Tucows' (TCX) CEO Elliot Noss on Q2 2016 Results - Earnings Call Transcript

| About: Tucows Inc (TCX)

Tucows Inc. (NYSEMKT:TCX)

Q2 2016 Earnings Conference Call

August 08, 2016 08:00 AM ET

Executives

Elliot Noss - President & CEO

Mike Cooperman - CFO

Analysts

Hubert Mak - Cormark Securities

David Tomljenovic - Cantor Fitzgerald

Patrick Retzer - Retzer Capital

Operator

Good afternoon, ladies and gentlemen. Welcome to Tucows Second Quarter 2016 Conference Call. Earlier today, Tucows issued a news release reporting its financial results for the second 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 the matters that 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.

Elliot Noss

Thank you, operator. And thanks, everyone, for joining us today. With me as usual is our Chief Financial Officer, Mike Cooperman. Today's call will follow our usual format. I'll begin with an overview of the financial and operational highlights for Q2, Mike will then provide a detailed review of our financials, and I'll return with some concluding thoughts before we open things up for questions.

Q2 was another quarter of solid financial performance, driven by growth in both network access and domain service while we continue to benefit from the significant operating leverage in our business. Total revenue grew 11% from Q2 of last year to $47.5 million marking another record. Net income was 78% higher at 4.1 million or $0.39 a share, and adjusted EBITDA was up 64% to 7.1 million. Ting Mobile added 40,000 accounts and 6,000 devices in Q2 to bring our total to 144,000 accounts and 227,000 devices. And I should note that about 1000 of the former Platinumtel Wireless customers that we mentioned coming to team in Q1 defected once they had used the free service credits we gave them.

That is almost inevitable with any migration of that nature, and we are still quite happy with the bump we got there for the price, but it does mean that the 12,000 net ads we reported in Q1 were inflated as we noted and the 3,000 net ads were reporting for Q2 are of course deflated. Churn was 2.4% in Q2 in line with Q1. Likewise, that would have been even better if not for those PTel canceled. I mentioned last quarter that the most immediate thing we could do to drive mobile ads is to deal with our data costs and thereby deal with our data pricing.

Over the past couple of years as the carriers have reduced data prices, we have clearly lost some of our competitive positioning. I am pleased to report that just last Friday we announced a significant reduction in our data pricing. This mostly effect higher data users as we now charge $10 per gigabyte for usage beyond 1 gigabyte, a 33% reduction from $15. With this price drop, we are no longer just the smart choice for low data users. We offer an even more overwhelming majority of Americans substantial potential saving on their monthly cell phone bills and with our approvals usage, and low monthly line fee, we’re pretty much in numerator for families, small businesses or any account with multiple devices.

I am also very proud of how we implemented our price changes of thing unlike typical industry promotions and plans intended to attract new customers, without sacrificing revenue on existing customers, we simply drop prices for everyone. Ting customers do not need to take any action to see their data prices drop next billing cycle. We did this back in 2014 and found that the appreciation and word of mouth we got from our existing customers was the best possible marketing our money could buy.

As I said, we announced the new pricing late last week, but I am hopeful that both the buzz and those more favorable savings calculations will give us a lift in customers in the second half of Q3. We were able to lower our supply cost which is what allowed us to make this move. As most of you know, we were out the top-end of our guidance range in gross margin. This price drop in connection with our cost reductions keep us very comfortably within our 45% to 50% gross margin target. We continue to see increased brand awareness as our single greatest challenge and long-term opportunity.

As we look to expand to deliver in our current market, we’re starting to see our biggest opportunities among populations that are less technical, less affluent and politely less young. We recognized that the people who would benefit the most from our rate plan and the handholding we provide in customer support are likely not on the niche blogs and forum where we have enjoyed the most exposure. And the good news there is that this is also the customer group that has a greatest depreciation for value, not the least reason being because they are also the ones most often paying the phone bill.

Accordingly, while we have built the business thus far on social media and new media like blogs, podcast and YouTube channels, we are starting to explore some more traditional channels as well. I will reveal more on that as some of these experience materialize and this will not be with Super Bowl ads or other spend that will drive customer acquisition through the roof. We continue to grow our existing distribution partners, Kroger, Staples, Amazon and pound the favorite looking for more. We continue to experiment with affiliate partnerships and in fact have seen some encouraging scalable results with employer benefit program.

