Welcome to Tucows Second Quarter 2021 Management Commentary. We have pre-recorded prepared remarks regarding the quarter and outlook for the company. A Tucows-generated transcripts of these remarks with relevant links is also available on the company's website.

In lieu of a live question-and-answer period following the remarks, shareholders, analysts and prospective investors are invited to submit their questions to Tucows' Management via email at ir@tucows.com until Wednesday, August 11.

Management will address your questions directly or in a recorded audio response and transcript that will be posted to the Tucows' website on Tuesday, August 17 at approximately 4:00 p.m. Eastern time.

We would also like to advise that the updated Tucows quarterly KPI summary which provides key metrics for all of our businesses for the last six quarters, as well as for 2019, 2020 and 2021 year-to-date is available in the Investors section of the website along with the updated Ting Build scorecard and investor presentation.

Now for Management's prepared remarks. On Thursday, August 5, Tucows issued a news release reporting its financial results for the second quarter ended June 31, 2021. 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 that the following discussion may include forward-looking statements, which as such are subject to risks and uncertainties that could cause actual results to differ materially. These risk factors are described in detail in the company's documents filed with the SEC, specifically the most recent reports on the forms 10-K and 10-Q.

The company urges you to read its security filings for a full description of the risk factors applicable for its business. I would now like to turn the call over to Tucows' President and Chief Executive Officer, Elliot Noss. Go ahead, Elliott..

Thanks, Monica. Q2 marked another quarter of solid performance for Tucows overall, and for each of our three business segments.

Our domains business is benefiting from the impact of the growth in domains under management generated by the pandemic impact last year, as well as the continued impact of our focus on maximizing gross margin and overall profitability. Mobile services is moving forward on plan and contributing in line with our expectations for the MSC model.

And internet services saw another quarter of record performances across key metrics, including by far our largest CapEx spend, past addresses and growth in the subscriber base.

Turning to our financial results, I will again remind you that for comparative purposes our reported revenue and gross margin do not include results from our legacy mobile customers with almost all of that revenue and much of the expenses associated with the mobile business now subsumed in other income.

Those looking for a refresher of the details can refer to our Q3 2020 management remarks. Net income for the second quarter was $1.8 million or $0.17 a share, compared with 200,000 or $0.1 a share.

with a reminder of Q2 last year included non-cash non-recurring charges that were excluded resulted in net income of $2.5 million or $0.23 per share, as increased spend on OpEx to fuel growth in our two growth businesses and increased non-cash charges from our CapEx spend drive this number lower.

Cash flow from operations was $3.5 million, compared with $8.9 million in Q2 last year, primarily impacted by the operational investments and take fiber, and a number of other items that Dave will discuss in more detail in his section.

And adjusted EBITDA was $11.2 million, compared with $12.2 billion in Q2 last year, excluding the impact of the change in how our mobile results flow through the income statement due to the shift to the MSC model.

Revenue for just the domains and fiber internet businesses for Q2 increased 5% year-over-year to $68.1 million and gross margin for domains and fiber was up 4% to $22.3 million. Total revenue for the second quarter was $75.1 million, compared with $82.1 million for the same period last year.

And total gross margin was $18.2 million compared with $23 million in Q2 last year. The decrease in each is the result of the shift in our mobile services business to the MSC model in early August of last year. Turning now to our individual businesses, starting with Domain Services.

Q2 was another solid quarter, once again highlighting the overall consistency of the business. Revenue and gross margin were both up 4% year-over-year with adjusted EBITDA of just over 3% to $12.8 million.

With the outsized transaction volumes generated by the pandemic having dissipated, the business has settled into a healthy new steady state level as we continue to benefit from our focus on the quality of our customer base to optimize gross margin, as well as operating the business efficiently.

In our wholesale channel, we saw a year-over-year growth in both revenue and gross margin, 5% and 9% respectively, in the Domain Services component of the wholesale channel, having now emerged for the period of pandemic benefit, and given the outsized Q2 last year, it makes some sense to look at transaction performance for Q2 this year, compared to that of Q2 2019.

