Tucows' CEO Discusses Q4 2013 Results - Earnings Call Transcript

| About: Tucows Inc (TCX)

Tucows Inc. (NYSEMKT:TCX)

Q4 2013 Earnings Conference Call

February 12, 2014 4:00 PM ET

Executives

Elliot Noss – President and Chief Executive Officer

Michael Cooperman – Chief Financial Officer

Analysts

Hubert Mak – Cormark Securities, Inc.

Aaron Fuchs – Fertilemind Capital

Operator

Good afternoon, ladies and gentlemen and welcome to the Tucows’ Fourth Quarter 2013 Conference Call. Earlier this afternoon, Tucows released a news release reporting its financial results for the fourth 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 1 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 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.

Elliott Noss

Thank you, operator and thanks everyone for joining us today. With me is Michael Cooperman, our Chief Financial Officer. As for 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.

The fourth quarter capped off another successful year for Tucows, one that continue to demonstrate, not only the consistency and reliability of our business, but also our ability to generate growth is highlighted by continued plus 30% of Hover and dramatic customer growth in Ting.

Revenue for the quarter was up 11% year-over-year to $33.1 million and would have been another record quarter if not for the outsized portfolio contribution in Q3 that I describe last call. Revenue for the year was another record at a $130 million up just over 13% from 2012. EBITDA was up 21% year-over-year to nearly $10 million and then after the investment in Ting.

On the whole sales domains business most key metrics continued to be relatively flat. However, gross margin picks up in the fourth quarter as we saw higher registry rebate this year than last. As I discussed last year, we expect our return to growth in total registrations of 3% to 5%. We expect our margin to grow even further registrations as higher margin ccTLDs a new gTLDs continue to gain a larger share of product mix.

Also due to increase burdens from the new register remove with ICANN we had to start charging for our WHOIS Privacy service. This will bring both new margins and new cost but it should affect gross margin positively. With respect to new gTLDs the launches have begun with the first sunrise period in Q4 and there are handful strings generally available in Q1.

So far, these are just domains where there was no contention or contention that was quickly resolved. They do not include many of the most highly anticipated domains and have not revealed much yet above what we can expect from new gTLDs. Turning to our domain portfolio business, we are returning to normalcy here following the transition to new leadership at the end of last summer.

There is no question that domain monetization continues to be challenged and we expect a flat to downward trend there. That affects both our domain parking revenue and our ability to monetize the expiry stream. Although we do for see more reliability there as we work towards finalizing the new partnership.

On the more strategic side of the business the selling of domain names from the portfolio, we’re seeing a return to the performance levels we saw in early 2013 and back in to 2012.

And even some improvement from the levels of 12 months ago. We think that GoDaddy purchase of Afternic the largest secondary market in the world and a very important partner of our portfolio business bring some welcome expertise and focus to the secondary market. So we continue to be encouraged for 2014 and would to expect to see nice growth in run rate over 2013.

In our retail domains business the strength of the Hover value proposition continues to drive growth in customers, growth in transactions and growth in revenue and cash contribution. Hover added 22,000 new customers in 2013 up 10% from the 20,000 customers added in 2012. New registrations in the fourth quarter were up 20% year-over-year, while renewals were up 56% with the renewal rate holding study at its healthy levels.

Revenue for Q4 was up 24% compared to Q4 of last year. Transfers in once again outpaced transfers out, Hover’s customers support capability a corner stone of it tremendous success, also we have an important lift this quarter from an operational shift. For the past two years Hover has essentially been subsidizing Ting support with resources being shared across the two services. Now the Ting is achieved a size that warrants its own dedicated support team, Hover returns to a team of customer support representative that are focused entirely on the Hover service. That allows them to go deeper in their knowledge of the product and the understanding of customer’s needs.

This shift seems to have already produced an improvement in service quality with Hovers net promoter score. A metric we watch very closely reaching a new high of 63 in Q4, up from the score of 56 a year ago. The groups continued to ship systems and processors and their sufficient cross training to lend the coverage on either side if needed.

