Strategic investments drive continued shift
towards Cloud and Colocation services revenue
TORONTO, Feb. 21, 2018 /CNW/ - TeraGo Inc.
("TeraGo" or the "Company") (TSX: TGO,
www.terago.ca), today announced financial and operating results for
the quarter and year ended December 31,
2017.
"In the fourth quarter, we continued to make progress with our
shift to higher growth Cloud and Colocation service offerings and
our turnaround is well on track," commented Tony Ciciretto, President and CEO of
TeraGo. "As evidenced by record Cloud and Colocation Backlog
Monthly Recurring Revenue at the end of the fourth quarter, stable
churn rates, and stable ARPU, we believe the strategic investments
made in 2017 have positioned TeraGo for improved financial
performance in 2018."
Mr. Ciciretto added, "With a recurring revenue business model
from a base of approximately 3,400 business customers, a national
communications network that includes approximately 8.5 billion
MHz/Pop's of 24/38 GHz millimeter wave spectrum, and five data
centres to support our growth plans, we have a strong asset base
and are highly focused on surfacing value for shareholders."
Financial Highlights
- Total revenue decreased 7.2% to $13.5
million for the three months ended December 31, 2017 compared to $14.6 million for the same period in 2016. Total
revenue decreased 6.3% to $55.4
million for the year ended December
31, 2017, compared to $59.1
million for the same period in 2016.
- Cloud and colocation revenue decreased 1.5% to $4.7 million compared to $4.8 million for the same period in 2016. The
decrease was driven by churn impacts throughout the year. However,
the percentage of revenues from cloud and colocation of our total
revenue have increased steadily quarter over quarter during 2017
(Q1 = 33.7%, Q2 = 34.0%, Q3 = 34.0%, Q4 = 35.0%) as the Company
makes a shift towards these higher growth service offerings. Cloud
and colocation revenue increased 3.6% to $18.9 million for the year ended December 31, 2017.
- Connectivity revenue decreased 10.0% to $8.8 million for the three months ended
December 31, 2017 compared to
$9.8 million for the same period in
2016. Connectivity revenues were impacted by a variety of factors,
including churn, certain customers renewing long term contracts at
lower current market rates, and lower usage revenues as certain
customers have shifted to unlimited usage plans. For the year ended
December 31, 2017, connectivity
revenue decreased 10.7% to $36.4
million compared to $40.1
million for the same period in 2016. The decrease was driven
by the factors described above.
- Net loss was $4.1 million for the
three months ended December 31, 2017
compared to a net income of $0.4
million for the same period in 2016. The increase in net
loss was primarily driven by the impairment charge on certain
network assets, property and equipment and intangible assets to
adjust the carrying amount to their recoverable amount. In
addition, the Company saw a decrease in revenue, increase in cost
of services, increase in other operating costs, increase in finance
costs, and an increase in stock-based compensation, partially
offset by lower restructuring and related costs, as well as lower
depreciation and amortization.
For the year ended December 31, 2017,
net loss was $7.3 million compared to
a net loss of $4.3 million for the
same period in 2016. The increase in net loss was driven by the
factors described above.
- Adjusted EBITDA(1) decreased to $2.9 million for the three months ended
December 31, 2017 compared to
$4.9 million for the same period in
2016. The decrease was primarily driven by the reduction of
connectivity revenue, higher third-party costs, higher real estate
fees, higher software license costs, higher salary and related
costs to support strategic initiatives, and increases in other
operating expenses.
For the year ended December 31, 2017,
Adjusted EBITDA(1) decreased to $12.9 million compared to $18.9 million for the same period in 2016. The
decrease in Adjusted EBITDA was driven by the factors above,
partially offset by higher cloud & colocation revenue.
