us.

We've always considered it hard work and we better should hope that -- I think you heard in the beginning of the question, I’m not looking at Q4, I’ve got the second half of Q2 to deal this. So I hope that helps..

Okay. And my second question is that ignoring Sprint completely on my math Ting presently has a market share of four basis points.

I’m curious what is the subscriber capacity, where I guess the market share that the current infrastructure within Tucows’ can support as more people come to realize just how wonderful Ting is?.

Thank you for the kind comment. Because we don’t run a network, so I’ll take that to go towards that ignoring Sprint completely. Boy, I’m sure there would be some natural limit in speed. It would probably be tough to digest, probably in customers next quarter. I’d love to try. But there’s not a lot of practical limit there.

We recently opened a new customer service center in St. Catharines. So we've laid in some additional infrastructure there. We think that there is a good pipeline of customer service people which is really the people element that scale deals with.

There is nothing in the infrastructure around network or website or product that changes at all the engineering and the product design is the same for us as it is for Horizon or AT&T in most respects. So I don't think that there is a lot there in terms of practical limit..

Okay. I'll go back in the queue. Thank you..

Thank you..

Your next question comes from the line of Aaron Fuchs from Fertilemind Capital. Your line is open..

Yes, Aaron Fuchs. The reducing of forward contract is a big move, can you just give a little more detail, it could produce more EBITDA, but it's obviously just takes currency risks on to the balance sheet..

I think that -- look, we've always, let me describe it in this call as we hedge to give ourselves runway, that's really been the case that our voices have been talking about the declining dollar for the last six to 12 months and so we've just been letting contracts come off. We'll probably start to pick them back up again.

I don't want you to hear me say, we plan to go naked and continue that way. We are just looking for the next play -- for the right stock to start bringing them back on again.

I like having that 12 to 18 months in lead time and I can tell you that I don't think twice about the fact that for instance as we report a quarter like we just did that I've got a currency loss. I managed with certainty and knew exactly what I was doing as I was pulling the levers through the quarter, so it was great. It didn’t bother me at all.

What I wanted to do there is to just level the playing field because we were departing from our usual practice and I just wanted everybody to be aware of it..

Right. And aren’t they becoming more naturally hedged with your Sprint payments and the labor for Ting for the CSR's on Ting is U.S.

based right?.

No, no, they are Canadian. So we are not becoming more naturally hedged actually. There is nothing in that. When you say the payment for Sprint, you know that I was -- I am looking at the gross margin dollars and….

Okay. And the CSRs, I thought they are running out of the Mississippi office..

No, no, we are doing a little bit of a fulfillment out of Mississippi, but there is not a lot of additional headcount because along that -- with that. We have the office down there already. St. Catharines where the new office has opened up is about a stone throw from the border, but it's still Canadian dollars.

And I can tell you we looked at a couple of places on each side of the border. We picked St. Catharines before the recent fall of dollar and that just turned out to be lucky and it's always better to be lucky than good. So we picked up a little added benefit there..

Great. And your attempt to go to small business here, the first one through the OpenSRS we saw has been definitely worth because someone who purchased the wholesale domain service is not the same as someone who does the software. I didn’t quite understand what the difference will be in your attack this way.

Is it attempt to get the viral marketing going like you did on other side so successfully?.

Yes, I think it -- now it starts to leverage our existing customer base into small businesses and I think and sort of, direct to little more of the materials and messaging towards small businesses, uniquely I think you can see some of that on the website already if you dig around and I can [forward] you some links after the call if you like.

And I thought about referencing in the call when I mentioned that sort of back to the initial efforts around small business, but I thought I would just end up taking up too much air with that, but that's exactly right.

We looked at -- it was kind of -- hey, that way -- we saw that as a very real, very important opportunity where we launched it and we talked a lot about it in the very first couple of calls, very early days there. It didn’t work.

We got away from it and we kind of looked at opportunities and the couple of small businesses, the few relationships that we did have and that we do have in the base, they were loving it and so we thought it was time to relook at that..

Great. Thanks a lot..

Thanks Aaron..

Your next question comes from the line of [Patrick from Venture] Capital. Your line is open..

Hi guys, congratulations on a great quarter..

Thanks Patrick..

I had one question, you have no contracts from AT&T as proven in their latest quarter that consumers love that, you only pay for what you use, everybody loves that, but device purchase wise, I noticed on your website you're not shipping that yet, but you get a 4G LTE smartphone for under $200 that you'll be shipping later this month.

I got to believe that's a big deal.

Do you have any thoughts on that? Have you gotten any initial response to that? What can you tell me?.

Sure, there is -- so there is -- that's a device that we are hoping to have in a week or two. We are not used to dealing with the terrible things called supply chains in the markets that we can from, but -- so we are hoping to have that device in a week or two. It's a device that Coolpad is probably going to be in the market at $199.

It's really the best $200 -- that sub $200 device that we've seen. PC Magazine did a review on it. They did a review of the Ting Coolpad device. It's interesting. So we definitely think that's the right price point to our customers. It's certainly the best new sub-$200 device -- $200 device that we've seen -- that we've offered.

It's certainly the best kind of low priced LTE device that we've offered. So we are hoping that this is -- and we are going to make a big deal about it. So we are hoping that it's going to have an impact. There is two other thoughts that I'll add.