I would also like to share some insight into our retail marketing, that pertains to both Hover and Ting. As we have discussed in the past, growth in both brands has been driven by customer referrals word of mouth, social media and closely scrutinized direct response marketing vehicles. The so much positive buzz surrounding these brands and such strong conversion from awareness to purchase we’ve started to explore with more traditional, more scalable advertising programs can help further accelerate growth.

Hover has started to test a bit of television. Ting has started testing television, movie theater ads and outdoor ads in select markets. So far these experiments have mostly validated our hypothesis that people tend to tune out traditional paid placements and has reinforced the need to earn authentic endorsements and choose strategic partnerships. But we will continue to identify and scale winners as we find them.

In 2014 we expect to continue to experiment more and are willing to what our acquisition costs targets relax a little, not much but a little in order to try to find opportunities that will the promise of more scale.

Moving to Ting metrics, Q4 was another outstanding quarter. We added more than 12,000 accounts and more than 18,000 devices beating Q3’s record numbers and bringing our totals to 48,000 accounts and 74,000 devices at the end of December.

Importantly gross margin percentage, annual customer contribution and customer acquisition costs continue to be right where we would like them. Last quarter I talked about our rate of growth leveling off subsequent for the launch of iPhone 5C and 5S and iOS 7.

I also noted that of the beginning of November, we get finally been able to start supporting use the iPhones, but only the 4 and 4S. Give the combination the iPhone the Nexus 5 launch at the holiday season May, December our best month ever by a fair margin is giving us a great end to the year.

With the holidays behind us and the momentum for both those device launches subsiding a bit. Q1has not been quite a strong so far as December. But we were all though $50,000 customers and 80000 devices in mid January. And we continued to be pleased with the rate of growth.

We’ve also expect that there will be more news of devices and Sprint’s network rollout throughout the year and to keeping us those incremental lists. At CES this year we saw the beginning of the change in the competitive landscape of the U.S. mobile phone service market. We saw both Sprint and T-Mobile launching aggressive price initiatives and perhaps more tellingly, we have since seen AT&T and Verizon respond to the price adjustments of the run. The vast majority of mobile phone customers would still stay with Ting. We also see abundant evidence that well customers come to us for the savings this end to stay and aggregate for industry best customer support and overall experience.

Early February on the two year anniversary of our launch we announced a significant reduction in our own rates, due to our brand and in contrast to our competitors it was not a limited type promotion or a new plan option it required no action or commitment recently dropped our rates with the most significant break being a 33% decrease on high rating usage you can see the details of this decrease on our blog and our rates page.

Importantly we are able to delight our customers and tempt our prospects with ever greater savings while maintaining gross margins in our targeted 45% to 50% range. We came to the mobile phone business from the domain registration business characterized by hyper competition and razor-thin margins.

We are now competing at a mobile industry with the net EBITDA margins of our primary competitors deservedly high. We have no expectation that their margins are sustainable long-term. We expect and always expected that there will be increased competition in this market. We are confident that our bet on leading prices coupled with far superior customer service is the right one and our employees to maintain leadership in both areas.

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

Michael Cooperman

Thanks Elliot. As Allen highlighted in his marks Q4 delivered yet to another quarter for the year-over-year top line growth with revenue increasing $3.3 million or 11% to $33.1 million up from $29.8 million for the fourth quarter of 2012.

This Tucows total revenue for fiscal 2013 to the $113 million mark up 13% when compared to fiscal 2012. Cost of revenues before network costs were $23.6 up $1.6 million or 7% from $22 million for the fourth quarter of 2012. This increase is primarily the result of now supporting higher sales of Ting devices and services gross margin before network costs increased by a $1.7 million were 22% to $9.5 million from $7.8 million for the fourth quarter of 2012 primarily the result of Ting now making a more meaningful contribution. As a percentage of net revenue gross margin before network costs was 29% up from 26% in Q4 2012.

I’ll now review gross margin performance in each of our three service categories gross margin for whole sale services which includes the mains and other value added services decreased by 232,000 or 4% to $5.5 million from $5.7 million for the same quarter of 2012. The decrease is due to a decline gross margin contribution from other value added services of 380,000 or 17% reflecting the continuing challenges in monetizing domain names form our Expiry stream as Elliot described earlier.