We also continue to optimize our purchase staff on the website with AB testing and our sales team on the phones to improve conversion in events of growing awareness and consideration. Finally, we’re discovering some interesting partnership opportunities with makers of standalone smart devices. These are often being marketed and distributed internationally with an empty SIM card slot, so that end users in each country can choose their own service provider. These manufactures like Ting because our rate plan is perfect for the sort of tactical usage they see on their devices and because our customer support will enhance their customer experience. We love the source of new customers that could eventually bring their primary smartphones as well.

The first of these partnerships is with brands called [TVtel]. A successful kick-start adventure that produces a simple, wearable device designed for young children. They shipped a small initial batch to U.S. customers in Q2 and will be shipping more in Q3. A Ting SIM card with instructions activate will be included in every box. As we cautioned last quarter, our renewed sales and marketing efforts will take time, but we’re excited about the price drop and the opportunities to expand our awareness in our customer base, and we look forward to seeing the numbers grow in the quarter’s ahead.

Meanwhile, we continue to require customers for less than a $100 and as noted even with the price break, we expect our margins to remain around 50%. We expect gross margin dollars, the thing we watch the most to continue to grow after an initial settling period; and over the next few months, we will see whether average revenue per account goes down a bit with the rates or where the customer usage goes up in response to the rates, keeping revenue per customer consistent as we saw with our rate decrease in 2014.

With Ting Internet, Q2 was a very positive quarter. In Charlottesville, we saw demands for our service and just as importantly our capacities have fulfilled that demand jumped to a new level. Our advertising partnerships and events have given us brand awareness. We are getting better and better at every step of the process from building out the network to taking orders and scheduling installs, to performing those installs more efficiently to permitting. And we continue to see the same sort of customer satisfaction and advocacy with Ting Internet to propel the business on Ting Mobile.

We also activated our first large bulk deal multi-dwelling unit or MDU in Q2. A 234 unit apartment complex called Jefferson Ridge Apartment Homes. Residents of these apartments now have 10 gigabyte internet service included in their monthly rent and residences in other large residential buildings in Charlottesville are starting to pressure the landlords to offer the same. In Westminster, where the city is building the fiber network and we currently have less than 300 serviceable addresses, the next phase of construction has been delayed a bit because of fiber shortages. That phase is just beginning now and should give us over 2,700 serviceable homes and businesses by 2017.

In June, we announced that Holly Glen will be the first neighborhood of Holly Springs to get signature net service. We expect to have homes there connected by the end of 2016. Holly Glen earned that position by having the most pre-orders and we will continue to use pre-orders to demonstrate demand. As we begin construction at Holly Springs, it is worth reiterating that the $2,500 per customer number that we have outlined will vary from town-to-town based on the nature of the build. In Holly Springs for example, we will be extending the fiber primarily underground rather than across poles and the lot sizes are bigger than in most markets. There are also very few MDUs at Holly Springs. MDUs of course tend to bring down the average cost per customer with their density.

We decided to blend the $2,500 spend per customer at our desired adoption rates of 20% in the first year and 50% in five years. In Holly Springs, we’re projecting closer to $3,000, again with an average of $1,000 in margin on Ting Internet and very-very low churn, we are still perfectly happy with the cash-on-cash returns there. I mentioned in the Westminster update and you might have read elsewhere, there has been a shortage in the U.S. of supplier fiber optic cable. I am pleased that we protected ourselves ahead of this shortage by securing and storing large amounts of fiber for our project by dealing with suppliers globally. The pipeline of new cities is full and we expect to be sharing additional locations before the end of the year.

There is a publicly available broadband feasibility study document for the City of Boulder, Colorado. The name Ting is having submitted a proposal. Examining Boulder gives a sense of just how long and complicated the road to fiber can be for these towns. Boulder has great fiber assets and has gotten great work from industry consultants, but still has many options to analyze and consider including choices along the spectrum from public to private. Town the publicly fund their fiber network like Westminster are making an investment that the town will benefit from 10, 20 and even a 100 years from now. I have endorsed that approach many times in the past but it isn't more difficult road. Understandably, towns that choose to invite private companies like us to build an operator network will have fiber a lot sooner and as long they are chosen partner in the company like Ting, their customers will receive excellent treatment and fair pricing.

