TORONTO, Feb. 21, 2019 /CNW/ - TeraGo Inc.
("TeraGo" or the "Company") (TSX: TGO,
www.terago.ca), today announced financial and operating results for
the fourth quarter and year ended December
31, 2018.
"In the fourth quarter, TeraGo delivered solid Adjusted
EBITDA(1) growth of 6% from the prior year period
by proactively adjusting our cost structure. This provides us with
greater flexibility to redirect investments into higher growth
initiatives in 2019," said Tony
Ciciretto, President and CEO of TeraGo. "As we continue to
push forward in our 5G technology trial and target customer trials
before the end of this year, I am encouraged by the opportunities
we see to surface greater value from our 24 GHz and 38 GHz spectrum
assets."
Fourth Quarter 2018 Financial Highlights
- Total revenue decreased 5.0% to $12.9
million compared to $13.5
million for the same period in 2017.
- Connectivity revenue decreased 4.8% to $8.4 million compared to $8.8 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
would have been $8.0 million or 9.3%
decrease compared to $8.8 million for
the same period in 2017.
- Cloud and colocation revenue decreased 5.3% to $4.5 million compared to $4.7 million for the same period in 2017. The
decrease was attributable to churn, partially offset by the
beneficial impact of non-recurring customer termination fees and
provisioning. Excluding the impact of IFRS 15 classification of
revenue from cloud and colocation to connectivity, cloud and
colocation revenue would have been $4.9
million or 3.3% increase compared to $4.7 million for the same period in 2017.
- Net loss was $2.0 million
compared to a net loss of $4.1
million for the same period in 2017. The decrease in net
loss was primarily driven by a reduction in the impairment charge
on certain network assets, property and equipment and intangible
assets recorded compared to 2017. A lower book value of assets
contributed to lower depreciation & amortization in the year
which further contributed to the decrease in net loss. In addition,
the Company saw a decrease in cost of sales as a result of lower
revenue and a decrease in operating costs as a result of cost
reduction efforts during the year.
- Adjusted EBITDA(1) increased 6.2% to $3.1 million compared to $2.9 million for the same period in 2017. The
increase was primarily driven by the lower cost of sales and
selling, general, and administrative costs as a result of the cost
reduction efforts during the year. These efforts include a
reduction in headcount to improve operational efficiencies to
address the reduction in revenue and loss in customers.
5G Trial Update
- TeraGo completed the first phase of its 5G fixed wireless
millimetre wave technical trial in the Greater Toronto Area. The trial of the 5G
fixed wireless technology saw performance of up to 700Mbps per
customer end point with an aggregate of over 2Gbps from the
provider base station, and latency in the 3-4ms range, proving that
fiber-like service with a variety of different package
configurations is definitely possible. TeraGo is now working with
its technology provider, PHAZR Inc., on enhancements to the radio
and software management platform. The second phase of the technical
trial will focus on optimizing back office and provisioning
processes. On successful completion of the technical trials, TeraGo
expects to begin customer trials before the end of 2019, targeting
both enterprise and residential broadband connectivity
applications.
Full Year 2018 Financial Highlights
- Total revenue decreased 2.0% to $54.3
million compared to $55.4
million for the same period in 2017.
- Cloud and colocation revenue increased 1.7% to $19.3 million compared to $19.0 million for the same period in 2017.
Excluding the impact of IFRS 15 classification of revenue from
cloud and colocation to connectivity, cloud and colocation revenue
would have been $20.8 million or 9.7%
increase compared to $19.0 million
for the same period in 2017.
- Connectivity revenue decreased 3.9% to $35.0 million compared to $36.4 million for the same period in 2017.
Excluding the impact of IFRS 15 classification of revenue from
cloud and colocation to connectivity, connectivity revenue would
have been $33.5 million or 8.1%
decrease compared to $36.4 million
for the same period in 2017.