Total registrations for Q2 of this year were 4 million more or less the same as that for Q2 of 2019, but down 6% for the pandemic related highs of last year.

Renewals were up 7%, benefitting for the pandemic spike in registrations, and the renewal rate for the wholesale channel for Q2 was 77% down as expected from our recent historical levels of around 80%, due to the outsize number of first type renewals.

The renewal rate, however, is still above the industry average, and we expect it will return to normal next year. New registrations were down 37% as new registration activity returned to more normal levels, importantly, however, revenue for the Domain Services component of wholesale was up 4% with gross margin up 3%.

The value added services component of the wholesale channel had another very strong quarter, which saw revenue increased 16% and gross margin 22% year-over-year driven mainly by the continued strong performance from our expiry stream business that I built it on our last call.

In our retail channel total registrations were about 370,000 essentially flat compared to the second quarter of 2019 but up 8% what we correct for the transition in Q2 of this year of several 100 enough customers with nearly a quarter million domains from our retail business to the wholesale business where they will be better service.

This is part of our ongoing strategy to simplify the domains brand structure compared to Q2 last year again, correcting for the transition of the wholesale names to retail. Total transactions were essentially unchanged for Q2 last year, and new registrations were down 10%.

Again with Q2 last year being an outsized quarter due to the pandemic, the retail renewal rate was 85%, down slightly from 86% for the first quarter of this year. It also remains solidly above the industry average.

Gross margin for the retail channel for Q2 was down 9% for the same period last year, a combination of an accentuation of the trend we have discussed in previous quarters, and the transition of the customers for retail to wholesale that I just mentioned. Five quarters now for the start of the pandemic.

I have pleased with both our performance through this period and the current state of the business. In the mobile business, we continue to focus on our work for DISH both if continuing to meet milestones for the MSC platform and providing services to dish under our TSA.

We're fulfilling the requirements to the high standards team has become known for under the TSA. The Legacy team customer base that DISH now owns, is performing well relative to our expectations, and our assumption of more aggressive pricing leading to higher retention rates has proven to be correct.

Importantly, on July 19, DISH announced the signing of a long term strategic network services agreement with AT&T making AT&T the primary network services partner for DISH MBNO customers through this agreement, DISH will provide current and future customers of its retail wireless breads, including T-Mobile, Ting Mobile and Republic wireless access to AT&T wireless network, in addition to the new DISH 5G network, the agreement accelerates dishes expansion of retail wireless distribution to rural markets, where DISH provides satellite TV services.

For us this is further evidence that DISH is making all the necessary moves to grow their customer base and deliver on becoming the fourth major mobile player in the US. I'll share more thoughts on this and my closing comments.

One thing to note here is that this will postpone the already delayed settling into steady state this business even further, but for the best of business reasons for both dish and us as their success is our success.

Last quarter, we mentioned the issue with T-Mobile forcing sprint subscribers to migrate by the end of the year, costing every provider with those subscribers, including Ting and Boost subscribers, time and money to address the migration requirements in a compressed amount of time. This impacts both our work and our revenue flows.

And as I've advised previously, the best information of the Ting mobile at Boost bases will come from DISH disclosures. This is still outstanding although again, dish moving from a shotgun marriage with T-Mobile to one built on a real long term relationship with AT&T should help mitigate. Moving on to Ting internet.

We are really starting to see our work to scale the business come to fruition. In Q2, we hit a milestone of 20,000 subscribers. To put in context how the pace of our business has accelerated. We hit 10,000 subscribers in Q4 of 2019 at the end of five years of the business, and 15,000 in Q4 of 2020.

This quarter was also our largest net gain of subscribers to date at an increase of 55% in Q2 for Q1. We also set a record with our largest increase in past addresses to date was 6900 new addresses in Q2 from Q1, bringing us to a total of 77,200 past addresses and 71,400 serviceable addresses.

Our CapEx investment also continues trending upwards with a 17% increase in Q2 from Q1 and 67% compared to Q2 last year, I like to remind investors that our efforts to scale and grow have a material burden associated with them, as we focus on building capacity, hiring and laying in the primitives that will allow our ISP business to scale with continued high levels of customer satisfaction.