One thing that is clear is the upgrading internet infrastructure and providing faster internet speed is getting increasing attention throughout the United States. We see more requests for information and proposals coming in from town every month. Candidates for public office highlighted in their tech platforms as Hillary Clinton did recently naming Westminster Maryland as an example of the new model of the public private partnerships. And we are starting to see other fiber players become more active. People asked me whether I am concerned about increasing competition, to me more entrance needs more projects and more awareness. There were 20,000 cities and towns in the U.S., Ting Internet need operator and we're tiny fraction of them to have a booming business.

Turning now to our Domain Services business, we saw another quarter of solid performance which was punctuated by the acquisition of the international wholesale reseller channel of Melbourne IT on April 1st. As a reminder, the acquisition of the reseller base outside of MIT’s domestic market of Australia, New Zealand added 100s of resellers and approximately 1.6 million domains of the management and a little over 1 million in EBITDA to our wholesale domain business that of total number of domains under management in our wholesale channel to just shy of 15 million mark. The migration of the acquired MIT resellers and domains is for the most part now complete and I’m pleased to report that the feedback from our new customers has generally been positive.

Our expanded reseller channel contributed to a healthy 14% year-over-year growth in total wholesale registrations during the quarter with both new registration and renewal growth in line with that our overall number. As anticipated, our renewal rate picked up this quarter as we saw less of an impact from the large resellers that have moved to their own accreditations. In terms of new gTLDs as I noted on our last call, the number of launches has slow to a trickle, the store here is now more of the quality than quantity. In this regard, we're the more anticipated new gTLDs for us .blog, we’ll go live during Q4. So the exciting new gTLDs that we think has tremendous potential. In addition, .web has now been resolved with Verisign, the operator of Common Net proposed as the winning bidder, so we'll wait to hear what's the plans are for this gTLD. The number of resellers who have registered to this one new gTLD grew to more than 2,650, up about 5% from the end of Q1 this year, and 27% from the end of Q1 last year.

In terms of geographic contribution, the proportion of resellers outside North America and Western Europe that accounted for new registrations in Q2 fell very slightly to 24%, but that was primarily the result of the adding of adding the acquired reseller channel from MIT to the mix. Our retail channel Hover is delivering strong steady growth quarter-after-quarter and Q2 is no exception. Revenue was up 18% year-over-year while net cash contribution was up 37%. The Hover customer based also continued to expand by 16% from the end of Q2 last year and 4% from the end of Q1 this year. Our renewal rate continued to outperform 81%.

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

Mike Cooperman

Thanks, Elliot. As Elliot mentioned at the outset, Q2 was another solid financial quarter for our company. Revenue grew 11% to 47.5 million, another record from 42.9 million for the same quarter of last year. With this year’s quarter benefiting from the impact of our largest Ting subscriber base has on Ting Mobile service revenue as well as the incremental contribution of our April acquisition of the Melbourne IT International wholesaler and retailer channel to our domain revenue.

Cost of revenues before network cost increased 6% to 29.8 million from 28.3 million in Q2 of last year. This resulted in an increasing gross margin before network costs of 20% to 17.6 million from 14.6 million, which as a percentage of revenue expanded to 37% from 34%. Looking at gross margin by line of business, gross margin for network access increased by 2.2 million or 31% to 9.1 million from 6.9 million for the second quarter of last year, this increase was driven by Ting Mobile which grew 2.3 million or 36% to 8.6 million. This was partially offset by decreasing gross margin contribution of 100,000 from other Network Access Services due to a decline in hosting and IT services gross margin.

As a percentage of revenue, gross margin for network access increased to 48% from 46%. Gross margin for domain services for Q2 increased by 10% to 8.5 million from 7.7 million for the same quarter of last year. As a percentage of revenue, gross margin for domain services expanded to 30% from 28% breaking domain services into its component pieces, gross margin for the wholesale channel increased 10% to 5.9 million from 5.4 million with the increase attributable to the incremental contribution from the acquisition of the international wholesale reseller channel for Melbourne IT. As a percentage of revenue, gross margin expanded to 25% from 23%. Gross margin for retail services increased 14% to 3.8 million from 1.7 million for Q2 of last year. As a percentage of revenue, gross margin for retail services was 54% compared with 56%. Gross margin for portfolio service increased 10% to 700,000 from 600,000 and as a percentage of revenue was essentially unchanged at 77%.