- Net loss was $4.8 million
compared to a net loss of $7.3
million for the same period in 2017.
- Adjusted EBITDA(1) increased to $13.0 million compared to $12.9 million for the same period in 2017.
RESULTS OF OPERATIONS
Comparison of the three months and year ended December 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
December
31
|
|
Year
ended
December
31
|
|
|
2018
|
2017(3)
|
|
2018
|
2017(3)
|
Financial
|
|
|
|
|
|
|
Cloud and Colocation
Revenue
|
$
|
4,475
|
4,727
|
$
|
19,290
|
18,961
|
Connectivity
Revenue
|
$
|
8,393
|
8,816
|
$
|
35,005
|
36,431
|
Total
Revenue
|
$
|
12,868
|
13,543
|
$
|
54,295
|
55,392
|
Cost of
Services(1)
|
$
|
3,473
|
3,543
|
$
|
13,982
|
14,103
|
Selling, General,
& Admin Costs
|
$
|
7,906
|
10,078
|
|
31,142
|
32,661
|
Gross profit margin
(1)
|
|
73.0%
|
73.8%
|
|
74.2%
|
74.5%
|
Adjusted
EBITDA(1) (2)
|
$
|
3,119
|
2,937
|
$
|
12,964
|
12,864
|
Net loss
|
$
|
(1,972)
|
(4,061)
|
$
|
(4,820)
|
(7,294)
|
Basic loss per
share
|
$
|
(0.13)
|
(0.28)
|
$
|
(0.32)
|
(0.51)
|
Diluted loss per
share
|
$
|
(0.13)
|
(0.28)
|
$
|
(0.32)
|
(0.51)
|
Operating
|
|
|
|
|
|
|
Backlog
MRR(1)
|
|
|
|
|
|
|
Connectivity
|
$
|
64,659
|
84,191
|
$
|
64,659
|
84,191
|
Cloud &
Colocation
|
$
|
31,742
|
291,698
|
$
|
31,742
|
291,698
|
Churn
Rate(1)
|
|
|
|
|
|
|
Connectivity
|
|
1.4%
|
1.6%
|
|
1.5%
|
1.6%
|
Cloud &
Colocation
|
|
1.3%
|
1.4%
|
|
1.9%
|
1.6%
|
ARPU(1)
|
|
|
|
|
|
|
Connectivity
|
$
|
1,054
|
996
|
$
|
1,053
|
980
|
Cloud &
Colocation
|
$
|
3,138
|
3,027
|
$
|
3,147
|
3,106
|
|
|
(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 $31,742 as at December 31,
2018 compared to $291,698 as
at December 31, 2017. The decrease is
driven by the provisioning of large colocation customers acquired
in the prior year, partially offset by new customer backlog.
- Connectivity backlog MRR was $64,659 as at December 31,
2018, compared to $84,191 as
at December 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 December 31,
2018 cloud and colocation ARPU was $3,138 compared to $3,027 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 December 31, 2018 would have
been $3,413, representing growth of
12.8% 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 December 31,
2018 Connectivity ARPU was $1,054 compared to $996 for the same period in 2017. The ARPU is
consistent with prior year period as the Company continues to churn
low value ARPU customers.
- Excluding the impact of IFRS 15 on the classification of
revenue from cloud and colocation to connectivity, connectivity
ARPU for the three months ended December 31,
2018 would have been $1,004,
which represents an increase of 0.9% compared to the prior year
period.
Churn(1)
- For the three months ended December 31,
2018, cloud and colocation churn was 1.3% compared to 1.4%
for the same period in 2017. The decrease was a result of churn
management efforts.