Seeing how this work is transforming the business and setting the stage to build and generate revenue faster and operate more efficiently. I'd have to say I have never enjoyed losing money so much. To that point, we recently lit our network in Culver City, California with service.

This is the fastest market we have planned, built and lit to date, we publicly announced the market November 17 2020. Began building the network using micro trenching at the beginning of March, and then added our first live customer to the network July 20.

We are now also using micro trenching to expedite the remainder of our deployment in Centennial Colorado. And as a result, we expect to complete the build there in the first half of 2022.

I'm extremely pleased to see our business KPIs accelerating, but as I've said, we are continuing to implement and refine processes that will allow further acceleration of these metrics. We're refining both our build machine and our operation for maximum efficiency, visibility and scalability.

We continue to integrate tools that automate track and provide robust visibility into our network operations. And that helps streamline much of our pre network build work. We're ensuring our supply chain is secure and our micro trenching practice continues to expand.

I do want to remind investors that micro trenching for us is about reducing time to build and bring on customers. It's not about reduced cost. You will recall my mention of the vastly increased interest from capital sources and building fiber markets.

This has accelerated the timelines across the country for us to find and build markets, and micro trenching is a critical tool for us to deploy quickly. Many of you have also heard me say that I'm looking for time not money when evaluating partners at opportunities.

I would also like to mention Tings inaugural foray into leveraging government funding to increase affordability of broadband access as one of the first cohort of industry players supporting the emergency broadband benefit or EBB.

It's funded by $3.2 billion allocated by Congress in the December 2020 stimulus package and aims to help Americans struggling to pay for broadband internet service during the pandemic. As part of the EBB Eligible Ting internet customers will receive up to a $50 monthly credit on their internet bill for the duration of the program.

We were able to implement the necessary internal processes to enable participant Patient have the program and launched it as soon as it was available in May, immediately signing up customers. We saw the first funds flow to us from the government in June.

Importantly, unlike most every other provider, what we are providing under this program is a full symmetrical gig subsidized. We do not believe that those on the wrong side of the digital divide, have less needs or deserve worse internet that those on the other side. I will share more of the regulatory environment in the close as well.

I'd now like to turn the call over to our CFO Dave Singh to review our financial results for the quarter in greater detail, Dave?.

Thanks, Elliot. I want to remind you at the outset the beginning in Q1 of this year, we reorganize our reporting structure into three segments, fiber internet services, mobile services and Domain Services for each of which we are now reporting down to the adjusted EBIDTA line.

Certain corporate costs are excluded from the destiny but for each segment as they are centrally managed. These include finance, human resources, legal, corporate IT, depreciation, amortization expense on premise, interest expense, stock based compensation and other income and expense items not monitored as part of our segment operations.

Our comparative period financial results have also been reclassified to reflect the new segment structure and prior periods segment, adjusted EBITDA provide. In addition, as Elliott noted at the outset, our second quarter results once again reflect the impact of the transition of our mobile business to the MC model on August 1 of last year.

As a reminder, as a result of this transition, gross margin consists of only the legacy mobile retail customer base that was not so to DISH, therefore decreases significantly year-over-year. Or more accurately Tucows no longer owns and therefore does not benefit from the margin on the growing portion of that base.

Operating Expenses also decreased because we eliminate retail spends and transition retail staff with staff intended to build and operate a wholesale business. All the revenue associated with customer relationships that were sold to DISH and much of the expenses associated with the previous mobile retail model are now included as other income.

We are however, including those earnings in our adjusted results and as such, adjusted DISH may provide a better year-over-year view on the operating performance of the overall Tucows business. Turning now to the results, total revenue for the second quarter of 2021 of $75.1 million and 9% decrease from $82.1 million in the second quarter of 2020.

The decrease is the result of the sale of the T-Mobile customer relationships on August 1 or last year. That decrease was partially offset by continued strong growth in Ting fiber internet revenue up $.4 million or 32% year-over-year as a subscriber base continues to grow as well as growth in our domains business of $2.1 million or 4% year-over-year.