RESULTS OF OPERATIONS
Comparison of the three and twelve months ended
December 31, 2017 and
2016
(in thousands of dollars, except with
respect to gross profit margin and earnings per share)
|
|
Three months
ended
December
31
|
|
Years
ended
December
31
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Financial
|
|
|
|
|
|
|
|
|
|
Cloud and Colocation
Revenue
|
$
|
4,727
|
$
|
4,798
|
$
|
18,961
|
$
|
18,296
|
|
Connectivity
Revenue
|
$
|
8,816
|
$
|
9,795
|
$
|
36,432
|
$
|
40,790
|
|
Total
Revenue
|
$
|
13,543
|
$
|
14,593
|
$
|
55,392
|
$
|
59,086
|
|
Cost of
Services(1)
|
$
|
3,544
|
$
|
3,322
|
$
|
14,103
|
$
|
13,477
|
|
Gross profit margin
(1)
|
|
73.8%
|
|
77.2%
|
|
74.5%
|
|
77.2%
|
|
Adjusted
EBITDA(1)
|
$
|
2,937
|
$
|
4,889
|
$
|
12,864
|
$
|
18,941
|
|
Income tax recovery
(expense)
|
$
|
-
|
$
|
15
|
$
|
-
|
$
|
(700)
|
|
Net Income
(Loss)
|
$
|
(4,061)
|
$
|
355
|
$
|
(7,294)
|
$
|
(4,314)
|
|
Basic loss per
share
|
$
|
(0.28)
|
$
|
0.02
|
$
|
(0.51)
|
$
|
(0.30)
|
|
Diluted loss per
share
|
$
|
(0.28)
|
$
|
0.02
|
$
|
(0.51)
|
$
|
(0.30)
|
Operating
|
|
|
|
|
|
|
|
|
|
Backlog
MRR(1)
|
|
|
|
|
|
|
|
|
|
|
Connectivity
|
$
|
84,191
|
$
|
73,923
|
$
|
84,191
|
$
|
73,923
|
|
|
Cloud &
Colocation
|
$
|
291,698
|
$
|
20,223
|
$
|
291,698
|
$
|
20,223
|
|
Churn
Rate(1)
|
|
|
|
|
|
|
|
|
|
|
Connectivity
|
|
1.6%
|
|
1.7%
|
|
1.6%
|
|
1.4%
|
|
|
Cloud &
Colocation
|
|
1.4%
|
|
1.7%
|
|
1.6%
|
|
1.5%
|
|
ARPU(1)
|
|
|
|
|
|
|
|
|
|
|
Connectivity
|
$
|
996
|
$
|
963
|
$
|
980
|
$
|
961
|
|
|
Cloud &
Colocation
|
$
|
3,027
|
$
|
3,113
|
$
|
3,106
|
$
|
3,039
|
Operating Highlights
Backlog MRR(1)
- Cloud and colocation backlog MRR was $291,698 as at December
31, 2017 compared to $20,223
as at December 31, 2016. The increase
is driven by growth in Cloud and Colocation sales bookings in the
second half of 2017 with provisioning scheduled into 2018.
- Connectivity backlog MRR was $84,191 as at December 31,
2017, compared to $73,923 as
at December 31, 2016. The
change in backlog MRR is driven primarily by the timing of customer
provisioning
ARPU(1)
- Cloud and colocation ARPU was $3,027 and $3,106,
respectively, for the three and twelve months ended December 31, 2017 compared to $3,113 and $3,039
for the same period in 2016. ARPU remained relatively flat in the
period, with recent large new customer colocation contracts
scheduled to be provisioned in the first half of 2018.
- Connectivity ARPU was $996 and
$980, respectively, for the three and
twelve months ended December 31, 2017
compared to $963 and $961 for the same periods in 2016. The increase
is driven by the churn of low ARPU customers, and the Company's
focus on acquiring mid-market customers.
Churn(1)
- Cloud and colocation churn was 1.4% and 1.6%, respectively, for
the three and twelve months ended December
31, 2017 compared to 1.7% and 1.5% for the same period in
2016. While the rate of churn will fluctuate based on the timing of
contract renewals and product lifecycles, the Company's investments
in developing a robust customer experience framework are expected
to positively impact churn rates moving forward.
