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Research Note - Tucows Inc. (TC:TSX,$58.09|BUY $150.00 TARGET) - Tucows Poised For a Strong Finish to 2022

Yesterday after market close, Tucows Inc. reported Q3/22 financial results that missed our expectations. Tucows posted adjusted EBITDA of $7.9M (-35% YoY), below of our estimate of $8.4M; and revenue of $78.1M (+2.8% YoY), below our estimate of $82.6M.

Tucows Domain Services: The domains business posted $60.3M in revenue (-0.74% YoY, wholesale -0.14% YoY, retail -4.25% YoY) compared to our estimate of $61.1M; and $10.4M in adjusted EBITDA (down YoY), missing our estimate of $11.6M. Although the quarter missed our expectations, Tucows remains on pace to reach 2022 adjusted EBITDA guidance of $45.0M. Total new, renewed and transferred-in domains came in at 5.2M vs. 5.4M in Q3/21 while the overall renewal rate was 80% (vs. 82% last quarter).

Ting Internet: The fiber business generated $10.9M in revenue during the quarter (+64% YoY, +7% QoQ), missing our estimate of $11.7M. Adjusted EBITDA came in at -$5.0M, beating our estimate of -$5.3M. Ting Internet ended the quarter with 730.7K potential serviceable addresses (415.4K owned and 315.3K leased) and has completed 108.5K addresses (89.8K owned, 18.7K leased). Ting Internet deployed $24.5M in fiber capex during the quarter in line with $24.9M last quarter. Subscribers grew 8% QoQ to 32.6K at a $112/month ARPU (Figure 4). Our implied take-rate for the quarter came in at 30% compared to 29% in Q2.

Wavelo: In Q3, Wavelo posted $4.0M in revenue (-55% QoQ) and -$0.9M in adjusted EBITDA, compared to our expectations of $7.8M and $1.2M respectively. On schedule for its FY22 guidance of between $3M-$6M.


Tucows Corporate: Tucows Corporate generated $2.8M in revenue and $3.4M in adjusted EBITDA during the quarter, compared to our estimates of $2.0M in revenue and $0.9M in adjusted EBITDA. The adjusted EBITDA figure includes a $4.7M gain from the sale of Ting customer assets, compared to $4.5M last quarter.

20221104 - M Partners - TC - Q3 Results
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