These decrease partially offset by a higher gross margin contribution from domain services, which grow a 148,000 or 4% to $3.6 million from $3.5 million for Q4 of 2012. The higher gross margin from domain services is primarily due to the impact of programs, our vendors range during the quarter to expand their market share. I will note that these programs are entirely discretionary and thus may not be repeatable. As a percentage of revenue, gross margin from wholesale services was more or less unchanged at $0.26. Gross margin for retail services which includes the contributions of Hover and Ting increased $1.9 million or 161% to $3.1 million from $1.2 million in the fourth quarter of 2012.

This increase is primarily due to the contribution of the Ting customer base, which accounted for $1.7 million of the increase. Hover contributed the remaining $188,000 of the increase as we continued to add new customers in gross sales to our existing customers.

As a percentage of revenue, gross margin for retail services was 38%, compared with 32% for Q4 2012, primarily the result of the much large contribution of Ting services in Q4 this year, compared to last. Gross margin from our portfolio group was $956,000, up $91,000 or 11% from $866,000 for the fourth quarter 2012. On a percentage basis, gross margin from our portfolio group was 87%, up from 81% for Q4 of 2012.

Turning to costs. Network expenses for the fourth quarter of 2013 were $1.3 million, down $188,000 or 13% from 1.5 million for the fourth quarter of 2012. The decrease reflects our continuing ability to achieve improved efficiencies in operating and managing our co-location facilities.

Total operating expenses for the fourth quarter were $6.9 million, up $1.4 million or 25% from $5.6 million for the same quarter of 2012. Two factors primarily account for this increase: first, we invested an incremental $1.3 million when compared to the fourth quarter of last year in workforce, marketing and other costs, related to acquiring and supporting Ting customers.

As a reminder, although our cost of customer acquisition and customer service are incredibly efficient relative to our competitors, because our quarterly customer ads are still relatively large as a proportion of our overall base, our costs are relatively high as a proportion of revenue.

So these costs are a function of customer growth and the success of Ting. As the size of the additions relative to the base continues to go down, our customer acquisition cost relative to revenue will decrease. And second, we incurred $212,000 higher loss on foreign currency full of contracts in the fourth quarter of 2012 – 2013 when compared to the fourth quarter of 2012. As a percentage of revenue, total operating expenses increased 21% from 19% for the fourth quarter of 2012.

Net income for the fourth quarter of 2013 was $920,000 or $0.08 per share compared with $430,000 or $0.04 per share for Q4 of 2012. I will remind you that the per share figures for both periods are based on lower number of shares outstanding as a result of the 1-for-4 reverse split that we completed in December. Elliott will talk a little more about this in his closing comments.

Cash and cash equivalents at the end of the fourth quarter of 2013 were $12.4 million up from $11.5 million at the end of the third quarter of 2013 and $6.4 million at the end of the fourth quarter of 2012, the increase in cash and cash equivalents of $870,000 when compare to this third quarter of 2013 was primarily the result of our generating $1.7 million in cash flow from operations during the fourth quarter this was partially offset by our using $600,000 to paid on our credit facility and our investing $255,000 in equipment purchases.

Deferred revenue at the end of the fourth quarter of 2013 was $70 million a decrease of 1% from $71 million at the end of the fourth quarter of 2012 and a decrease of 3% from $72 million at the end of the third quarter of 2013. As I have discussed on prior calls this largely reflects the impact of customer who have acquired their own accreditation and are no longer registering new domains on platform.

To conclude, the fourth quarter and indeed our entire fiscal year were once again reflective of our ability to deliver consistent and reliable performance in the context of growth we continue to maintain a strong balance sheet, prudently manage costs and generates strong operating cash flow all of which are indicative of the underlying health of our business and position us well for the future.

I would now like to turn the call back over to Elliot for his closing remarks Elliot.