One is, we never know and we try to triangulate in a couple of different ways, how much an impact something like that will be as replacement and how much it will be in terms of attracting new customers. So it could just be somebody buying that instead of a used 4S or instead of a used Galaxy S3.

So we don't -- it's always tough to know what kind of impact that's going to have. The second thing is, it's really interesting a bit that we've noticed where people love to talk about it, the north of $500 devices in our customer base, but they end up buying the sub-$200 devices.

So we are trying to think about how to kind of capture that and so something with it..

Okay. Well it sounds encouraging based on my daughter's experience. These are definitely consumable devices, so I would think lower price does better, but at any rate, keep up the great work and congratulations..

Thanks Patrick..

Your next question comes from the line of Jamie DeYoung from Goudy Park Capital. Your line is open..

Hi Elliot, this is Roy Liao in for Jamie..

Hey Roy..

Just quick question on kind of customer acquisition cost and lifetime value, I know in the past you've mentioned customer acquisition cost was around $80 and on the last call you said it might move up to $110, kind of wondering what we're seeing there for this quarter?.

Yes, so I think comfortably below $100. I've never said $80 and so you saw -- you can just do a little math and kind of see, it drifted up a little bit this quarter. As we told you that stuff didn’t really take. So you didn’t see it sort of trending back down to where it's been.

It didn’t even get as high as I thought it might last quarter and now you are going to see it go back to where it's historically been..

Okay. And then how about kind of, you briefly mentioned some anecdotal numbers around churn and similar to AT&T and Verizon that for the first month. Is that still in line? Are we looking still at kind of somewhere around anywhere from let's say a four to five-year type of retention rate per customer.

Are we in the same ballpark?.

No there is a couple things. So let me say four or five year retention rates aren’t far off, but I do want to say, I noticed that I had this thing back both in a written article that I saw and in a couple comments like the one you just made.

There was a mistake and I am glad to go out at that, so I can give me an excuse to correct it on the call, there was a mistake in the Seeking Alpha transcript that was posted. I think that's where you got what you just said, which was let's say it was around Verizon and AT&T after the first 30 days.

What I said on the call was that we were higher than -- always be a little bit higher than Verizon or AT&T and they are kind of in line with some of the other bigger carriers and better than most MVNOs that means in terms of what we are hearing with our channel checks. They wrote that as sort of the same ads instead of not as good ads..

Okay. I'll….

Glad, you gave me a chance to correct it, but if your model is kind of in that four or five year range, you ain't too far off..

Okay. And then so I mean, are we safe to assume kind of given that you are charging may be around $300, $350 a customer, a year that the lifetime value is still around kind of the $1400 range..

Well, I am not -- so I don't do my math like that because I want to see where, so there is a couple different pieces, I sort of do my math like that, I don't like calculating lifetime value because I want to -- I would rather instead just look at payback and there's two reasons for that.

One, I'll be a lot more comfortable putting out a churn number when the Sprint network hopefully settled down in terms of having an impact over the next couple of quarters.

I listened to their calls with great interest and I am looking forward to the call where they say, our network's no longer having an impact on churn because when impacts them, it impacts us. So that's kind of point number one.

Point number two is I am watching the cohort data pretty closely and we do see that over time, people usage on an account goes up slightly. The number of devices on an account goes up. So that would suggest that you can't really calculate the lifetime value based on churn.

Remember the numbers that I put out in terms of both churn and annual contribution are from accounts, not devices.

So if we see that account behavior changing and growing over time, that I want to see what that settles down into and I certainly can't guess what's it's going to be like, but the three, or four or five-year mark when we haven’t been in business that long..

Okay.

But your assumption is that it's going to improve as opposed to its going to get worse, right?.

I have seen nothing to indicate otherwise, that's right..

Okay. And then you mentioned some comments about T-Mobile lowering prices, your customers are still saving a significant amount kind of even over T-Mobile right..

Yes, they are. What you see as you get -- you see T-Mobile start to eat up some of that mindshare or some of that voice share almost and so when people read about T-Mobile leading a pricing revolution or things like that, we imagine that, that will have an impact right. So it's all anecdotal at that point..

Okay.

And then kind of given Ting growth, do you have any, can you give us kind of a ballpark around how that flows down into EBITDA, I know expenses -- operating expenses were a little higher this quarter, going into 2015, can we see Ting be just as big not from a -- just only a gross margin perspective, but an EBITDA perspective as well?.

Oh, I feel like I am just comfortable because it's only been a few quarters giving guidance for 2014, you wouldn’t be able to cross me into 2015. I am trying to and will continue to give enough visibility into the Ting numbers, where you can play around with assumptions and start to see how those numbers roll pretty nicely..

Okay. Okay. And then….

And as always, I am happy to kind of walk you through a bunch of those variables..

Okay. And then -- last one for me, that additional expense this quarter due to Ting, I think is slightly north of a million, is part of that kind of one timing or the build-out of the new customer facility, the split between the kind of the Ting and public customer service or is that kind of the base rate going forward..

I think you are seeing a little bit of those two things when you are looking at period comparisons for both the things you mentioned and then you are seeing the growth. As you see that going forward, you are going to be able to have at least on a quarter-over-quarter basis cleaner comparisons..

Okay. Okay. Got it. Great. Thanks again. Great performance..

Thanks Roy..

There are no further questions. At this time, I'll turn the call back to Mr. Noss..

Thanks very much and we look forward to speaking with you all next quarter. Operator This concludes today’s conference call. You may now disconnect..