TeraGo Posts Continued Revenue, EBITDA Increases in 2013
Data centre operations contributing to revenue growth, Vancouver
facility acquired
TORONTO, ONTARIO--(Marketwired - Feb 26, 2014) - TeraGo Inc.
(TSX:TGO) (www.terago.ca) today announced financial and operating
results for the year ended December 31, 2013.
Stewart Lyons,
President and CEO, TeraGo Inc., commented, "TeraGo has completed a
year of continued progress and growth, and our forward strategy is
aligned with the needs of the small and medium business customer.
We envision 2014 as a year of transition and transformation into an
IT services company, leveraging our leading position in broadband
access services with the continued growth of a complementary data
centre services capability. Key steps in this transformation
include rounding out our operational and business development team,
evolving our go to market strategy, and expanding our data centre
footprint and services suites to win a greater share of both
existing and new customers' needs. Our aim is to drive improved
returns on assets for our shareholders through accelerating growth
over time."
2013 Financial and
Operational Highlights
- Continued increase in annual revenue of $51.4 million in 2013,
up 5% over 2012;
- Q4 2013 revenue of $12.9 million increased 3% over Q4
2012;
- EBITDA was $16.5 million for the full year 2013, compared to
$15.3 million in 2012, an increase of 8%.
- Q4 2013 EBITDA of $3.0 million declined 23% from the same
period in 2012, principally due to $1.3 million related to a costs
incurred for a departing executive and related recruiting expenses
for a replacement, cost of services and costs related to the
Vancouver data centre purchase;
- Gross profit margin for the full year and Q4 2013 were 78.0%
and 77.0% respectively, compared to 77.6% and 77.9% for the same
periods in 2012;
- Net earnings for 2013 decreased 11% to $4.3 million compared to
$4.9 million in 2012; Net loss for Q4 2013 was $0.7 million
compared to net earnings of $3.2 million for the same period in
2012. This was principally due to $1.3 million related to costs
incurred for a departing executive and related recruiting expenses
for a replacement, cost of services and costs related to the
Vancouver data centre purchase in the Q4 2013, combined with an
income tax recovery of $2.5 million recorded in Q4 2012;
- Basic and diluted earnings per share of $0.38 and $0.36,
respectively, for the full year compared to $0.43 and $0.41,
respectively, in 2012; Q4 2013 basic and diluted loss per share
were $0.06 and $0.06 respectively, compared to $0.29 and $0.27,
respectively, for the same period in 2012;
- Ended the year with 6,453 net access customer locations in
service compared to 6,575 at the end of 2012;
- Net access customer locations decreased by 80 in Q4 2013,
compared to an increase of 73 of the same period in 2012, primarily
due to increased competition in higher capacity services;
- Average revenue per access customer location ("ARPU") for the
full year and Q4 2013 was $625 and $621, respectively, compared to
$622 and $625, respectively, in 2012;
- Average monthly unit churn rate for 2013 and Q4 2013 increased
to 1.28% and 1.50% respectively, compared to 1.05% and 0.86% for
the same periods in 2012. This was primarily due to increased
competition in higher capacity services and a large low ARPU
multisite (41 sites) customer cancellation that occurred in Q4
2013. Excluding this cancellation, the churn rates for 2013 and Q4
2013 would have been approximately 1.23% and 1.28%
respectively;
- Ended 2013 with $2.6 million of cash, cash equivalents and
short-term investments and access to the $19.6 million undrawn
portion of the Company's $41.8 million credit facilities;
- Data centre services generated $1.6 million in revenue in 2013.
The integration of Data Centers Canada ("DCC") with the company's
core business is progressing as planned and data centre services
will continue to contribute to the Company's growth.
2013 Key
Developments
- In April 2013, TeraGo secured additional credit facilities with
RBC of $27.0 million on terms substantially consistent with the
existing term debt. The total debt facility stands at $41.8
million, of which $19.6 million remains undrawn.
- On May 31, 2013, the Company completed its share purchase
transaction to acquire DCC which supports the strategy to offer
complementary services. Purchase price adjustments resulted in
final consideration paid of $9.1 million, net of cash
acquired.
- As part of its strategy to expand its data centre services to
major Canadian urban centres, on December 23, 2013, TeraGo acquired
all the assets and assumed the lease of a 5,058 square feet data
centre facility, with options to expand, in Vancouver, British
Columbia that will serve the greater Vancouver area. The facility,
which provides data centre solutions, including colocation and
disaster recovery to businesses, enterprises, public sector and
technology service providers.