Elliot Noss

Thanks Mike. As most of you are aware at the end of 2013 we made two changes related to our stock that we believe will benefit the company and our shareholders over the long-term. First, following shareholder approvals in early December, prior to market open on December 31, we affected a reverse stocks split at a one for four ratio that is every four Tucows’ shares were consolidated into one Tucows share. As a result, we now have $10.9 million common share outstanding reduced from $43.6 million.

As I discussed last quarter, we believe the higher share price resulting from the reverse split we’ll expand the universe of potential investors and analyst as we continue to grow our business at the same time our shareholder should benefit through less volatility in our share price, lower transaction costs and greater liquidity.

The higher share price also qualified us to move our stock listing form the NYSE market to the NASDQ capital market, which we think is more inline with a nature of our company and our market capitalization. We continue to trade under the same symbol TCX and don’t expect change for our share holders. Well as a company we’ll benefit from an attractive cost structure and great visibility, we continue to trade in Canada on the TSX under the symbol TC.

Looking back at 2013 it was a year that unfolded more less on plan, our overall EBITDA for the year was 9.5 million up 21% from $7.8 million in 2012 this total was comprised of our established domain businesses contributing about $12 million while team consumed $2.5 million.

While there are lots of moving parts for both businesses, we want to continue to provide annual guidance with that said we expect EBITDA for 2014 to be up at least 30% for last year between $13 million and $13.5 million. In terms of the specific business units, we expect the OpenSRS business to grow in the low to mid single digit. We expect the portfolio business to have some puts and takes with headwind in domain modernization and growth in portfolio sales probably netting to growth in the high single digits. We expect Hover to continue to perform strongly and grow in excess of 20%.

Finally, we’re expecting to be slightly a bit positive depending on the rate of growth and the level of marketing experimentation. And we will continue to update guidance quarterly. We’re excited about 2014. OpenSRS has lost on its place with some exciting launches towards the end of the year. Hover continues to grow to become a meaningful portion of the company. And in 2013 thing has evolved from a fast growing new unit to meaningful part of the overall Tucows business.

Its continued dramatic growth bodes well for 2014 and beyond. And with that I would like to open the call to questions. Operator?

Question-and-Answer Session

Operator

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

Hubert Mak – Cormark Securities, Inc.

Hey guys. Thanks for taking my call, I guess maybe just dive with change, I know that you guys didn’t really give much in terms of the net outflow, is there any color in terms of what you’re thinking in terms of going forward with respect to the net ad spend, how we should think about the increase in cost to support that given that I think you – our expenses looks like it is going to be ramping up given that there are no longer associated with your Hover business?

Unidentified Company Representative

Yes so. A couple of things, I want to make sure I separate down to the last point for us just to clean it up. We are talking about separating Hover and those are really internal cost that is not cost changing in anyway. There was some internal then we organize the people internally, so that has been visible to you, it is not about cost going up. So in terms of seeing growth, we are comfortable where we have been in the past Q1 should be out for a little bit of both Q4 growth. Things are looking justified the beginning of the quarter I talked a little bit about that and we expect as the year goes along to ramp the number one challenge we face both in terms of [indiscernible] and in terms of discouragement of new prospects is the Sprint network.

Now Sprint has got very open and public plans around that. And on their conference call at subsequent coverage, you know there is a lot of talk about their second half of the year being better than the first. We are really hopeful that that is true that provides us with a little bit of a pause there as well. So we feel good about their continued growth and growth in terms of seeing.

Hubert Mak – Cormark Securities, Inc.

I missed a part of Q1 versus Q4 can you just repeat it?

Unidentified Company Representative

It will be at or little bit above Q1 – Q4.

Hubert Mak – Cormark Securities, Inc.

In terms of the…

Unidentified Company Representative

It is continuing to kind of downside it will be up. And sort of hopefully be up.

Hubert Mak – Cormark Securities, Inc.

Okay in terms of absolute net ads right.

Unidentified Company Representative

Net ads that is right.

Hubert Mak – Cormark Securities, Inc.

Okay so with that from that perspective in what it be first [indiscernible] are you expecting ads from a year to be higher than 2013?

Unidentified Company Representative

Yes.

