TORONTO, Aug. 8, 2018 /CNW/ -TeraGo Inc. ("TeraGo"
or the "Company") (TSX: TGO, www.terago.ca), today announced
financial and operating results for the quarter ended June 30, 2018.
"In the second quarter, growth in cloud and colocation helped to
stabilize our business as we continued to provision services to
customers in our backlog," said Tony
Ciciretto, President and CEO of TeraGo. "With improving
churn and ARPU, we are encouraged by the operating trends we are
seeing in our business and we will continue to focus on managing
our cost structure while making strategic investments to drive
future growth."
Mr. Ciciretto added, "Over the next year, we expect industry
activity around 5G wireless spectrum to pick up as ISED begins to
execute its four-year plan to release spectrum for next generation
services. With the proceeds from our recent equity financing, we
have exercised our option to acquire six 24 GHz licenses and
pending application and ISED approval will deepen our coverage in
Canada's major markets. We hope to
see the profile of the 24 GHz band enhanced as part of Canada's 5G roadmap like it has in
the United States."
Financial Highlights
- Total revenue decreased 1.5% to $13.7
million for the three months ended June 30, 2018 compared to $13.9 million for the same period in 2017.
- Connectivity revenue decreased 4.2% to $8.8 million for the three months ended
June 30, 2018 compared to
$9.2 million for the same period in
2017. Connectivity revenues were impacted by a variety of factors,
including churn and certain customers renewing long term contracts
at lower current market rates partially offset by the positive
impact of reclassifications as a result of first time adoption of
IFRS 15. Excluding the impact of IFRS 15 classification of revenue
from cloud and colocation to connectivity, connectivity revenue for
the three months ended June 30, 2018
would have been $8.4 million or 8.2%
decrease compared to $9.2 million for
the same period in 2017.
- Cloud and colocation revenue increased 3.8% to $4.9 million for the three months ended
June 30, 2018 compared to
$4.7 million for the same period in
2017. The increase was primarily a result of higher cloud and
colocation provisioning. Excluding the impact of IFRS 15
classification of revenue from cloud and colocation to
connectivity, cloud and colocation revenue for the three months
ended June 30, 2018 would have been
$5.3 million or 11.4% increase
compared to $4.7 million for the same
period in 2017.
- The product mix remained steady compared to the same period in
the prior year with a slight increase in Cloud and Colocation (Q2
2018 - Connectivity at 64%, Cloud & Colocation at 36%; Q2 2017
– Connectivity at 66%, Cloud and Colocation at 34%) as the Company
continues to make a shift towards higher growth service
offerings.
- Net loss was $1.5 million for the
three months ended June 30, 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 decrease in revenue.
- Adjusted EBITDA(1)(2) increased to $3.1 million for the three months ended
June 30, 2018 compared to
$3.0 million for the same period in
2017. The increase was primarily driven by lower cost of services
and lower SG&A as a result of cost reduction efforts.
- TeraGo delivered a notice of exercise of the purchase option
the Company has with Mobilexchange Spectrum Inc. ("MSI") for
certain spectrum licences that are currently leased. TeraGo
continues to work with MSI to complete the spectrum acquisition for
a total cost equal to $5.7 million,
which is also subject to regulatory approval. In doing so, both
parties have agreed to a 30 day extension on the term of the
spectrum lease, which now expires on August
31, 2018.
RESULTS OF OPERATIONS
Comparison of the three and six months ended June 30, 2018 and 2017
(in thousands of dollars, except with respect to gross profit
margin, earnings per share, Backlog MRR, and ARPU)
|
|
Three months
ended
June
30
|
|
Six months
ended
June
30
|
|
|
2018
|
2017(3)
|
|
2018
|
2017(3)
|
Financial
|
|
|
|
|
|
|
|
Cloud and Colocation
Revenue
|
$
|
4,894
|
4,717
|
$
|
9,625
|
9,529
|
|
Connectivity
Revenue
|
$
|
8,789
|
9,175
|
$
|
17,798
|
18,640
|
|
Total
Revenue
|
$
|
13,683
|
13,892
|
$
|
27,423
|
28,169
|
|
Cost of
Services(1)
|
$
|
3,466
|
3,565
|
$
|
7,021
|
7,048
|
|
Gross profit margin
(1)
|
|
74.7%
|
74.3%
|
|
74.4%
|
75.0%
|
|
Adjusted
EBITDA(1) (2)
|
$
|
3,123
|
3,003
|
$
|
6,252
|
6,714
|
|
Net loss
|
$
|
(1,489)
|
(1,131)
|
$
|
(2,801)
|
(2,186)
|
|
Basic loss per
share
|
$
|
(0.10)
|
(0.08)
|
$
|
(0.19)
|
(0.15)
|
|
Diluted loss per
share
|
$
|
(0.10)
|
(0.08)
|
$
|
(0.19)
|
(0.15)
|
Operating
|
|
|
|
|
|
|
|
Backlog
MRR(1)
|
|
|
|
|
|
|
|
|
Connectivity
|
$
|
60,750
|
76,254
|
$
|
60,750
|
76,254
|
|
|
Cloud &
Colocation
|
$
|
67,747
|
39,977
|
$
|
67,747
|
39,977
|
|
Churn
Rate(1)
|
|
|
|
|
|
|
|
|
Connectivity
|
|
1.4%
|
1.7%
|
|
1.5%
|
1.7%
|
|
|
Cloud &
Colocation
|
|
1.5%
|
2.2%
|
|
2.3%
|
1.7%
|
|
ARPU(1)
|
|
|
|
|
|
|
|
|
Connectivity
|
$
|
1,062
|
972
|
$
|
1,051
|
970
|
|
|
Cloud &
Colocation
|
$
|
3,336
|
3,124
|
$
|
3,210
|
3,142
|
|
(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 $67,747 as at June 30,
2018 compared to $39,977 as at
June 30, 2017. The increase is driven
by growth in Cloud and Colocation sales bookings and offset by the
provisioning of large colocation customers acquired in prior
quarters.