Excluding the impact of the shift in the mobile business to the MSE model that I described a moment ago revenue for the combined domains and fiber internet businesses increased 5%.

Cost of revenues for network costs for Q2 decreased 5% to $49.1 million from $51.8 million for the same period last year, with a decline primarily due to the lower revenue.

As a percentage of revenue costs or revenues for network costs increased to 65% from 63%, the increase as a percentage of revenue is mainly due to a mixture of higher fiber revenue relative to lower mobile revenue.

Gross Margin for network costs for the second quarter decreased 14% year-over-year to $26 million from $30.3 million, but the entirety of the decrease in [indiscernible] attributable to the sale of T-Mobile customer relationships.

As a percentage of revenue cross margin before network costs decreased to 35% from 37% for Q2 last year, once again excluding the T-Mobile business for a more relevant year via comparison, gross margin before network costs for the combined Domain Services and fiber internet services businesses was up 4% year-over-year to $22.3 million.

I'll now review the individual gross margin for each of the domain mobile and fiber internet services business. Starting with Domain Services gross margin for the second quarter 2021 increased 4% to $19.5 million from $18.7 million for the second quarter of last year.

As a percentage of revenue gross margin for Domain Services was unchanged in Q2 last year at 31%. Within the domain services business gross margin for the wholesale channel increased 9% to $15.1 million to $13.9 million for Q2 last year.

That increases the combined result of the year over year growth in the number of domains under management and our success in managing the business for gross margin. As a percentage of revenue gross margin for wholesale increased to 28% from 27%.

Gross margin for the retail channel of Domain Services decreased 9% to $4.4 million and $4.8 million for Q2 2020. As Elliott mentioned earlier, much of this decrease was the result of the transition in Q2 of this year of a significant number of IEM customers and their domains from a retail business to a wholesale business.

As a percentage of revenue gross margin was 49% greater than 52% in Q2 last year. For mobile services gross margin was $3.7 million compared with $8.9 million in Q2 last year, but the difference primarily attributable to the sale of the T-Mobile customers DISH.

I will note here that $3.7 million for Q2 this year is up significantly from $1.5 million in Q1 as during the quarter we recognize revenue unbundled professional services included as part of the MSC platform fees. As per the accounting treatment of the DISH transaction, we generate a gain on the sale of T customer assets of $4.8 million.

It's representative burnout on that customer base, and is recognized in the income statement as other income. For fiber internet services gross margin increased 2% to 2.8 million from $2.7 million up to last year.

As I explained last quarter gross margin is impacted by a number of factors and cost drivers that are incurred prior to subscriber revenue being generated hence the relatively modest increase relative to the increase in the subscriber base over the same period.

A quick reminder, costs or revenues include the following network access fees paid to third parties to use their networks such as partnerships and Westminster bulletin as long beach bandwidth costs, the personnel and related expenses net of capitalization related to the physical construction and buildup of the fiber network.

And as well personnel and related expenses never capitalization, again, related to the installation, repair and overall field service delivery of the fiber business. Hardware costing for the cost of equipment sold to end customers, including routers, guarantees and IPTV products, and any adjustments on the inventory of these items.

Other costs include field vehicle expenses, and small sundry equipment and supplies consumed in the building of a fiber network. As a percentage of revenue gross margin for fiber intranet decreased to 40% from 62%. The decrease is primarily a factor of the timing of revenue relative to the incursion of costs.

Network expenses for the second quarter of 2021, increased 5% to $7.7 million to $7.4 million for the same period of last year. I will remind you that Q2 last year included a write down of $1.5 million related to Ting TV, excluding that write down network expenses were up 30% year-over-year.

Overall operating expenses for the second quarter of 2021 decreased 5% to $20.3 million from $21.4 million for the second quarter last year. Excluding the onetime non-cash $1.4 million impairment of intangible assets in Q2 2020 operating expenses were up 0.3 million or 1.5% the increases the result of the following.