Turning to costs, network expenses for the second quarter of 2016 were more or less unchanged from the same period last year at 1.8 million. Total operating expenses for the quarter were up 8% to 9.7 million from 9 million for Q2 of last year. The increase is primarily the result of the incremental cost to support our network access initiatives as follows.

First, marketing expenses increased by 450,000 when compared to the second quarter of last year primarily to support and acquire Ting Mobile and Ting Internet customers. And second, professional fees credit card processing fees, stock based compensation and travel increased by 0.5 million primarily to support the growth of Ting network access services. Third, workforce related expenses increased by 450,000 primarily to support the growth of network access services. This increase was, however, offset by our recognizing of provision of 900,000 under overachievement bonus program during the second quarter of last year that was not repeated in fiscal 2016.

As a percentage of revenue, total operating expenses were down about 0.5 percentage point to 20.4% compared to a year ago. Net income for the second quarter increased 78% to 4.1 million of $0.39 per share from 2.3 million or $0.21 per share for Q2 of 2015. Before I walk through our adjusted EBITDA results, as discussed in detail in our earnings release, we have again modified the definition for adjusted EBITDA this quarter. Essentially, this was in response to clarification guidance issued on May 17 of this year by the SEC in a compliance and disclosure interpretations update regarding non-GAAP measures. That guidance indicated that adjusting earnings for deferred revenue may not be consistent with disclosure rules.

Following discussions with our audit committee and auditors, we concluded that we still believe adjusted EBITDA is a useful metric for our investors; however, thought that the prudent part forward would be to amend by definition of adjusted EBITDA to adhere to the SEC compliance update. Accordingly, we are revised our definition of adjusted EBITDA to eliminate the adjustments for the effect of net deferred revenue to reflect net revenue on an earned basis. For those of you wishing to compute our adjusted EBITDA in our prior definitions, this can be done with reference to our disclosure financials and our MD&A. Adjusted EBITDA for the second quarter increased 64% to 7.1 million from 4.3 million in the corresponding periods of last year.

Turning to the balance sheet, cash and cash equivalents at the end of the second quarter of 2016 is 5.9 million compared to the 10 million at the end of the first quarter of this year. The primary use of funds during the quarter was for the purchase of approximately 210,000 shares under our ongoing open market share buyback program of $5 million. In addition, we invested $1 million in property and equipment of which 900,000 was to fund the continued build out of the Ting Internet footprint.

We also use an incremental $400,000 to fund the acquisition of the international wholesale domain reseller channel of Melbourne IT and in repaying our bank loan. This use of funds will partially offset by generating 2.2 million in cash from operating activities. As of the end of the second quarter, our bank loans stood at 9.1 million, up from 3.5 million at the end of Q2 last year, largely the results of our using 6 million of our credit facility to fund the acquisition of the MIT International wholesale domain reseller channel. Deferred revenue at the end of the second quarter of 2016 was 76.7 million, up 3% from 74.3 million at the end of the same quarter a year ago and up 5% from 73.1 million at the end of the first quarter of this year. As a reminder, this increase reflects the additional deferred revenue from the approximately 1.6 million domain names acquired from Melbourne IT.

And with, I’d like to turn the call back to Elliot. Elliot?

Elliot Noss

Thanks Mike. Last quarter, I noted that with respect to our open market buyback program, we will be less active in some quarters and more active in others. As Mike discussed, it was a relatively active quarter in this regard as we invested $5 million to purchase just under 210,000 shares, we continue to be able to comfortably balance CapEx spend, stock repurchases and probably most importantly solid growth and profitability. All-in-all, Q2 was a good quarter for both the present and in the future. We are happy to reiterate our existing 2016 adjusted EBITDA guidance of $30 million.