- Michael Martin, Richard Brekka, Jim Sanger, Nicole German and
Jim Nikopoulos were appointed to the Company's Board of
Directors.
- TeraGo's ranking on the Branham Top 250 Canadian Technology
Companies improved for the sixth consecutive year to 84th; it was
ranked as one of the top 10 Canadian Wireless Solutions Companies
for 2013; and was selected as one of Canada's top employers for
young people for 2013 by Mediacorp Canada Inc. for the second
consecutive year.
Events subsequent to
December 31, 2013
- TeraGo's Board of Directors appointed Stewart Lyons, President
and CEO and a member of the Board of Directors effective January
16, 2014. Mr. Lyons replaces Charles Allen, who has served as
Interim President and CEO since the November 2013 departure of
Bryan Boyd.
- Joe Prodan was appointed Chief Financial Officer effective
February 4, 2014. Bosco Chan, who served as Interim CFO since the
May 2013 departure of Scott Browne, will continue as Vice
President, Finance.
- Ian Thorburn was appointed Vice President, Legal effective
January 13, 2014. The position has been vacant since Jim Nikopoulos
left the company in September 2013.
- In February 2014, the Company received notice that a new
wireless entrant customer may be disconnecting their services
during 2014.
- The Company announced that it has established a fibre-optic
core in Western Canada through the acquisition of fibre facilities
in downtown Vancouver, British Columbia. This fibre connects the
Company's Vancouver data centre facility with several buildings,
ensuring secure broadband connectivity between customer locations
and the data centre.
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Key Financial & Operational Highlights |
(All financial results are in thousands, except gross
profit margin, earnings per share and operating metrics) |
|
|
|
Three months ended December 31 |
|
|
Year ended December 31 |
|
|
|
2013 |
|
|
2012 |
|
|
2013 |
|
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
12,909 |
|
|
$ |
12,567 |
|
|
$ |
51,426 |
|
|
$ |
49,168 |
|
Gross
profit margin |
|
|
77.0 |
% |
|
|
77.9 |
% |
|
|
78.0 |
% |
|
|
77.6 |
% |
EBITDA* |
|
$ |
3,043 |
|
|
$ |
3,967 |
|
|
$ |
16,506 |
|
|
$ |
15,272 |
|
Earnings (loss) from operations |
|
$ |
(327 |
) |
|
$ |
924 |
|
|
$ |
4,174 |
|
|
$ |
3,120 |
|
Net
earnings (loss) |
|
$ |
(734 |
) |
|
$ |
3,245 |
|
|
$ |
4,309 |
|
|
$ |
4,857 |
|
Basic
earnings (loss) per share |
|
$ |
(0.06 |
) |
|
$ |
0.29 |
|
|
$ |
0.38 |
|
|
$ |
0.43 |
|
Diluted earnings (loss) per share |
|
$ |
(0.06 |
) |
|
$ |
0.27 |
|
|
$ |
0.36 |
|
|
$ |
0.41 |
|
|
|
|
|
|
|
|
|
|
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Operating |
|
|
|
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|
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|
|
|
|
|
|
|
|
Churn
rate* |
|
|
1.50 |
% |
|
|
0.86 |
% |
|
|
1.28 |
% |
|
|
1.05 |
% |
Customer locations in service |
|
|
6,453 |
|
|
|
6,575 |
|
|
|
6,453 |
|
|
|
6,575 |
|
ARPU* |
|
$ |
621 |
|
|
$ |
625 |
|
|
$ |
625 |
|
|
$ |
622 |
|
Number of employees |
|
|
191 |
|
|
|
189 |
|
|
|
191 |
|
|
|
189 |
|
* See Key
Performance Indicators, Additional GAAP and Non-GAAP Measures
below
Financial results
for DCC are included from the date of acquisition, May 31, 2013.
Operating results related to churn rate, customer locations in
service and ARPU exclude results for DCC.
The table below
reconciles net earnings to EBITDA for the three months and year
ended December 31, 2013 and 2012.