People costs were up 0.5 million this quarter with increased workforce costs to support business expansion, including Ting internet growth and MSC platform bill offset by certain mobile costs related to the legacy subscriber base being included another income, marketing costs and credit card fees decreased by 0.3 million each mainly driven by the transition of the mobile business while bad debts decreased by 0.11 million.

Stock based compensation increase 0.3 million and professional fees were up 0.2 million. Amortization of intangible assets decreased by 0.2 million due to the breakdown of the Ting mobile vulnerability related assets last year. And lastly, there was 0.1 million net increase in expenses related to foreign exchange impacts.

Specifically, we had a loss of 0.1 million in Q2 2021 related to mark to market re measurements or forward currency contracts that do not qualify for hedge accounting convert to a gain of $0.4 million in Q2 of last year, resulting in a year-over-year loss of 0.5 million.

In addition, we experienced the loss of 0.1 million on the revaluation of foreign denominated monetary assets and liability this quarter, compared to a loss of 0.5 million in the second quarter 2020, which had the impact of decreasing our expenses 0.4 million on a year-over-year basis.

As a percentage of revenue, operating expenses increased slightly to 27% from 26%. Net income for the second quarter of 2021 was 1.8 million or $0.17 per share, compared with 0.2 million or $0.01 per share for Q2 2020.

As we've noted at the outset, net income for Q2 last year included non-cash nonrecurring charges that were excluded resulted in net income of $2.5 million or $0.23 per share, excluding the nonrecurring charges from Q2 last year.

The year-over-year decrease in net income is primarily the result of lower EBITDA due to the ting fiber investments, higher amortization of our fiber network build, which reflects the higher year-over-year expenses, and to a lesser extent higher interest costs offset by a lower effective tax rate in Q2 2021.

Adjusted EBITDA for the second quarter of 2021 was a low $0.2 million down 8% from $12.2 million for Q2 last year. That number was $3.6 million of expense that is related to corporate shared services, which compares to $3 million for the same period last year.

The remaining positive $14.2 million for Q2 2021 breaks out amongst our business segments as follows. Adjusted EBIDTA for Domain Services for Q2 increased 3% year-over-year to $12.8 million from $12.4 million in Q2 last year. Adjusted EBIDTA for mobile services increased 37% year-over-year to $5.3 million from $3.9 million.

But the impact of the transition to the MSE model, the adjusted EBIDTA line is the best indicator of the year-over-year performance of our mobile business given the change in the model. The increase was driven primarily by the increase in professional services revenues that I described earlier.

Finally, adjusted EBIDTA for fiber internet services for Q2 was negative $3.3 million, compared to negative $1.1 million in Q2 last year. The higher bidder loss is a result of the higher costs required to support the accelerated expansion of the fiber business.

Turning to our balance sheet cash and cash equivalents at the end of Q2 were $7.3 million down from $8.3 million at the end of the first quarter of this year and down from $8.9 million at the end of the second quarter last year. During Q2 we generated $3.5 million in cash from operations compared with $8.9 million in Q2 last year.

There were a number of factors that impact of the Q2 cash flow from operations, but the majority related to our fabrication bill, including an increase in the year-over-year cash EBITDA [ph] investment, fiber internet, higher inventory and prepaid balances and higher cadence [ph] tax installments in Q2 2021 as the Canadian Revenue Agency allowed deferral monthly installments in Q2 of last year during the early days of the pandemic.

All of this was partially offset by better accounts receivable collections. We also draw down $18 million on our loan and generate a net $1.2 million from the exercise and stock options.

These sources of cash were offset by an investment of $24 million in property and equipment and other fiber investments primarily related to the team each not bailed out, as well as the ongoing MSE platform built.

Finally, deferred revenue at the end of the second quarter was $155 million down 2% from $158 million at the end of the first quarter of this year, and effectively flat as compared to the end of the second quarter of last year. That concludes my remarks. And I'll now turn it back to Elliot..