Hubert Mak – Cormark Securities, Inc.

Okay. And then I think you – last quarter, I think you’ve kind of talked to internal competitive environment here. So has – competitive environment kind of changed here or intensified with a no loss quarter you guys are benefiting from AT&T and Verizon. So is there any change in the comparable environment as you speak today?

Elliott Noss

So the short answer would be I’m going to say no. If there is, it’s a very small amount. The good news and the bad – I wouldn’t even call bad. The good news is we’re still so small relative to the market. This market is so huge relative to Tucows as a company that we don’t tend to get side-swiped by moves by the big guys. So that the people who let us continue to where we suffer, it continues to be because of network where there is good sprint network coverage; we continue to perform well and better.

So for us, it’s all about getting a word out. I think that that’s going to be true for at least the next couple of years. So I tried to highlight that by saying that the moves we made around price were not in response to what other people were doing. We always want to stay in kind of a – we’re already playing our own game. right now, that’s staying in that gross margin range that we’ve talked about repeatedly.

As long as we are in that range, we think that the sweet spot between prices being low enough to attract new customers and high enough to have a real business. I do want to come back to the experimentation point you made in your first set of questions, Hubert. I’ll give you a little more color on that. There sort of – I think in May, December probably started with some of the theatre ads, but then into January of this year, we’ve done some experimentation, cash flow with TV and billboards and there what we’re doing is we’re just seeing if some of these things can give us some greater scale opportunities. You can – in the past, I talked about customer acquisition cost is being sub $100, you are not going to see that derived much above $100. If we’re getting to $100 or $110, that’s kind of a level of experimentation we’ll take there. And then you can put that through the numbers as the last year, we had 40,000 ads, an extra $10 there gets your $400,000. You can get a sense in about as the number of ads, whereas you can get a sense in the type of leveled experimentation we’re talking about.

Hubert Mak – Cormark Securities, Inc.

Okay. and then in terms of the contribution pertained. Was it the pass break-even – pass break-even this quarter and if that’s the case, you did just talk to about slightly EBITDA positive for 2014. So I’m surprised that it’s only slightly positive. so would you really kind of comment maybe in the same time in terms of where the expense is expected to go, given that it looks like, was $6.9 million this quarter. So where do you see that maybe ending Q4 next year?

Elliott Noss

Sure. So a couple of things there, it was not break-even for the quarter, it was still burning cash in the curve. We’ll break-even in December. We were kind of a little north there, which is where we wanted to be. Now and again, where the extra expenses will go, we will see that go into some of that experimentation we talked about and of course…

Hubert Mak – Cormark Securities, Inc.

Okay. And then maybe just additional to domain here…

Elliott Noss

Sure.

Hubert Mak – Cormark Securities, Inc.

Could you just talk about the 3% growth here, is that include new gTLD or is that exclude the new gTLD and what – when do you see the impact to your numbers here, and how do you guys positioning yourself for this new gTLD

Unidentified Company Representative

So first in terms of impact, we don’t expect really big impact in, we don’t expect much of an impact in 2014. And the impact there will be in the latter half of the year, really in kind of may be late Q3, Q4. It’s still going to be with those more attractive domains that are coming out of contention of it. The ICANN contention process is still uncertain. So the answer I wanted to be exclusive the best that’s happening, sort of late in 2014 and we’ll keep your product as we go longer.

So we’re not expecting a really major contribution there in 2014. And in terms of how we are positioning ourselves, there is a lot of – I have talked in the past about the real significant distribution opportunity. And there is a lot of interest from our customers, so there has been to-date two sets of launches, either launches are relatively less interesting or less attractive strings. But what was interesting there is a little tidbit, because the first group of strings were to most people wise, more attractive in the second. But the second is actually is the least in the first couple of days, outperform the first in the first couple of days. And it seems the reason, the best that we can make of it is, we’ve kind of gone and done some challenges [ph] is that it’s about awareness. So as awareness builds, we’ll start to see more and more come on.

Hubert Mak – Cormark Securities, Inc.