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|
|
(in thousands of dollars) |
|
|
Three months |
|
|
|
Year ended |
|
|
|
|
ended Dec 31 |
|
|
|
December 31 |
|
|
|
|
2013 |
|
|
|
2012 |
|
|
|
2013 |
|
|
|
2012 |
|
Net earnings (loss) for the period |
|
$ |
(734 |
) |
|
$ |
3,245 |
|
|
$ |
4,309 |
|
|
$ |
4,857 |
|
Foreign exchange loss (gain) |
|
|
34 |
|
|
|
11 |
|
|
|
63 |
|
|
|
(14 |
) |
Finance costs |
|
|
352 |
|
|
|
197 |
|
|
|
1,126 |
|
|
|
828 |
|
Finance income |
|
|
(5 |
) |
|
|
(9 |
) |
|
|
(36 |
) |
|
|
(31 |
) |
Income tax( recovery) expense |
|
|
26 |
|
|
|
(2,520 |
) |
|
|
(1,288 |
) |
|
|
(2,520 |
) |
Earnings (loss) from operations |
|
|
(327 |
) |
|
|
924 |
|
|
|
4,174 |
|
|
|
3,120 |
|
Add: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of network assets, property and equipment and
amortization of intangible assets |
|
|
3,240 |
|
|
|
2,821 |
|
|
|
12,279 |
|
|
|
10,674 |
|
|
Loss
on disposal of network assets |
|
|
121 |
|
|
|
106 |
|
|
|
202 |
|
|
|
276 |
|
|
Stock-based compensation expense (recovery) |
|
|
9 |
|
|
|
116 |
|
|
|
(149 |
) |
|
|
1,202 |
|
EBITDA |
|
|
3,043 |
|
|
|
3,967 |
|
|
|
16,506 |
|
|
|
15,272 |
|
|
Special Charges |
|
|
- |
|
|
|
438 |
|
|
|
- |
|
|
|
699 |
|
EBITDA excluding special charges |
|
$ |
3,043 |
|
|
$ |
4,405 |
|
|
$ |
16,506 |
|
|
$ |
15,971 |
|
2013 Results of
Operations
Revenue
Total revenue for
the year ended December 31, 2013 increased 5% to $51.4 million
compared to $49.2 million for 2012. Fourth quarter 2013 revenue of
$12.9 million was up 3% from $12.6 million for the same period in
2012. The increase largely resulted from data centre revenue of
$1.6 million and $0.7 million for the full year and Q4 2013,
respectively, as well as existing customers upgrading their
Internet and data connections. Approximately 98% of total 2013
revenue was recurring service revenue.
Customer
locations
713 new access
customer additions in 2013 (1,118 in 2012) resulted in a decrease
of 122 net access customer locations as compared to 2012. Net
access customer locations decreased by 80 in Q4 2013, compared to
an increase of 73 of the same period in 2012. Both the annual and
quarterly declines were primarily due to increased competition in
higher capacity services. The year ended with 6,453 customer
locations in service compared to 6,575 at the end of 2012.
Churn
rate
The average monthly
churn rate in 2013 was 1.28% compared to 1.05% in 2012. The fourth
quarter 2013 average monthly churn rate was 1.50%, compared to
0.86% for the same period in 2012. The average monthly churn rates
for both the year and fourth quarter increased primarily due to
increased competition in higher capacity services and a large low
multisite (41 sites) customer with low ARPU ($162) cancellation
during Q4 2013. Excluding this cancellation, the churn rates for
2013 and for Q4 2013 would have been approximately 1.23% and 1.28%
respectively. Management continues to strive for lower churn rates
by focusing on network quality, customer service, and customer
creditworthiness.
ARPU
Average monthly
revenue per access customer location, or ARPU, increased to $625 in
2013, compared with $622 in 2012. The increase was primarily a
result of service capacity upgrades by existing customers, a higher
proportion of new customers choosing higher capacity services or
voice services, early termination fees, and lower credits partially
offset by lower usage revenue. Fourth quarter 2013 ARPU decreased
to $621 compared to $625 for the same period in 2012, driven
primarily by lower usage revenue in the quarter.
Gross
margin
The gross profit
margin for 2013 remained strong at 78.0% compared to 77.6% for
2012. The increase is primarily due to savings recognized from
telecommunication and maintenance costs partially offset by annual
increases in property access costs and spectrum costs. Fourth
quarter gross profit margin was 77.0% compared to 77.9% for the
same period in 2012. The decrease is primarily due to an increase
in property access costs and spectrum costs.