- Connectivity churn was 1.6% and 1.6%, respectively, for the
three and twelve months ended December 31,
2017 compared to 1.7% and 1.4% for the same period in 2016.
The Company continues to focus on servicing and retaining
mid-market customers with churn expected to continue from lower
ARPU customers due to competition at the low end of the
market.
(1)Non-IFRS Measures
This press release contains references to "Adjusted EBITDA",
"Backlog MRR", "ARPU", and "churn" which are not measures
prescribed by International Financial Reporting Standards
(IFRS).
Adjusted EBITDA - The Company believes that Adjusted EBITDA
is useful additional information to management, the Board and
investors as it provides an indication of the operational results
generated by its 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 and it excludes items that could affect the
comparability of our operational results and could potentially
alter the trends analysis in business performance. Excluding these
items does not necessarily imply they are non-recurring, infrequent
or unusual. Adjusted EBITDA is also used by some investors and
analysts for the purpose of valuing a company. The Company
calculates Adjusted EBITDA as earnings before deducting interest,
taxes, depreciation and amortization, foreign exchange gain or
loss, finance costs, finance income, gain or loss on disposal of
network assets, property and equipment, stock-based compensation
and restructuring, acquisition-related and integration costs.
Investors are cautioned that Adjusted EBITDA should not be
construed as an alternative to operating earnings (losses) or net
earnings (losses) determined in accordance with IFRS as an
indicator of our financial performance or as a measure of our
liquidity and cash flows. Adjusted 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.
A reconciliation of net loss to Adjusted EBITDA is found below
and in the MD&A for the three and twelve months ended
December 31, 2017. Adjusted EBITDA
does not have any standardized meaning under IFRS/GAAP. TeraGo's
method of calculating Adjusted EBITDA may differ from other issuers
and, accordingly, Adjusted EBITDA may not be comparable to similar
measures presented by other issuers.
The table below reconciles net loss to Adjusted
EBITDA(1) for the three and twelve months ended
December 31, 2017 and 2016.
(in thousands
of dollars)
|
|
Three months
ended
December
31
|
|
Year
ended
December
31
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net loss for the
period
|
$
|
(4,061)
|
$
|
355
|
$
|
(7,294)
|
$
|
(4,314)
|
Foreign exchange loss
(gain)
|
|
(15)
|
|
2
|
|
(50)
|
|
(16)
|
Finance
costs
|
|
523
|
|
379
|
|
1,698
|
|
1,882
|
Finance
income
|
|
(17)
|
|
-
|
|
(50)
|
|
(8)
|
Income tax (recovery)
expense
|
|
-
|
|
(15)
|
|
-
|
|
700
|
Earnings (loss)
from operations
|
|
(3,570)
|
|
721
|
|
(5,696)
|
|
(1,756)
|
Add:
|
|
|
|
|
|
|
|
|
|
Depreciation of
network assets, property and equipment and amortization of
intangible assets
|
|
3,492
|
|
3,651
|
|
14,324
|
|
15,325
|
|
Loss (gain) on
disposal of network assets
|
|
15
|
|
85
|
|
109
|
|
397
|
|
Impairment of Assets
and Related Charges
|
|
2,851
|
|
-
|
|
2,851
|
|
-
|
|
Stock-based
Compensation Expense
|
|
156
|
|
16
|
|
201
|
|
866
|
|
Restructuring,
acquisition-related, integration costs and other
|
|
(7)
|
$
|
416
|
$
|
1,075
|
$
|
4,109
|
Adjusted
EBITDA(1)
|
$
|
2,937
|
$
|
4,889
|
$
|
12,864
|
$
|
18,941
|
Backlog MRR - The term "Backlog MRR" is a measure of contracted
monthly recurring revenue (MRR) from customers that have not yet
been provisioned. The Company believes backlog MRR is useful
additional information as it provides an indication of future
revenue. Backlog MRR is not a recognized measure under IFRS and may
not translate into future revenue, and accordingly, investors are
cautioned in using it. The Company calculates backlog MRR by
summing the MRR of new customer contracts and upgrades that are
signed but not yet provisioned, as at the end of the period.