With respect to capital expenditure for Ting Internet, we are now actively starting to build in Holly Springs. We are learning much more about how capital flows through this project in terms of timing and amount. These gives us more visibility into our CapEx spend through the end of 2016 and help teach us how to best plan for 2017 and beyond. We now expect CapEx to come in between $10 million and $15 million in 2016. For the future, the most important tactical work we are doing is improving growth as at Ting Mobile. We’re starting to see some slivers of improvement, learning would have not working with others and most importantly started to get a better sense of where the push harder long-term in order to create greater awareness.

At Ting Internet, we are learning everyday and applying that learning with each new neighborhood build and every new channel we engage with. We’re learning how to scale and effectively deliver installs. We are learning how to market hyper locally. We showed strong growth in gross margin as mobile growth. We showed strong growth in operating margins due to the scalability of our model, and we’re doing the right work to position us well to deliver continued growth for both the short-and long-terms.

And with that, I’d like to open the call to questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Your next question comes from the line of Hubert Mak with Cormark Securities. Your line is open.

Hubert Mak

Maybe just first off on the domain business. Can you remind us how much contribution is from the acquisition and what exact data closes -- I was a little surprised that it was actually the revenue outlook will be in the upper higher, so can you just kind of give us some color on that?

Ellios Noss

Mike, you can add at the end to the revenue, the EBITDA was a little over -- will be through the course of the year a little over $1 million and the close was April of this year, so we picked up a month or two of that in Q2 and then obviously through the rest of the year. And do remember also here when, I think, I can probably get out of hand of the revenue, remember you’re going to see a lot of that being deferred. So as we’re taking in new stuff, it’s going to be deferring primarily. Mike, do you have anything you want to add there?

Mike Cooperman

No, I don’t think so. I think you pretty much covered it. We did obviously enjoy revenue in the quarter and it is already said that the adjusted average is roughly $1 million a year.

Ellios Noss

Yes, makes sense Hubert?

Hubert Mak

Yes, okay. And then just moving to the Ting Mobile, can you run through the quarterly ads, I missed that was your opening remarks?

Ellios Noss

Sure. So it's 3000 net and there is about a 1000 of that extra PTel cancels. We had about a 1000 we brought it, ballpark just under 7 from PTel, and we’ve seen in total in the mid-ones cancelled, but about a 1000 of that was in quarter for then Q2.

Hubert Mak

And what’s the targeted gross margin there?

Elliot Noss

Target gross margin?

Hubert Mak

Yes.

Elliot Noss

What do you mean like that from PTel?

Hubert Mak

No, overall your mobile business. I think you only 40% to 45% is sort of the range in that quarter.

Elliot Noss

Just as a percentage. No, the rate -- the target is typically 45 to 50. We were up into the nearly mid-50s and remember that’s always relative to the disclosure numbers. You got to correct for devices there. And with the price drop, we still think that’s going to be towards the top-end of that 45% to 50% range.

Hubert Mak

Okay. And then just on the -- can you sort of give us some colors to how you think about the second half because basing your comments, you’re obviously deploying some of the new strategies and I get the sense you expect the lift here, but like some of these strategies will take some time, so how do we see this heading into the back half of this year, any color will be great?

Elliot Noss

Yes, sure. So I think that the way we’re thinking about it is, we certainly don’t think it's going to get worse. We hope that few of the pieces that we’re focusing on are going to get better. So, there is all of the little things, we’ve talked about some of those and with each of those, whether it's retail or some of the tactical programs. We’re seeing a little bit more and a little bit more from them. The two big things hopefully the two that we think might have kind of real kicked to them are the price drop and some of the targeting of new segments that we’re looking at. We’re talking more probably on the next quarter’s call about some of our specific plan there. On this call just to repeat in case you missed that as well, we’re going to start taking some marketing dollars and throwing them at slightly different segment, little bit less tax savvy, a little bit lower income and frankly a little bit older. We think that there is some opportunity is there. And that’s something that we’re hoping that we can get some real contributions from.

Hubert Mak

Okay. And some of these programs are they in replace today or have you guys been testing already or is just something that you guys are starting to rollout I guess as of today?

Elliot Noss

So, I would say certainly there is a bunch of things that are in place already. One of the pieces that we talked about was building out kind of the sales capability in the phone room on the customer service side, and that’s important before you spend real money to bring in a bunch of leads. You want to be able to be converting those leads relatively effectively. So we’ve done a bunch of that work and a lot of that kind of ground work has been done and that’s what would lead us ramp up some of these things.