SG&A
SG&A (Salaries
and related costs - Other, and Other operating items) expenses
remained consistent, totalling $23.7 million for both 2013 and
2012. Lower stock-based compensation and lower salaries and bonus
were offset by higher utility and facilities expenses from the
operations of the data centre, costs incurred for a departing
senior executive and related recruiting expenses for replacement
and a charge of $681 thousand related to due diligence and other
acquisition costs for the acquisition of DCC and the Vancouver data
centre. SG&A expenses increased to $7.0 million in Q4 2013 from
$5.6 million in Q4 2012, primarily due to higher utility and
facilities expenses from the operations of the data centre, and
approximately $1.3 million related to costs incurred for a
departing senior executive and related recruiting expenses for
replacement, and cost of services and costs related to the
Vancouver data centre purchase. TeraGo had 31 direct sales
personnel at year end, the same as a year earlier.
EBITDA
2013 EBITDA
increased to $16.5 million compared to $15.3 million in 2012, an
improvement of 8.0%. Fourth quarter EBITDA decreased to $3.0
million from $4.0 million for the same period in 2012. Excluding
the due diligence and other acquisition costs associated with DCC
and the costs related to a departing senior executive, EBITDA for
2013 and for Q4 2013 was $18.4 million and $4.3 million,
respectively. The increase in EBITDA is in line with management's
expectation as the Company continues to increase revenue while
focusing on cost management. For the full year and fourth quarter
of 2012, EBITDA includes special charges of $0.7 million and $0.4
million, respectively, relating to the Company's strategic
review.
Income tax
recovery
In the second
quarter of 2013, management reviewed the tax implications as a
result of the acquisition and subsequent amalgamation of DCC. A tax
benefit of $1.3 million associated with previously unrecognized tax
losses was recognized in the second quarter as management
considered it probable that future taxable profits would be
available against which they can be utilized. The deferred tax
asset was determined based on existing laws, estimates of future
probability based on financial forecasts, and tax planning
strategies. Management performed the deferred tax assets review on
a consistent basis and concluded no further change is needed for
the three months ended December 31, 2013.
Net earnings
(loss)
TeraGo achieved net
earnings for 2013 of $4.3 million compared to $4.9 million in 2012.
For the fourth quarter of 2013, net loss was $0.7 million compared
to net earnings of $3.2 million for the same period in 2012. Basic
and diluted earnings per share of, respectively, $0.38 and $0.36
for the full year compared to $0.43 and $0.41 in 2012. Q4 2013
basic and diluted loss per share were $0.06 and $0.06 respectively,
compared to EPS of $0.29 and $0.27 for the same period in 2012;
Capital
resources
At year end 2013,
the Company had cash, cash equivalents and short-term investments
of $2.6 million and access to the $19.6 million undrawn portion of
its $41.8 million credit facilities. Management believes the
Company's current cash, short-term investments, anticipated cash
from operations, access to the undrawn portion of debt facilities
and its access to additional financing in the form of debt or
equity will be sufficient to meet its working capital and capital
expenditure requirements for the foreseeable future.
Share
Capital
As of December 31,
2013, TeraGo had 11,458,611 Common Shares and two Class B Shares
outstanding.
TeraGo's
spectrum portfolio
TeraGo owns 76
spectrum licences in the 24 GHz and 38 GHz bands, covering Canadian
markets with a population base of more than 24.5 million and plans
to use this spectrum to provide Ethernet-based broadband links for
businesses, government and cellular backhaul, as part of the
Company's growth strategy.
Conference Call
and Webcast
Management will host
a conference call on Wednesday, February 26, 2014, at 9:00 am EST
to discuss these results. To access the conference call, please
dial 416-340-9534 or 1-877-440-9795. The call will also be
available via webcast at at www.terago.ca or
http://www.investorcalendar.com/IC/CEPage.asp?ID=172221. An
archived recording of the conference call will be available until
February 26, 2015 at midnight EST. To listen to this recording,
call 905-694-9451 or 1-800-408-3053 and enter passcode 7576825.
TeraGo's audited
financial statements for the three months and year ended December
31, 2013, and the notes thereto, and its Management Discussion and
Analysis for the same period, have been filed on SEDAR at
www.sedar.com.
Key Performance
Indicators, Additional GAAP and Non-GAAP Measures
Non-GAAP Measures
EBITDA
The term "EBITDA"
refers to earnings before deducting interest, taxes, depreciation
and amortization. EBITDA is a term commonly used to evaluate
operating results. We believe that EBITDA is useful additional
information to management, the Board and Investors as it provides
an indication of the operational results generated by our business
activities prior to taking into consideration how those activities
are financed and taxed and also prior to taking into consideration
asset depreciation and amortization. We also exclude foreign
exchange gain or loss, finance costs, finance income, gain or loss
on disposal of network assets, property and equipment and
stock-based compensation from our calculation of EBITDA. Investors
are cautioned that EBITDA should not be construed as an alternative
to operating earnings or net earnings determined in accordance with
IFRS as an indicator of our financial performance or as a measure
of our liquidity and cash flows. EBITDA does not take into account
the impact of working capital changes, capital expenditures, debt
principal reductions and other sources and uses of cash, which are
disclosed in the consolidated statements of cash flows. Our method
of calculating EBITDA may differ from other issuers and,
accordingly, EBITDA may not be comparable to similar measures
presented by other issuers.