Thanks, Dave. I wanted to start by hopefully being able to welcome a new board member Marlene Karl in September, subject to the results of our AGM. She brings a wealth of experience in capital structures relating to infrastructure in general, and fiber in particular. she is standing for election in the seat currently held by Raleigh Rolls.

Raleigh has generously served Tucows since 2009, and has been instrumental in helping me understand the needs of shareholders. We all give him a big thanks for all his time and effort and wish him the best in his future personal and professional endeavors.

I will also note with a solid second quarter, both operationally and financially, we reiterate our guidance for 2021 a $43 million in adjusted EBIDTA. Last quarter, I shared my thoughts on the macro environment fiber, all of which points to a huge fiber build out over the next five years in particular.

This quarter, I want to look a little bit more at the micro. First, we continue to see serious attention being paid to broadband stimulus in the US, we are pleased to see more focus on affordability. Over the next quarter or two, we hope to see these policies clarified, so we can integrate them into our operating plans.

We expect this to impact how we approach the less dense areas surrounding our current builds, and the programs we were able to put in place to help address the serious digital divide issues in the US.

We've seen a number of private equity firms invest in a platform, an executive team and an existing operation, which can serve as the basis for building a large number of fiber passes and for acquiring smaller ISVs.

What is certainly true is that when you look at the plans of incumbents like AT&T and frontier, and then what I imagined is the sum of the number of customers built or required in the spreadsheets of all these corporate development teams, it totals to many times the number of actual households in the United States.

Thus smart, nimble moves on the grounds are at a premium as is keeping a sober view. We are now seeing more deal flow for midsized and smaller ISP as I have talked about five years of building and the five years of consolidation. We could see more of these two things happening in parallel.

Most importantly, when how and why to partner and buy will be at an even greater premium. Probably the biggest news in US telecom this quarter is the AT&T DISH deal. I will not recount the details here as it has been well covered. But I will share what this means through our eyes.

First, and most importantly, this is an important affirmation of what DISH is doing. We have talked previously abets in our dish to paying off. We have talked about this in the context of how we dealt with our legacy subs in terms of how we dealt with the brand. And in terms of how we approached 5G.

But of course, the biggest bet of all is on whether or not dish DISH will be successful. And I think that this AT&T deal is a huge validation of that. It was interesting in this regard, that the most critical feedback I have seen has been that AT&T in quotes, let DISH off the hook with this deal.

This suggests that leaving them with T-Mobile as a partner would have minimized dishes chances for success. It both says a lot of what the telecom industry or at least one analyst thinks of T-Mobile as a partner, and is also a very cynical view, that puts the profitability of three companies ahead of the needs of 300 million Americans.

Thankfully, AT&T position was to paraphrase, dish will succeed with us or without us. So we may as well benefit from working with them. The connective tissue tying together the fiber market and DISH AT&T is the next generation of our ISP SAS billing software. As this gets integrated into our MSC platform, it opens up a whole new set of opportunities.

Well, this is still a few quarters away, at least, I mentioned it here because it sits at the intersection of the huge opportunity to help other ISP is participating in the incredible co acts to fiber transition that is now well underway.

And the horrible mess that is the current state of the telecom back office, we have now seen under the hood of a number of telecoms large and small, and things are even worse than we expected. And we had very low expectations. And let's be clear, this is the single greatest reason that larger telecoms in particular have such low customer satisfaction.

And it is the single greatest reason why for the last 10 years, our mobile and ISP customers have been the happiest telecom customers in the world. I note this, as it is now evident to us that at some point, the ISP software business will transition into our mobile segment, combined with MSC but that is just an accounting note for down the road.

At a business level, we see three long term trends that we have talked about for years coming together. The multi-generational transition from coax to fiber, the mess that is the telecom back office, and the integration of fixed and mobile networks.

We love our opportunities, both direct in the ISP space and indirect, helping telecoms around the world create happier customers, starting with dish. 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@tucows.com by August 11 and look for a recorded Q&A audio response. And transcript to this call to be posted on Tucows website on Tuesday, August 17 at approximately 4:00 PM Eastern Time. Thank you..

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