Okay. And then actually just one [indiscernible] thing, are you able to provide the churn rate in your subscriber base or any stack on that?

Unidentified Company Representative

No, we are still not putting out the number. And we’re getting closer to studies to talk about that, but it’s still a little bit, what I would say clearly, we’re still – we’re really focused on where that moving parts are inside of the churn. And I think it probably starts to see that more likely in the second half of the year. It’s still the case that again, as I said earlier, network is the number one reason for churn, and it’s still the case that the first 30 days is the number one month of churn. And as we understand this, our competitors are able to report churn from their first 30 days, that’s just considered sort of no ad. And so we’re really focusing our efforts here on just understanding the moving parts in the churn on the component pieces.

Hubert Mak – Cormark Securities, Inc.

Okay. And then lastly, just in terms of capital, you guys obviously did the 4/1 consolidation here. we’re just thinking in terms of what you guys are going to do with your cash, I can say continuing or bringing cash here, so…

Unidentified Company Representative

Yes.

Hubert Mak – Cormark Securities, Inc.

What’s your thought on that?

Unidentified Company Representative

Yes, I think that returning capital to shareholders continues to be something that we believe in strategically. I think that we do have a little bit more cash than we have at times in the past. We are under leveraged, I think that return on invested capital is one of it, not the most important variable especially from ourselves and Mike should be aware of and to manage and I think we’re looking at the whole range of options.

Hubert Mak – Cormark Securities, Inc.

And it would include dividends as well.

Unidentified Company Representative

No, dividends again, I don’t know if you and I have talked about this. In fact we have enough Canadian shareholders in the shareholder base and being a U.S. corporation, the tax treatment for shareholders of the Canadian shareholders is terrible.

Hubert Mak – Cormark Securities, Inc.

Okay.

Unidentified Company Representative

Really, really be a poor use of capital in our view.

Hubert Mak – Cormark Securities, Inc.

Okay, understand.

Unidentified Company Representative

Thank you.

Unidentified Company Representative

Thanks.

Operator

(Operator Instructions) And your next question comes from Aaron Fuchs with Fertilemind Capital. Your line is now open.

Aaron Fuchs – Fertilemind Capital

Hi, it’s Aaron Fuchs. Elliot, I was wondering if you are anchored on this $100 gross customer ad cost and churn is really is just a moving part, because it’s too early. How are you getting a good hand on IRs and then why would you anchor on that? I mean because If you have a just an industry churn it would seen that you can offered a lot more on a gross customer adding that loan our below industry churn and given your so far good reputation customer servicing mainly have to forecast that.

Unidentified Company Representative

Two things, so let me speak to both of those parts. I think what you are seeing around even I’ve talked lots about, yeah, I mean we have these delicious sub one year paybacks on our investment and customers. And they have very strong belief in – I’ll call it a future of advertising and the straight of social versus traditional. And following over that the difficulty with scaling that social marketing side, I mean what you can see here, what I’m talking about and calling out exclusively experimentation with more traditional marketing and relaxing some of our targets, we’re trying to see we can make some other BM media’s work. So I think you are seeing us experiment considerably maybe a color. We’re trying things and were seeing if they make sense for us.

Aaron Fuchs – Fertilemind Capital

I mean and how did you mention that you don’t think the conventional is working…

Unidentified Company Representative

Yes.

Aaron Fuchs – Fertilemind Capital

But the attribution there is so difficult, I mean you think of GoDaddy resonator and all that applied and everyone sort of says they are successful, but when that person goes to the shopping cart to best buy for now, but they are not been attributed directly to the TBH. How can you know that it’s not working?

Unidentified Company Representative

Yes I would suggest that we go into greater detail offline, but I don’t mind telling you that we are trying to see I mean the world as you know is a much more granular and measurable place then it used to be. You can look at things like the exact timing of when you are doing things and you can look at that the visits to the web page to see if you are having any impact, you can look what we did when we looked at some outdoor for instance as we targeted a single market, now did we do anything to move the needle in that market and we are looking at that. I don’t think we considered, you know the bulk of our experimentation was in January sort of still going on. I don’t think we consider any of a dead is there a 30-day lag on some of those stuff, is there a 45-day lag. So we’re continuing to track it. You can do a lot more attracting than you could, then I agree with you is that nearly as measurable as it is when we are doing some of the social stuff we are doing. But at the time Aaron it’s significantly more measurable then it was three and five and 10 years ago.

