TORONTO, Feb. 20, 2020 /CNW/ -
TeraGo Inc. ("TeraGo" or the "Company") (TSX: TGO, www.terago.ca), today
reported financial and operating results for the fourth quarter and
full year ended December 31, 2019.
"As our financial and operational results for 2019 demonstrate,
we executed on our plan to manage costs, generate strong Adjusted
EBITDA(1) and cash flow, while realizing key milestones
on our 5G fixed wireless growth strategy," said Tony Ciciretto, President and CEO of TeraGo. "We
also continue to innovate our product portfolio with the recent
launch of TeraGo Internet 50/10 and SD-WAN. These new products will
allow our customers to leverage state-of-the-art technology for a
more reliable and flexible internet connectivity along with a more
centralized and advanced networking solution. Our technical trials
with Nokia equipment for 5G business network solutions, in the
Greater Toronto Area, is on
schedule and we look forward to the launching of customer trials in
the second quarter. We remain laser-focused on extracting the value
out of our 24 and 38 GHz spectrum assets and believe we have a
significant time-to-market advantage to be one of the first
Canadian carriers to launch 5G fixed wireless services."
Fourth Quarter 2019 Financial Highlights
- Total revenue for the fourth quarter of 2019 decreased 7% to
$12.0 million compared to
$12.9 million for the same period in
2018. The decrease in total revenue was primarily due to lower
sales volume.
- Connectivity revenue for the fourth quarter of 2019 decreased
13% to $7.3 million compared to
$8.4 million for the same period in
2018. The decrease in connectivity revenue was primarily due to
higher churn and certain customers renewing long-term contracts at
lower current market rates.
- Cloud and colocation revenue for the fourth quarter of 2019
increased 4% to $4.7 million compared
to $4.5 million for the same period
in 2018 which partially offset the decrease in connectivity
revenue. The increase in cloud and colocation revenue was primarily
due to the beneficial impact in non-recurring revenue recognized
from a one-time customer termination fee in the quarter.
- Net loss for the fourth quarter of 2019 totaled $2.1 million compared to net loss of $2.0 million for the same period in 2018. The
increase in net loss was driven by the adoption of IFRS 16. With
the adoption of IFRS 16, the Company now recognizes all leases on
its balance sheet with a right-of-use asset and a corresponding
lease liability. This resulted in higher depreciation and finance
costs that exceed the beneficial impact of lower cost of sales and
operating costs for previously recognized operating leases. The net
result was a higher net loss in the fourth quarter of 2019.
- Adjusted EBITDA(1)(2) for the fourth quarter of 2019
increased 29% to $4.0 million
compared to $3.1 million for the same
period in 2018. The increase in adjusted EBITDA was driven
primarily by the adoption of IFRS 16 that resulted in the
reclassification of certain operating lease expenses to finance
costs and depreciation, which are excluded from the calculation of
adjusted EBITDA.
Fourth Quarter 2019 and Recent Operational
Developments
- Partnered with Nokia for 5G Fixed Wireless trials in the
Greater Toronto Area.
- Introduced TeraGo Internet 50/10, a fibre-like fixed wireless
solution that delivers flexible and reliable internet connectivity
to Canadian business customers.
- Launched SD-WAN in partnership with NetFortris, a new and
advanced networking solution that brings next-generation technology
to business customers across Canada.
(1)
|
Adjusted EBITDA is a
Non-GAAP measure. See "Non-IFRS Measures" below.
|
(2)
|
See "Adjusted EBITDA"
below for a reconciliation of net loss to Adjusted
EBITDA.
|
Full Year 2019 Financial Highlights
- Total revenue for 2019 decreased 11% to $48.4 million compared to $54.3 million in 2018.
- Connectivity revenue for 2019 decreased 13% to $30.4 million compared to $35.0 million in 2018. The decrease in
connectivity revenue was primarily due to higher churn and certain
customers renewing long-term contracts at lower current market
rates.
- Cloud and colocation revenue for 2019 decreased 6% to
$18.1 million compared to
$19.3 million in 2018. The decrease
in cloud and colocation revenue was primarily due to customer churn
in the second half of 2018 resulting in lower revenue entering
2019.
- Net loss for 2019 totaled $7.0
million compared to net loss of $4.8
million in 2018. The increase in net loss was driven by the
adoption of IFRS 16. With the adoption of IFRS 16, the Company now
recognizes all leases on its balance sheet with a right-of-use
asset and a corresponding lease liability. This resulted in higher
depreciation and finance costs that exceed the beneficial impact of
lower cost of sales and operating costs for previously recognized
operating leases. The net result was a higher net loss in 2019.
