TORONTO, Nov. 7, 2018 /CNW/ - TeraGo Inc.
("TeraGo" or the "Company") (TSX: TGO,
www.terago.ca), today announced financial and operating results for
the quarter ended September 30,
2018.
"In the third quarter, we experienced growth in revenue and
adjusted EBITDA driven by further stabilization in connectivity and
growth in cloud and colocation," said Tony
Ciciretto, President and CEO of TeraGo. "I am encouraged by
the pipeline of sizable sales opportunities we have in both cloud
and colocation and connectivity segments."
Mr. Ciciretto added, "We also have a unique opportunity to
leverage our national fixed wireless spectrum assets to support 5G
services. We are excited to include an additional six 24 GHz
spectrum licences in the Calgary,
Edmonton, Montreal, Ottawa, Toronto and Vancouver markets to help round out our
spectrum assets via our pending acquisition of Mobilexchange
Spectrum Inc., which was most recently approved by ISED. In
addition, a fixed wireless 5G technical trial utilizing TeraGo's 24
GHz spectrum in the Greater Toronto
Area is also underway, and the potential to offer fixed
wireless access at speeds that rival best in class fiber-based
networks would greatly enhance our competitiveness and open up new
market opportunities."
Financial Highlights
- Total revenue increased 2.4% to $14.0
million for the three months ended September 30, 2018 compared to $13.7 million for the same period in 2017.
- Cloud and colocation revenue increased 10.3% to $5.2 million compared to $4.7 million for the same period in 2017. The
increase was attributable to the beneficial impact of $0.7 million in non-recurring revenue resulting
from a one-time customer termination fee. Excluding the impact of
IFRS 15 classification of revenue from cloud and colocation to
connectivity, cloud and colocation revenue for the three months
ended September 30, 2018 would have
been $5.6 million or 19.4% increase
compared to $4.7 million for the same
period in 2017.
- Connectivity revenue decreased 1.8% to $8.8 million compared to $9.0 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 September 30,
2018 would have been $8.4
million or 6.8% decrease compared to $8.8 million for the same period in 2017.
- Net income was $nil for the three months ended September 30, 2018 compared to a net loss of
$1.0 million for the same period in
2017. The decrease in net loss was primarily driven by the increase
in revenue and lower depreciation & amortization.
- Adjusted EBITDA(1)(2) increased to $3.6 million for the three months ended
September 30, 2018 compared to
$3.2 million for the same period in
2017. The increase was primarily driven by higher revenue.
Results of Operations
Comparison of the three and nine months ended September 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
September
30
|
|
Nine months
ended
September
30
|
|
|
2018
|
2017(3)
|
|
2018
|
2017(3)
|
Financial
|
|
|
|
|
|
|
Cloud and Colocation
Revenue
|
$
|
5,190
|
4,705
|
$
|
14,815
|
14,234
|
Connectivity
Revenue
|
$
|
8,814
|
8,975
|
$
|
26,612
|
27,615
|
Total
Revenue
|
$
|
14,004
|
13,680
|
$
|
41,427
|
41,849
|
Cost of
Services(1)
|
$
|
3,488
|
3,511
|
$
|
10,509
|
10,559
|
Gross profit margin
(1)
|
|
75.1%
|
74.3%
|
|
74.6%
|
74.8%
|
Adjusted
EBITDA(1) (2)
|
$
|
3,593
|
3,213
|
$
|
9,845
|
9,927
|
Net loss
|
$
|
(47)
|
(1,047)
|
$
|
(2,848)
|
(3,233)
|
Basic loss per
share
|
$
|
(0.00)
|
(0.07)
|
$
|
(0.19)
|
(0.23)
|
Diluted loss per
share
|
$
|
(0.00)
|
(0.07)
|
$
|
(0.19)
|
(0.23)
|
Operating
|
|
|
|
|
|
|
Backlog
MRR(1)
|
|
|
|
|
|
|
Connectivity
|
$
|
71,659
|
98,345
|
$
|
71,659
|
98,345
|
Cloud &
Colocation
|
$
|
30,172
|
134,283
|
$
|
30,172
|
134,283
|
Churn
Rate(1)
|
|
|
|
|
|
|
Connectivity
|
|
1.4%
|
1.5%
|
|
1.5%
|
1.6%
|
Cloud &
Colocation
|
|
1.0%
|
1.5%
|
|
1.9%
|
1.6%
|
ARPU(1)
|
|
|
|
|
|
|
Connectivity
|
$
|
1,071
|
984
|
$
|
1,058
|
975
|
Cloud &
Colocation
|
$
|
3,049
|
3,112
|
$
|
3,156
|
3,132
|
(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 $30,172 as at September
30, 2018 compared to $134,283
as at September 30, 2017. The
decrease is driven by the provisioning of large colocation
customers acquired in prior quarters, partially offset by new
customer backlog.
- Connectivity backlog MRR was $71,659 as at September
30, 2018, compared to $98,345
as at September 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 September 30,
2018 cloud and colocation ARPU was $3,049 compared to $3,112 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 September 30, 2018 would have
been $3,358, representing growth of
7.9% compared to the prior period. The increase was driven by the
provisioning of large customers in the first half of 2018, as well
as planned churn of low value cloud customers.