Hubert Mak

Okay. And then just last on the mobile here. Obviously, you guys are taking a different approach here targeting I guess different segment of the populations. I’d heard, you comment that your acquisition costs are still less than 100, but are we pushing on that sort of boundary as you guys are looking toward more traditional marketing? And how do we think about that customer acquisition?

Elliot Noss

Yes. So in the --I think that in the plan that we have that are sitting right in front of us right now, we think that will be generally within the same parameters that we’ve had to-date. I think that if we see a breakout over that top range, will be very -- will tell you all about it and we’ll give you detail. I have said in the past that few times, you know, boy, I am comfortable taking that some 100 number up to $110, $120, even $150. There is nothing that’s kind of sitting on the table right now that I think will start to quite get that high, but boy if we were finding things that work at those levels, I think we push on them. And so, we’ll give you as much visibility as we can as soon as we can.

Hubert Mak

Okay. And I am just switching over at the Ting Internet here, so I get the sense that some couple of markets were maybe potentially pushed out given the lack of the fiber --

Elliot Noss

Just one, just Westminster.

Hubert Mak

Yes, sorry. In terms of the, I guess financial contribution, is your target still for meaningful contribution in 2019, is that timeframe still intact based on the services?

Elliot Noss

Yes, timeframe is absolutely still intact. I mean the numbers we’re talking about at this stage of the ramp are small relative to the total picture. I think probably if anything just with what I am seeing, I think, I mean, it'd have to really sort of move some levers around in my head. But we’re quite comfortable where we were with those numbers because what we’re seeing is interest that’s in line or more with what we expected. And by that, I mean from towns and how quickly we’ll be able to build out, how quickly we’ll be able to get things online.

Hubert Mak

Okay. And more here just on the, I guess, the capital that you have on hand, the cash balance and the debt that you have. How do we think about the share buyback, is it something that you guys are pretty active this quarter, but as you guys are going to push through I guess another -- I felt that the number wasn’t in the CapEx this year. How -- or just something, are you guys expect to slowdown or how do you think about the share buyback going forward here?

Elliot Noss

It’s going to be through the next quarter or two. I think it's going to be independent of capital. We’ve talked about putting a little leverage on the business for a long-time now. So, I don’t think we’re going to be capital constrained. I think, we’ll be making our decisions as we always do tactically around prices and volumes and who is in the market and who is not and things like that, so no different at this point.

Hubert Mak

Okay. Is there any criteria are you looking at from terms of how much you're willing -- how much debt you're willing to take it on? Is there any metric there?

Elliot Noss

You know what I said for a long time is I am comfortable without thinking about it. I am comfortable the two times, and so before I start to make even apply any critical thinking, I’ve got a long runway of capital deployment before I have to start thinking about that.

Operator

Your next question comes from the line of David Tomljenovic with Cantor Fitzgerald. Your line is open.

David Tomljenovic

Just quickly on the -- I don’t think you’ve ever given a metric on data comp consumption maybe per active line, do you haven't, are you able to give a number like that?

Elliot Noss

We've thought saw about giving it out, so unlike a lot of other carriers who tend to sell in much broader buckets that we do. For us a really important number is median not mean. And so we’re tracking median, I can tell you that our mean conception is typically lower than most other carriers, and it’s lower by our couple of few hundred [meg] a month. Because median is more important and we know that our median conception is way lower than our mean conception. And that’s sort of what’s relevant when you’re looking at how many customers are saving a lot of money. And because our competitors don’t give out median data, we’re kind of low to do it. Does that make sense or was that to --

David Tomljenovic

Yes. Well, maybe ask a different way. Do you have an -- are you able to give it an idea of how much revenue generated from data overall?

Elliot Noss

I’d say, so data as let me speak about it generally because I don’t have. We have that data, but it’s not sitting in front of me. Generally, if you look at sort of the pie of revenue data has grown and grown and grown. At our time of launch, it was probably almost a third, a third, a third, if you look between minutes message as meg and of course there is a monthly recurring piece of that pie two. So I’m leaving that out. I’m looking at the three sort of conception categories when I say that. And overtime data has grown and grown. I think now data might actually be over 50% of revenue again between those three conception categories. But don’t hold me to at all, I’ll take a look at that between quarters and maybe I’ll bring that onto next call.