- Connectivity backlog MRR was $60,750 as at June 30,
2018, compared to $76,254 as
at June 30, 2017. The change in
backlog MRR is driven primarily by bookings and the timing of
customer provisioning.
ARPU(1)
- For the three months ended June 30,
2018, cloud and colocation ARPU was $3,336 compared to $3,124 for the same period in 2017.
- Excluding the impact of IFRS 15 classification of revenue from
cloud and colocation to connectivity, ARPU for the three months
ended June 30, 2018 would have been
$3,592, representing growth of 15%
compared to the prior period. The increase was driven by the
provisioning of large new customers, as well as planned churn of
low value cloud customers.
- For the three months ended June 30,
2018, connectivity ARPU was $1,062 compared to $972 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 June 30,
2018 would have been $1,016,
which represents growth of 4.6% compared to the prior year
period.
Churn(1)
- For the three months ended June 30,
2018, cloud and colocation churn was 1.5% compared to 2.2%
for the same period in 2017. For the three months ended
June 30, 2018, connectivity churn was
1.4% compared to 1.7% for the same period in 2017. 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 have begun to yield positive
results on the Company's churn rate.
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 and six months ended June 30,
2018.
|
|
Three months
ended
June
30
|
|
Six months
ended
June
30
|
|
|
2018
(As
reported)
|
2018
(Without
adoption
of IFRS
15)
|
%
Change
|
|
2018
(As
reported)
|
2018
(Without
adoption of
IFRS 15)
|
%
Change
|
Financial
|
|
|
|
|
|
|
|
|
|
Cloud and Colocation
Revenue
|
$
|
4,894
|
5,264
|
-7.0%
|
$
|
9,625
|
10,303
|
-6.6%
|
|
Connectivity
Revenue
|
$
|
8,789
|
8,427
|
4.3%
|
$
|
17,798
|
17,132
|
3.9%
|
|
Total
Revenue
|
$
|
13,683
|
13,691
|
-
|
$
|
27,423
|
27,435
|
-
|
|
Adjusted
EBITDA(1) (2)
|
$
|
3,123
|
3,120
|
0.1%
|
$
|
6,252
|
6,161
|
1.5%
|
|
Net Income
(Loss)
|
$
|
(1,489)
|
(1,492)
|
-0.2%
|
$
|
(2,801)
|
(2,892)
|
-3.1%
|
Operating
|
|
|
|
|
|
|
|
|
|
Backlog
MRR(1)
|
|
|
|
|
|
|
|
|
|
|
Connectivity
|
$
|
60,750
|
56,726
|
7.1%
|
$
|
60,750
|
56,726
|
7.1%
|
|
|
Cloud &
Colocation
|
$
|
67,747
|
71,772
|
-5.6%
|
$
|
67,747
|
71,772
|
-5.6%
|
|
ARPU(1)
|
|
|
|
|
|
|
|
|
|
|
Connectivity
|
$
|
1,062
|
1,016
|
4.5%
|
$
|
1,051
|
1,011
|
4.0%
|
|
|
Cloud &
Colocation
|
$
|
3,336
|
3,592
|
-7.1%
|
$
|
3,210
|
3,437
|
-6.6%
|
(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 June 30, 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 and six months ended
June 30, 2018 and 2017.
(in thousands
of dollars)
|
|
Three months
ended
June
30
|
|
Six months
ended
June
30
|
|
|
2018
|
2017(1)
|
|
2018
|
2017(1)
|
Net earnings
(loss) for the period
|
$
|
(1,489)
|
(1,131)
|
$
|
(2,801)
|
(2,186)
|
Foreign exchange loss
(gain)
|
|
(10)
|
(25)
|
|
(6)
|
(17)
|
Finance
costs
|
|
578
|
354
|
|
1,206
|
825
|
Finance
income
|
|
(1)
|
(11)
|
|
(1)
|
(15)
|
Earnings (loss)
from operations
|
|
(922)
|
(813)
|
|
(1,602)
|
(1,393)
|
Add:
|
|
|
|
|
|
|
|
Depreciation of
network assets, property and equipment and amortization of
intangible assets
|
|
3,046
|
3,607
|
|
6,199
|
7,268
|
|
Loss on disposal of
network assets
|
|
174
|
35
|
|
256
|
87
|
|
Impairment of Assets
and Related Charges
|
|
131
|
-
|
|
367
|
-
|
|
Stock-based
Compensation Expense (Recovery)
|
|
231
|
184
|
|
434
|
37
|
|
Restructuring,
acquisition-related, integration costs and other
|
|
463
|
(10)
|
|
598
|
715
|
Adjusted
EBITDA(1)
|
$
|
3,123
|
3,003
|
$
|
6,252
|
6,714
|
|
(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, August 9, 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
and six months ended June 30, 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 August 23, 2018. To listen to
the recording, call 416-621-4642 or 1-800-585-8367 and enter
passcode 4885449.
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,
making strategic investments to drive future growth, expectations
on industry activity increasing around 5G wireless spectrum, the
pending acquisition of six 24 GHz licenses, and hopes for the
profile of the 24 GHz band to be enhanced as part of Canada's 5G roadmap. 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, the failure to receive ISED
approval with respect to the proposed acquisition of additional
spectrum, certain counterparty risks in dealing with the current
holder of the 24 GHz spectrum licences from whom the Company will
be acquiring the licences from, 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.