TORONTO, May 9, 2018 /CNW/ - TeraGo Inc. ("TeraGo"
or the "Company") (TSX: TGO, www.terago.ca), today announced
financial and operating results for the quarter ended March 31, 2018.
"In the first quarter, we made solid progress to stabilize the
business and our focus on retaining and attracting higher value
customers has led to improvement in ARPU," said Tony Ciciretto, President and CEO of TeraGo.
"The strategic investments made over the past year are beginning to
contribute to our financial results as we provision services to
customers from our backlog at the end fourth quarter of 2017."
Mr. Ciciretto added, "We are also closely monitoring the future
development of 5G in Canada and
are focused on leveraging our 24/38 GHz spectrum assets to surface
value as the process unfolds. In February, we submitted a comment
letter to ISED in response to a consultation on their overall
approach and planned activities for spectrum over the next five
years. We look forward to ISED's upcoming decision on the use of 38
GHz millimeter wave spectrum for 5G, and hope to see the 24 GHz
band added as part of ISED's roadmap for 5G in the future."
Financial Highlights
- Total revenue decreased 3.8% to $13.7
million for the three months ended March 31, 2018 compared to $14.3 million for the same period in 2017.
- Cloud and colocation revenue decreased 1.7% to $4.7 million for the three months ended
March 31, 2018 compared to
$4.8 million for the same period in
2017. This decrease was primarily as a result of the
reclassification of certain revenue in 2018 from cloud and
colocation to connectivity for the first time adoption of IFRS 15,
Revenue from Contracts with Customers, while prior period results
have not been restated. Had the prior revenue classification method
been used, cloud and colocation revenue would have been
$5.0 million, an increase of 4.7%
from the same period in 2017.
- Connectivity revenue decreased 4.8% to $9.0 million for the three months ended
March 31, 2018 compared to
$9.5 million for the same period in
2017. Connectivity revenues were impacted by a variety of factors,
including churn, certain customers renewing long term contracts at
lower current market rates partially offset by the positive impact
of reclassifications as a result of the first time adoption of IFRS
15. Had the prior revenue classification method been used,
connectivity revenue would have been $8.7
million, a decrease of 8.0% from the same period in
2017.
- Net loss was $1.3 million for the
three months ended March 31, 2018
compared to a net loss of $1.1
million for the same period in 2017. The increase in net
loss was primarily driven by the impairment charge on property and
equipment for certain network assets associated with our
connectivity services. 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.
- Adjusted EBITDA(1)(2) decreased to $3.1 million for the three months ended
March 31, 2018 compared to
$3.7 million for the same period in
2017. The decrease was primarily driven by lower revenue and
increases in other operating expenses partially offset by lower
overall salary and related costs.
RESULTS OF OPERATIONS
Comparison of the three months March 31, 2018 and 2017
(in thousands of dollars, except with respect to gross profit
margin, earnings per share, Backlog MRR, and ARPU)
|
|
Three months
ended
March
31
|
|
|
2018
|
|
2017(3)
|
Financial
|
|
|
|
|
|
Cloud and Colocation
Revenue
|
$
|
4,731
|
$
|
4,812
|
|
Connectivity
Revenue
|
$
|
9,009
|
$
|
9,465
|
|
Total
Revenue
|
$
|
13,740
|
$
|
14,277
|
|
Cost of
Services
|
$
|
3,555
|
$
|
3,483
|
|
Gross profit
margin
|
|
74.1%
|
|
75.6%
|
|
Adjusted
EBITDA(1) (2)
|
$
|
3,129
|
$
|
3,711
|
|
Net Income
(Loss)
|
$
|
(1,312)
|
$
|
(1,055)
|
|
Basic loss per
share
|
$
|
(0.09)
|
$
|
(0.07)
|
|
Diluted loss per
share
|
$
|
(0.09)
|
$
|
(0.07)
|
Operating
|
|
|
|
|
|
Backlog
MRR(1)
|
|
|
|
|
|
|
Connectivity
|
$
|
58,336
|
$
|
69,518
|
|
|
Cloud &
Colocation
|
$
|
133,687
|
$
|
33,962
|
|
Churn
Rate(1)
|
|
|
|
|
|
|
Connectivity
|
|
1.6%
|
|
1.7%
|
|
|
Cloud &
Colocation
|
|
3.1%
|
|
1.2%
|
|
ARPU(1)
|
|
|
|
|
|
|
Connectivity
|
$
|
1,041
|
$
|
968
|
|
|
Cloud &
Colocation
|
$
|
3,084
|
$
|
3,160
|
|
(1) See " Non-IFRS
Measures" below.
