Elliot Noss: Thanks, Dave. I turned 60 last month, and it took until a month before I turned 60 to raise equity for the first time. So now I will make another departure and we’ll talk about valuation on this investor call, something I have not done in any detail since we turned public over 20 years ago. This feels like the right conversation to have with investors as we are immersed in our 2023 planning, and we settle into the role of TCX as capital allocator. I want to share the way we are thinking about that role and to place it in the context of where the world is more generally. First, let’s talk about the three operating businesses at a high level. We are not fans of complex valuation models. A wall of numbers can offer a sort of placebo, allowing people to be comforted by, and too often, fooled by precision.
We prefer being generally right to precisely wrong. We value our three operating businesses simply. We value Tucows Domains on the basis of cash EBITDA; Wavelo on the basis of last quarter annualized recurring revenue; and Ting on the basis of homes passed and customers loaded. I will now talk in more detail about each. With Tucows Domains, it has been a solid cash generator since it launched in 2000. It has funded a number of acquisitions in the Domains business, and it has funded every other business we launched from Ting Mobile to Ting Internet to Wavelo. This business has incredibly reliable cash flows, and other than acquisitions, is not easy to grow, low alpha, very low beta. It is also a mature business that has had to be efficient on a net margin basis in order to successfully compete.
Historically, we view our operating efficiency as what allowed us to be the acquirer rather than the acquired. I note we expect this same characteristic to be relevant when the fiber market turns to consolidation. EBITDA multiple is the obvious, easy valuation metric for Tucows Domains. Wavelo, on the other hand, is essentially a SaaS start-up with a couple of strong anchor customers and a strong team in a market space with a lot of room for growth. If we look at the main driver here as telecom moving to the cloud, the best estimates are that this process is only 20% complete. In this regard, telecom is behind even insurance or banking. When we think of the most appropriate valuation metric, we view it as a multiple of annual recurring revenue.
We view the last quarter or last month annualized as the right input. We also view the multiple as being influenced by profitability, strong customers, pipeline, market size and team. Of course, this is not an exhaustive list. With Ting, during the massive coax-to-fiber build-out taking place in the United States, we believe the best way to value these businesses is on a multiple of homes passed and/or customers. The multiples here are typically a function of expected take rates, churn and profitability. Once the build-out in the industry is complete, the valuation method will quickly shift to EBITDA multiple. Although I note that as capital allocators, we prefer a metric that captures network maintenance costs as this is certainly a difference both between fiber networks and particularly between fiber and coax networks.