David Tomljenovic

Okay. Well, I’m just trying to get a sense of I think you generally try to guide us that while there revenue number may come down, your associated costs are also coming down maybe even greater than the rate of which the revenue is dropping just trying to get a sense of --

Elliot Noss

Yes. The gross margin -- gross margin dollars which is always what we look at most because that’s how we pay our build. We expect not to take a hit there. Now, there is going to be than what’s going to happen to those average is really going to depend on kind of the rate -- last time, we did this in 2014. So it’s all we have to go on data point of one. Our customers data consumption immediately step function increased. And so if we saw the same behaviors, we would see revenue per customer stay pretty consistent and we need to gross margin per customer pretty consistent.

David Tomljenovic

Okay. I guess that was my big question just trying to understand the transitional period between when demand offset the possible slowing or temporary slowing of revenue.

Elliot Noss

David, just if this helps you. If it goes as we would hope, you would see your model be relatively discontinuous on kind of the customer metrics and hopefully with an improvement in ads.

David Tomljenovic

Right. Okay.

Elliot Noss

So that’s the scenario we’d like to see.

David Tomljenovic

Right. Okay. Do you -- just curious, do you track user data consumption by app type? Like, are your existing customers are kind of people that are online using social media, Facebook, these types of things or do you happen to know the composition of their data consumption habits because it helps us better understand where general trends of their how that transition might occur?

Elliot Noss

Yes, so there is no -- so if we knew the answer to that, we would be engaged in too much surveillance of our customers. What I can say is with our customer’s consent, in other words, we have some investigative programs that customers have volunteer to participate in that looks at some that data. There is no conclusions quite that I would share with you coming out of that work, it's ongoing work, we’re pretty quiet about it because we have a particular purpose for it. But I think you see our existing customers sort of two things, they are similar to the general profile customers in their app usage and we probably have less teenagers but more geeks and more let’s say less sophisticated people, so that kind of nets out to the same number of Pokemon Go users. And then we also have at the same time because of the first group, there are little more comfortable setting limits, targets, using Wi-Fi only, controlling which apps do kind of online updating and things like that. So that’s the general behavior we’re seeing.

David Tomljenovic

That’s right. Okay, just regarding the fiber shortage, do you have any idea when that will -- when people will get caught up or is this persistent, is there a raw material shortage for fiber, manufacturing shortage or how think it'll be?

Elliot Noss

So, the short answer is we don’t know. To provide a little more color, we’re been doing some particular things with fiber because of some efficiencies we’re trying to generate in our installation processes and so we were dealing a little more directly with suppliers than some others might. What happened particularly in Westminster was they had through their contractors they got pushed out 60 million today because they couldn’t get fiber. You know that had the effect of moving the dates that I’ve talked about when we might see some more addresses in Westminster out by 60 to 90 days and it was through that lens that we learned that there is generally a shortage of fiber in the domestic U.S.

David Tomljenovic

Okay. And when you, is it getting into a situation where you’re having into bid up people for the fiber?

Elliot Noss

No, nothing like that. And it’s fiber, it's not like it's relying on rare earth minerals or anything that there might shortages of. I think there is lots of sand and lots of heat out there, so I am sure that corning and the other manufacturers are quite happy to step up productions.

David Tomljenovic

Right. Okay. And then quickly maybe more a CFO question, but are you able to give us an updated share account as of the end of the quarter on a basic and diluted basis?

Elliot Noss

Mike?

Mike Cooperman

The share count at the end of the quarter on a basis is [10.6] million on diluted basis 10.8 million.

David Tomljenovic

Okay, great. I think that covers lot more of everything I was interested, thanks a lot.

Mike Cooperman

Great. Thanks, Dave.

Operator

[Operator Instructions] Your next question comes from the line of Patrick Retzer of Retzer Capital. Your line is open.

Patrick Retzer

And thanks for the data price cut by the way I think that’s going to go along way with attracting new subscribers. I’d like to talk about the fiber end of the business about, so I think on the last call you said by the end of the year the vast majority or virtually all residents of Charlottesville will be able to order, is that still the case?