|
(2) See definition of
"Adjusted EBITDA" below for a reconciliation of net loss to
Adjusted EBITDA
|
(3) The Company has
applied IFRS 15 on January 1, 2018 using the cumulative effect
method. Under this method, the comparative information is not
restated. See "Accounting Pronouncements Adopted in 2018" for
further information.
|
Operating Highlights
Backlog MRR(1)
- Cloud and colocation backlog MRR was $133,687 as at March 31,
2018 compared to $33,962 as at
March 31, 2017. The increase is
driven by growth in Cloud and Colocation sales bookings in recent
quarters with a number of customer contracts scheduled to be
provisioned in 2018.
- Connectivity backlog MRR was $58,336 as at March 31,
2018, compared to $69,518 as
at March 31, 2017. The change in
backlog MRR is driven primarily by bookings and the timing of
customer provisioning.
ARPU(1)
- For the three months ended March 31,
2018 cloud and colocation ARPU was $3,084 compared to $3,160 for the same period in 2017. The decline
in ARPU is due to the adoption of IFRS 15 in 2018. Excluding the
impact of IFRS 15 classification of revenue from cloud and
colocation to connectivity, ARPU for the three months ended
March 31, 2018 would have been
$3,282, representing growth of 3.9%
compared to the prior period driven by the partial provisioning of
large new customers, as well as planned churn of low value cloud
customers.
- For the three months ended March 31,
2018 connectivity ARPU was $1,041 compared to $968 for the same period in 2017. The increase in
ARPU is driven by the continued churn of low value ARPU customers,
as well as the impact of the adoption of IFRS 15. Excluding the
impact of IFRS 15 on the classification of revenue from cloud and
colocation to connectivity, connectivity ARPU for the three months
ended March 31, 2018 would have been
$1,005, which represents growth of
3.8% compared to the prior year period.
Churn(1)
- For the three months ended March 31,
2018, cloud and colocation churn was 3.1% compared to 1.2%
for the same period in 2017. The increase is largely as result of
low value customer churn on legacy and end of life services that
the Company has decided to cease during the three months ended
March 31, 2018. Excluding customer
churn due to the ceasing of these legacy and end of life services,
cloud and colocation churn was approximately 1.7% for the three
months ended March 31, 2018.
- For the three months ended March 31,
2018, connectivity churn was 1.6% compared to 1.7% for the
same period in 2017. 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.
ACCOUNTING PRONOUNCEMENTS ADOPTED IN 2018
IFRS 15 REVENUE FROM CONTRACTS WITH CUSTOMERS
Effective January 1, 2018, the
Company adopted IFRS 15 Revenue from Contracts with Customers. IFRS
15 supersedes the existing standards and interpretations including
IAS 18, Revenue and IFRIC 13, Customer Loyalty Programmes. IFRS 15
introduces a single model for recognizing revenue from contracts
with customers with the exception of certain contracts under other
IFRSs.
The Company applied IFRS 15 using the cumulative effect method,
i.e. by recognizing the cumulative effect of initially applying
IFRS 15 as an adjustment to the opening balance of retained
earnings at January 1, 2018.
Therefore, comparative information has not been restated and
continues to be reported under IAS 18.
The Company offers customers bundled connectivity, colocation,
and cloud services. Revenue from these arrangements were previously
classified on the nature of the contract. Under IFRS 15, total
consideration in contracts with customers are allocated to distinct
performance obligations based on their stand-alone selling prices.