- For the three months ended September 30,
2018 connectivity ARPU was $1,071 compared to $984 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 September
30, 2018 would have been $1,015, which represents growth of 3.1% compared
to the prior year period.
Churn(1)
- For the three months ended September 30,
2018, cloud and colocation churn was 1.0% compared to 1.5%
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.
- For the three months ended September 30,
2018, connectivity churn was 1.4% compared to 1.6% for the
same period in 2017. The decrease was driven by favourable impacts
of the Company's investment in developing a robust customer
experience framework.
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 nine months ended September 30, 2018.
|
|
Three months
ended
September
30
|
|
Nine months
ended
September
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
|
$
|
5,190
|
5,618
|
-7.6%
|
$
|
14,815
|
15,921
|
-6.9%
|
Connectivity
Revenue
|
$
|
8,814
|
8,362
|
5.4%
|
$
|
26,612
|
25,495
|
4.4%
|
Total
Revenue
|
$
|
14,004
|
13,981
|
-0.1%
|
$
|
41,427
|
41,416
|
-
|
Adjusted
EBITDA(1) (2)
|
$
|
3,593
|
3,502
|
2.6%
|
$
|
9,845
|
9,663
|
1.9%
|
Net Income
(Loss)
|
$
|
(47)
|
(138)
|
-65.9%
|
$
|
(2,848)
|
(3,030)
|
-6.0%
|
Operating
|
|
|
|
|
|
|
|
|
Backlog
MRR(1)
|
|
|
|
|
|
|
|
|
Connectivity
|
$
|
71,659
|
72,837
|
-1.6%
|
$
|
71,659
|
72,837
|
-1.6%
|
Cloud &
Colocation
|
$
|
30,172
|
30,672
|
-1.6%
|
$
|
30,172
|
30,672
|
-1.6%
|
ARPU(1)
|
|
|
|
|
|
|
|
|
Connectivity
|
$
|
1,071
|
1,015
|
5.5%
|
$
|
1,058
|
1,012
|
4.5%
|
Cloud &
Colocation
|
$
|
3,049
|
3,358
|
-9.2%
|
$
|
3,156
|
3,411
|
-7.5%
|
|
(1) See "Non-IFRS
Measures" below
|
(2) See "Adjusted
EBITDA" 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 and nine months ended
September 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 nine months ended
September 30, 2018 and 2017.
(in thousands
of dollars)
|
|
Three months
ended
September
30
|
|
Nine months
ended
September
30
|
|
|
2018
|
2017(2)
|
|
2018
|
2017(2)
|
Net earnings
(loss) for the period
|
$
|
(47)
|
(1,047)
|
$
|
(2,848)
|
(3,233)
|
Foreign exchange loss
(gain)
|
|
(12)
|
(18)
|
|
(18)
|
(35)
|
Finance
costs
|
|
343
|
350
|
|
1,549
|
1,175
|
Finance
income
|
|
(27)
|
(18)
|
|
(28)
|
(33)
|
Earnings (loss)
from operations
|
|
257
|
(733)
|
|
(1,345)
|
(2,126)
|
Add:
|
|
|
|
|
|
|
Depreciation of
network assets, property and equipment and amortization of
intangible assets
|
|
2,828
|
3,564
|
|
9,027
|
10,832
|
Loss on disposal of
network assets
|
|
104
|
(1)
|
|
360
|
94
|
Impairment of Assets
and Related Charges
|
|
64
|
-
|
|
431
|
-
|
Stock-based
Compensation Expense (Recovery)
|
|
250
|
8
|
|
684
|
45
|
Restructuring,
acquisition-related, integration costs and other
|
|
90
|
375
|
|
688
|
1,082
|
Adjusted
EBITDA(1)
|
$
|
3,593
|
3,213
|
$
|
9,845
|
9,927
|
|
|
|
|
|
|
|
(1) See "Non-IFRS
Measures"
|
(2) 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, November 8, 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 nine months ended September 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 November 22, 2018. To listen to
the recording, call 416-621-4642 or 1-800-585-8367 and enter
passcode 4352308.
About TeraGo
TeraGo owns and leases a national spectrum portfolio of
exclusive 24GHz and 38GHz wide-area spectrum licences including
2,120 MHz of spectrum across Canada's 6 largest cities. TeraGo provides
businesses across Canada and
internationally 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 over 3,000
business customers in 46 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, pipeline of sizable sales
opportunities in both cloud and colocation and connectivity
segments, the pending acquisition of six 24 GHz licenses,
leveraging fixed wireless spectrum assets to support 5G services, a
5G technical trial with potential to offer speeds that rival
fiber-based networks, potential enhanced competitiveness and new
market opportunities from 5G. 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 inability to satisfy closing conditions
contained in the share purchase agreement for the acquisition of
Mobilexchange, 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, the technical 5G trial the Company is
currently conducting may not generate the results intended, new
market opportunities for 5G may not exist or require additional
capital that may not be available 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.