Elliot Noss

Yes. I don’t have a fresh update there and the reason is Pat that we’re looking through some changes in the GIS side. And it’s amazing when you get into the intricacies of mapping, how some of that stuff might look. And I do want to be clear in Charlottesville there is 11,000 plus homes, 7,000 plus MDUs. So the comment I am making is in relation to the MDUs. So I will endeavor to get you an updated number there on a next call and all kind of, I'll get tighter with that. Again, we’re working through some, what would, I call it, some deep in the wiring technical issues around that, around the GIS software in particular.

Patrick Retzer

Okay. So Holly Springs will be your first market essentially planned from square one and it seems like that should be a lot faster and more efficient build out, do you have any idea by year-end about how far you’ll be on Holly Springs or perhaps an estimated completion date or anything?

Elliot Noss

Yes. Sure. So it’s -- we’re going to be through the first two or three depending on how to build rolls out neighborhood this year. And I’m quite happy with that given that it’s all underground and given that, this is kind of the first planned community we’re just breaking ground there and certainly in our planning and our internal models where we're everywhere or where most neighborhood that we’re going to build out to by the end of next year.

Patrick Retzer

Okay. And then you mentioned likelihood will be announcing more markets before them to this year, can you quantify that at all or give us a range?

Elliot Noss

I think that as I am going to and you know something I debated kind of putting into the script this quarter, the most important economic unit in the fiber business is serviceable addresses, not cities. And so the bigger the city, the more addresses there are. There is something that’s a couple of times the size of Charlottesville have 10 standpoints. And so I've thinking about and then you kind of go through the sales cycle at a city level. So I have been thinking about how to communicate that well. I think that between now and at the end of the year, we’re going to be making announcements that will represent a nice bucket of serviceable addresses. So let me just say that for now.

Patrick Retzer

Okay, so I believe in Boulder there was a report to the city council or whatever the governing body as that showed as noble as one of three finalists. And then there was a mention in the news, the local newspaper that you guys had supplied an RFI to Bloomington, Indiana. In terms of pipeline, can you give us a little more color as far as we’re one of the finalists in x number of markets, we’ve supplied RFIs to x number of markets, we’re actively in discussions with x?

Elliot Noss

Yes, it’s such a varied process. I really hesitated to do that. I would say that this is certainly like a duck paddling. There is a lot more going on under the surface than you see on the surface. I should note that Boulder which you’re seeing a lot publicly about or you and others can see a lot of sort of public facing information about is probably not super high on our list. We love that market but what came out of that city council meeting were the council half wanted to go private, half were really considering public private partnership, and I think they should make the right decision, not the fast decision. And so nothing is going to happen in Boulder in a hurry. So I think it’s a great example, you see a lot in Boulder but that’s not near the top of the list.

And I think the other thing about that part is these processes, the thing that I most want people to take away from that Boulder thing is, imagine if there is -- if what happen in Boulder, happen the week after the call, not sort of a month or so before the call. And we might have been talking but you might have been rightly talking about, hey, publicly you’re one of the three finalists who are in RFI in 100,000 population town. Tell me about that and then a week later, it’s kind of well deferred. Some of these cities have had processes that I’ve been going on for years. Sandpoint, where we’re getting pretty close to taking the next steps and they had a process, it’s probably four or five years in the making at this point. So these things really- really do ripe in both unevenly and over long period of time. And all that being said, Pat, I feel good about I won’t be surprised if in '17 I’m starting to make some capital trade off. I can't tell you, if that's a summer or the end of ’17, but I feel like there is lots of going.

Patrick Retzer

Okay. So in the past, you’ve consistently said that you believe Ting fiber will have more opportunities than they can even handle and there will be able to sort of choose the most the ripest opportunities, do you still feel that way?

Elliot Noss

I do. More than I did not --.

Patrick Retzer

Okay. All right. Keep up the good work. Thanks.

Elliot Noss

Thanks Pat.

Operator

There are no further questions at this time. I’ll turn the call back over to Elliot Noss for closing remarks.

Elliot Noss

Thank you, operator. And I wanted to thank you all for accommodating this probably relatively inconvenient time for the call this quarter. We’ll be back to our more regular time next quarter. Thanks and we’ll speak with you all next quarter. Operator?

Operator

This concludes today’s conference call. You may now disconnect.

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