The Company determined the stand-alone selling price to be the list
price at which the Company sells connectivity, and colocation &
cloud services. As a result of the allocation of performance
obligations under IFRS 15, certain amounts that would have been
classified as cloud & colocation revenue are now presented as
connectivity revenue.
The following table highlights some of the key impacts on our
financial metrics discussed in the press release. For a full
description of the accounting pronouncements adopted in 2018,
please refer to the Management's Discussion & Analysis report
for the three months ended March 31,
2018.
|
|
Three months ended
March 31
|
|
|
2018
(As
reported)
|
|
2018
(Without
adoption of
IFRS 15)
|
%
Change
|
Financial
|
|
|
|
|
|
|
Cloud and Colocation
Revenue
|
$
|
4,731
|
$
|
5,039
|
-6.1%
|
|
Connectivity
Revenue
|
$
|
9,009
|
$
|
8,705
|
3.5%
|
|
Total
Revenue
|
$
|
13,740
|
$
|
13,744
|
-
|
|
Adjusted
EBITDA(1) (2)
|
$
|
3,129
|
$
|
3,041
|
2.9%
|
|
Net Income
(Loss)
|
$
|
(1,312)
|
$
|
(1,400)
|
-6.3%
|
Operating
|
|
|
|
|
|
|
Backlog
MRR(1)
|
|
|
|
|
|
|
|
Connectivity
|
$
|
58,336
|
$
|
56,678
|
2.9%
|
|
|
Cloud &
Colocation
|
$
|
133,687
|
$
|
135,345
|
-1.2%
|
|
ARPU(1)
|
|
|
|
|
|
|
|
Connectivity
|
$
|
1,041
|
$
|
1,005
|
3.6%
|
|
|
Cloud &
Colocation
|
$
|
3,084
|
$
|
3,282
|
-6.0%
|
|
(1) See "Non-IFRS
Measures" below.
|
(2) See definition of
"Adjusted EBITDA" below for a reconciliation of net loss to
Adjusted EBITDA
|
(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, impairment of property,
plant, & equipment and intangible assets, 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 months ended March 31, 2018. 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 months and year ended
March 31, 2018 and 2017.
(in thousands
of dollars)
|
|
Three months
ended
March
31
|
|
|
2018
|
|
|
2017(1)
|
Net earnings
(loss) for the period
|
$
|
(1,312)
|
|
$
|
(1,055)
|
Foreign exchange loss
(gain)
|
|
4
|
|
|
7
|
Finance
costs
|
|
628
|
|
|
471
|
Finance
income
|
|
-
|
|
|
(4)
|
Earnings (loss)
from operations
|
|
(680)
|
|
|
(581)
|
Add:
|
|
|
|
|
|
|
Depreciation of
network assets, property and equipment and amortization of
intangible assets
|
|
3,153
|
|
|
3,661
|
|
Loss on disposal of
network assets
|
|
82
|
|
|
51
|
|
Impairment of Assets
and Related Charges
|
|
236
|
|
|
-
|
|
Stock-based
Compensation Expense (Recovery)
|
|
203
|
|
|
(147)
|
|
Restructuring,
acquisition-related, integration costs and other
|
|
135
|
|
$
|
727
|
Adjusted
EBITDA
|
$
|
3,129
|
|
$
|
3,711
|
|
|
(1) The Company has
initially applied IFRS 15 using the cumulative effect method. Under
this method, the comparative information is not
restated.
|
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, May 10, 2018, 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 unaudited financial statements for the three
months ended March 31, 2018 and
Management's Discussion & Analysis for the same period 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 May 18, 2018. To listen to the
recording, call 416-621-4642 or 1-800-585-8367 and enter passcode
1793037.
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, progress in stabilizing the business
and our focus on retaining and attracting higher value customers,
leveraging our 24/38 GHz spectrum assets to surface value, the
pending ISED decision on 38 GHz millimeter wave spectrum for 5G,
and the hoping that 24 GHz band being added as part of ISED's
roadmap for 5G in the future. 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, ISED decisions in the various Consultations that
TeraGo has participated in being unfavourable to the Company, 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.