- For the three months ended December 31,
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 months and year ended December
31, 2018.
|
Three months
ended
December
31
|
|
Year
ended
December
31
|
|
|
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
|
$
|
4,475
|
4,881
|
-8.3%
|
$
|
19,290
|
20,802
|
-7.3%
|
Connectivity
Revenue
|
$
|
8,393
|
8,000
|
4.9%
|
$
|
35,005
|
33,495
|
4.5%
|
Total
Revenue
|
$
|
12,868
|
12,881
|
-
|
$
|
54,295
|
54,297
|
-
|
Adjusted
EBITDA(1) (2)
|
$
|
3,119
|
3,249
|
-4.0%
|
$
|
12,964
|
12,912
|
0.4%
|
Net Income
(Loss)
|
$
|
(1,972)
|
(1,842)
|
7.1%
|
$
|
(4,820)
|
(4,872)
|
-1.1%
|
Operating
|
|
|
|
|
|
|
|
|
Backlog
MRR(1)
|
|
|
|
|
|
|
|
|
Connectivity
|
$
|
64,659
|
63,624
|
1.6%
|
$
|
64,659
|
63,624
|
1.6%
|
Cloud &
Colocation
|
$
|
31,742
|
32,777
|
-3.2%
|
$
|
31,742
|
32,777
|
-3.2%
|
ARPU(1)
|
|
|
|
|
|
|
|
|
Connectivity
|
$
|
1,054
|
1,004
|
5.0%
|
$
|
1,053
|
1,010
|
4.3%
|
Cloud &
Colocation
|
$
|
3,138
|
3,413
|
-8.1%
|
$
|
3,147
|
3,411
|
-7.7%
|
|
|
(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 months and year ended
December 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(2) for the three months and year ended
December 31, 2018 and 2017.
(in thousands
of dollars)
|
|
Three months
ended
December
31
|
|
Year
ended
December
31
|
|
|
2018
|
2017(2)
|
|
2018
|
2017(2)
|
Net earnings
(loss) for the period
|
$
|
(1,972)
|
(4,061)
|
$
|
(4,820)
|
(7,294)
|
Foreign exchange loss
(gain)
|
|
20
|
(15)
|
|
2
|
(50)
|
Finance
costs
|
|
766
|
523
|
|
2,315
|
1,698
|
Finance
income
|
|
(53)
|
(17)
|
|
(81)
|
(50)
|
Earnings (loss)
from operations
|
|
(1,239)
|
(3,570)
|
|
(2,584)
|
(5,696)
|
Add:
|
|
|
|
|
|
|
Depreciation of
network assets, property and equipment and amortization of
intangible assets
|
|
2,728
|
3,492
|
|
11,755
|
14,324
|
Loss on disposal of
network assets
|
|
397
|
15
|
|
757
|
109
|
Impairment of Assets
and Related Charges
|
|
333
|
2,851
|
|
764
|
2,851
|
Stock-based
Compensation Expense (Recovery)
|
|
279
|
156
|
|
963
|
201
|
Restructuring,
acquisition-related, integration costs and other
|
|
621
|
(7)
|
|
1,309
|
1,075
|
Adjusted
EBITDA(1)
|
$
|
3,119
|
2,937
|
$
|
12,964
|
12,864
|
|
|
(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, Friday, February 22, 2019, 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
months and year ended December 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 March 8, 2019. To listen to the
recording, call 416-621-4642 or 1-800-585-8367 and enter passcode
4729009.
About TeraGo
TeraGo owns a national spectrum portfolio of exclusive 24 GHz
and 38 GHz wide-area spectrum licences including 2,120 MHz of
spectrum across Canada's 6 largest
cities. 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, Ottawa and Winnipeg.
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, investments into higher growth initiatives in 2019,
targeting customer trials using 5G equipment before the end of this
year, opportunities for surfacing greater value from TeraGo's 24
GHz and 38 GHz spectrum assets leveraging fixed wireless spectrum
assets to support 5G services, 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, ISED decisions in the various
Consultations that TeraGo has participated in being unfavourable to
the Company, the continued technical 5G trial the Company is
currently conducting may not generate the results intended or
experiences delays, 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, 2018 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.