TeraGo's method of calculating backlog MRR may differ from other
issuers and, accordingly, backlog MRR may not be comparable to
similar measures presented by other issuers.
ARPU - The term "ARPU" refers to the Company's average revenue
per customer per month. The Company believes that ARPU is useful
supplemental information as it provides an indication of our
revenue from an individual customer 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. The Company calculates ARPU by dividing our
total revenue before revenue from early terminations divided by the
number of customers in service during the period and we express
ARPU as a rate per month. TeraGo's 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 cancellations in a particular month.
Churn represents the number of customer cancellations per month as
a percentage of total number of customers during the month. The
Company believes that the churn rate is useful supplemental
information as it provides an indication of future revenue decline
and is a measure of how well the business is able to renew and keep
existing customers on their existing service offerings. The Company
calculates churn by dividing the number of customer cancellations
during a month by the total number of customers at the end of the
month before any churn, expressed as an average monthly rate in 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.
Conference Call
Management will host a conference call tomorrow, Thursday, February 22, 2017, at 8:30 am ET to discuss these results.
To access the conference call, please dial 647-427-2311 or
1-866-521-4909. The audited financial statements for the three and
twelve months ended December 31, 2017
and Management's Discussion & Analysis for the same periods
have been filed on SEDAR at www.sedar.com. Alternatively, these
documents along with a presentation in connection with the
conference call can be accessed online at
https://terago.ca/company/investor-relations.
An archived recording of the conference call will be available
until March 1, 2018. To listen to the
recording, call 416-621-4642 or 1-800-585-8367 and enter passcode
7049608.
About TeraGo
TeraGo provides businesses across Canada with cloud, colocation and connectivity
services. TeraGo manages over 3,000 cloud workloads, operates five
data centres in the Greater Toronto
Area, the Greater Vancouver
Area, and Kelowna, and owns
and manages its own IP network. The Company serves business
customers in major markets across Canada including Toronto, Montreal, Calgary, Edmonton, Vancouver and Winnipeg. TeraGo Networks is a Competitive
Local Exchange Carrier (CLEC) and was recognized by IDC as a
Major Player in MarketScape Cloud
Vendor Assessment. TeraGo Networks was also selected as one of
Canada's Top Small and Medium
Employers for 2017.
For more information about TeraGo, please visit
www.terago.ca.
Forward-Looking Statements
This press release includes certain forward-looking statements
that are made as of the date hereof. Such forward-looking
statements may include, but are not limited to, statements relating
to TeraGo's growth strategy, improved financial performance in
2018, shift to higher growth Cloud and Colocation service
offerings, customer colocation contracts scheduled to be
provisioned in the first half of 2018, acquiring mid-market
customers, the Company's investments in developing a robust
customer experience framework expected to positively impact churn
rates moving forward, and churn expected to continue from lower
ARPU customers due to competition at the low end of the market. 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. The forward-looking statements
reflect the Company's views with respect to future events and is
subject to risks, uncertainties and assumptions, including the risk
that TeraGo's growth strategy, strategic plan, and investments will
not generate the result or sustainable growth intended by
management, current growth trends in the Company's cloud and data
centre business and in the industry may not continue as expected or
significant growth opportunities may not be available, provisioning
of large colocation services agreement may be delayed or may incur
more costs than the Company had intended, TeraGo may not meet the
growing and complex needs of its customers, and those risks set
forth in the "Risk Factors" section in the annual MD&A of the
Company for the year ended December 31,
2017 available on www.sedar.com. Accordingly, readers should
not place undue reliance on forward-looking statements as a number
of factors could cause actual future results, conditions, actions
or events to differ materially from the targets, expectations,
estimates or intentions expressed with the forward-looking
statements. Except as may be required by applicable Canadian
securities laws, TeraGo does not intend, and disclaims 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.
SOURCE TeraGo Inc.