Key Performance
Indicators
ARPU
The term "ARPU"
refers to our average revenue per access customer location. We
believe that ARPU is useful supplemental information as it provides
an indication of our revenue from an individual customer location
on a per month basis. ARPU is not a recognized measure under IFRS
and, accordingly, investors are cautioned that ARPU should not be
construed as an alternative to revenue determined in accordance
with IFRS as an indicator of our financial performance. We
calculate ARPU by dividing our service revenue by the average
number of customer locations in service during the period and we
express ARPU as a rate per month. Our method of calculating ARPU
may differ from other issuers and, accordingly, ARPU may not be
comparable to similar measures presented by other issuers.
Churn
The term "churn" or
"churn rate" is a measure, expressed as a percentage, of customer
locations terminated in a particular month. Churn represents the
number of customer locations disconnected per month as a percentage
of total number of customer locations in service during the month.
The Company calculates churn by dividing the number of customer
locations disconnected during a period by the total number of
customer locations in service during the period. Churn and churn
rate are not recognized measures under IFRS and, accordingly,
investors are cautioned in using it. TeraGo's method of calculating
churn and churn rate may differ from other issuers and,
accordingly, churn may not be comparable to similar measures
presented by other issuers.
Additional GAAP
Measures
Earnings (loss)
from operations
Earnings (loss) from
operations exclude foreign exchange gain (loss), income taxes,
finance costs and finance income. We include earnings (loss) from
operations as an additional GAAP measure in our consolidated
statement of earnings. We consider earnings (loss) from operations
to be representative of the activities that would normally be
regarded as operating for the Company. We believe this measure
provides relevant information that can be used to assess the
consolidated performance of the Company and therefore, provides
meaningful information to investors.
Forward-Looking
Statements
This news release
includes certain forward-looking statements that are made as of the
date hereof and that are based upon current expectations, which
involve risks and uncertainties associated with our business and
the economic environment in which the business operates. All such
statements are made pursuant to the 'safe harbour' provisions of,
and are intended to be forward-looking statements under, applicable
Canadian securities laws. Any statements contained herein that are
not statements of historical facts may be deemed to be
forward-looking statements. For example, the words anticipate,
believe, plan, estimate, expect, intend, should, may, could,
objective and similar expressions are intended to identify
forward-looking statements. By their nature, forward-looking
statements require us to make assumptions and are subject to
inherent risks and uncertainties. We caution readers of this news
release not to place undue reliance on our forward-looking
statements as a number of factors could cause actual results,
conditions, actions or events to differ materially from the
targets, expectations, estimates or intentions expressed with the
forward-looking statements. When relying on forward-looking
statements to make decisions with respect to the Company, investors
and others should carefully consider the risks set forth in the
2013 MD&A and 2013 Annual Information Form that can be found on
SEDAR at www.sedar.com and other uncertainties and potential
events. Except as may be required by applicable Canadian securities
laws, we do not intend, and disclaim any obligation to update or
revise any forward-looking statements whether in words, oral or
written as a result of new information, future events or
otherwise.
About TeraGo
Networks
TeraGo Networks Inc.
provides businesses across Canada with carrier-grade broadband,
data and voice communications services. Colocation and disaster
recovery solutions are also provided by Data Centers Canada, a
division of TeraGo Networks. The national service provider owns and
manages its IP network servicing over 6,400 customer locations in
46 major markets across Canada including Toronto, Montreal,
Calgary, Edmonton, Vancouver and Winnipeg. TeraGo Networks is a
Competitive Local Exchange Carrier (CLEC) and is a wholly owned
subsidiary of TeraGo Inc. (TSX:TGO). More information about TeraGo
is available at www.terago.ca.
TeraGo Inc.Stewart LyonsPresident and
CEO1-877-982-3688IR@terago.caTeraGo Inc.Joe ProdanChief Financial
Officer1-877-982-3688IR@terago.cawww.terago.caLHAJody
Burfening212-838-3777LHACarolyn
Capaccio212-838-3777ccapaccio@lhai.com
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