Aaron Fuchs – Fertilemind Capital

Okay, but I don’t argue and I don’t think I have ever said this to CEO is that don’t give me the money back if these IRs always good as they seem to be especially if you forecasting a [indiscernible] return I mean I would say it just goose it on the spending.

Elliot Noss

Well, so one of the two things so first of all you see us doing some of that. We are taking real money and putting it on the table and seen if that works or not. I think you’ve heard me call out a couple times in this call and relax a number that we’ve never relaxed before, we agree with you

We are going to try something and will take real money and do it.

Aaron Fuchs – Fertilemind Capital

Right.

Unidentified Company Representative

And a second I do want to, what I said about the churn in the past I want to make clear one thing we think that our churn is and all the feedback we get is that our churn is in performance relative to the industry, but when you said largest return I want to sure of one thing , you can’t compare us to AT&T or Verizon they have 100 million unit customer bases.

The vast majority of which are two or three contracts. I can tell you we haven’t put our churn number. But our churn is about Verizon or AT&J. Our churn is also significantly better than people that look much more similar to us.

Aaron Fuchs – Fertilemind Capital

That’s helpful.

Elliot Noss

Great.

Aaron Fuchs – Fertilemind Capital

Okay, great. Thanks for that.

Elliot Noss

Thanks Aaron.

Operator

And your next question comes from Hubert Mak with Cormark Securities. Your line is now open.

Hubert Mak – Cormark Securities, Inc.

Hi, I just want to quickly just look at this calculation her., I know is that do you guys did provide in a January secure and it looks like in terms of the subscriber ads. I don’t know if that’s the end of January, but as offset from December you guys have about 5100 accounts and I believe it based on the path that’s looks like it’s ad an 18,000 devices over at that the same period or is that math right, and that’s the case and there any specific reason what to buy there is so much fire here.

Elliot Noss

So, let me just so I’m not sure I thought we were saying so, and let me give you numbers and then you poke at it. December 31st sort of end of the year, 48,000 accounts, 74,000 devices.

Hubert Mak – Cormark Securities, Inc.

Right.

Elliot Noss

When we issued our press release talking about the price decrease, at the time we issued the press release we had already blown through 50 and 80, which were nice round numbers. We are talking to the press all the time and it just makes sense at that point to add 50 and 80, so those numbers were public and then every reporter we talk to in quarter was doing a story about it, anything it could be 300 Sprint, [indiscernible] or it could be some new phone that comes out we could reference 50 and 80. The 50 and 80 it’s kind of a we were over that number at the time of the press release in January.

Hubert Mak – Cormark Securities, Inc.

Okay. I guess I was trying to look at the proportion of the ads, the ratio of subs through the devices?

Elliot Noss

Okay.

Hubert Mak – Cormark Securities, Inc.

And it looks like the devices like almost upon my math, more than three times the subaccounts. So, is there something going on there or?

Unidentified Company Representative

12 to 18 were the numbers in the quarter I think.

Hubert Mak – Cormark Securities, Inc.

Okay, maybe I’ll take it off-line.

Unidentified Company Representative

Yes, sure

Hubert Mak – Cormark Securities, Inc.

[Indiscernible]

Unidentified Company Representative

Yes, no that ratio account service is staying pretty sturdy.

Hubert Mak – Cormark Securities, Inc.

Okay.

Unidentified Company Representative

And again that’s going to be because we are seeing increasing devices per account overtime, but we continually see more new account, because the growth in accounts.

Hubert Mak – Cormark Securities, Inc.

Okay.

Operator

And we have no further questions at this time I will turn the call back to the presenters.

Elliott Noss

Thank you very much and we look forward to speaking to you again next quarter

Operator

And this concludes today’s conference call. You may now disconnect.

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