- Adjusted EBITDA for 2019 increased 35% to $17.5 million compared to $13.0 million in 2018. The increase in adjusted
EBITDA was driven primarily by the adoption of IFRS 16 that
resulted in the reclassification of certain operating lease
expenses to finance costs and depreciation, which are excluded from
the calculation of adjusted EBITDA.
RESULTS OF OPERATIONS
Comparison of
the three months and years ended December 31, 2019 and
2018
|
(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
|
|
|
2019
|
2018(3)
|
|
2019
|
2018(3)
|
Financial
|
|
|
|
|
|
|
Cloud and Colocation
Revenue
|
$
|
4,706
|
4,475
|
$
|
18,064
|
19,290
|
Connectivity
Revenue
|
$
|
7,291
|
8,393
|
$
|
30,373
|
35,005
|
Total
Revenue
|
$
|
11,997
|
12,868
|
$
|
48,437
|
54,295
|
Cost of
Services(1)
|
$
|
2,704
|
3,473
|
$
|
9,647
|
13,982
|
Selling, General,
& Administrative Costs
|
$
|
6,628
|
7,906
|
$
|
25,825
|
31,142
|
Gross profit margin
(1)
|
|
77.5%
|
73.0%
|
|
80.1%
|
74.2%
|
Adjusted
EBITDA(1) (2)
|
$
|
4,006
|
3,119
|
$
|
17,477
|
12,964
|
Net loss
|
$
|
(2,120)
|
(1,972)
|
$
|
(6,994)
|
(4,820)
|
Basic loss per
share
|
$
|
(0.13)
|
(0.13)
|
$
|
(0.43)
|
(0.32)
|
Diluted loss per
share
|
$
|
(0.13)
|
(0.13)
|
$
|
(0.43)
|
(0.32)
|
Operating
|
|
|
|
|
|
|
Backlog
MRR(1)
|
|
|
|
|
|
|
Connectivity
|
$
|
92,096
|
64,659
|
$
|
92,096
|
64,659
|
Cloud &
Colocation
|
$
|
18,615
|
31,742
|
$
|
18,615
|
31,742
|
Churn
Rate(1)
|
|
|
|
|
|
|
Connectivity
|
|
1.4%
|
1.4%
|
|
1.4%
|
1.5%
|
Cloud &
Colocation
|
|
0.9%
|
1.3%
|
|
1.3%
|
1.9%
|
ARPU(1)
|
|
|
|
|
|
|
Connectivity
|
$
|
1,019
|
1,054
|
$
|
1,022
|
1,053
|
Cloud &
Colocation
|
$
|
3,393
|
3,138
|
$
|
3,262
|
3,147
|
|
(1) See
"Non-IFRS Measures" below.
|
(2) See
definition of "Adjusted EBITDA" for a reconciliation of net loss to
Adjusted EBITDA.
|
(3)
The Company has applied IFRS 16 on January 1, 2019 using the
modified retrospective approach. Under this method, the comparative
information is not restated. See "Accounting
Pronouncements Adopted in 2019" for further
information.
|
Fourth Quarter and Full Year 2019 Operating
Highlights
Backlog Monthly Recurring Revenue (MRR)(1)
- Connectivity backlog MRR was $92,096 as of December 31,
2019, compared to $64,659 as
of December 31, 2018. The increase in
connectivity backlog MRR was driven primarily by higher sales
volume than in the prior year period.
- Cloud and colocation backlog MRR was $18,615 as of December 31,
2019 compared to $31,742 as of
December 31, 2018. The decrease in
cloud and colocation backlog MRR was driven by lower sales volume
than in the prior period.
Average Revenue per User (ARPU)(1)
- For the three months ended December 31,
2019, connectivity ARPU was $1,019 compared to $1,054 for the same period in 2018. For the year
ended December 31, 2019, connectivity
ARPU was $1,022 compared to
$1,053 in 2018. The decrease in
connectivity ARPU for the fourth quarter and full year 2019 was due
to provisioning and renewals at lower rates. The Company continues
to focus on securing and retaining mid-market business
customers.
- For the three months ended December 31,
2019 cloud and colocation ARPU was $3,393 compared to $3,138 in 2018. For the year ended December 31, 2019, cloud and colocation ARPU was
$3,262 compared to $3,147 in 2018. The increase in cloud and
colocation ARPU for the fourth quarter and full year of 2019 was
due to upgrades from existing customers and churn of lower ARPU
customers.
Churn(1)
- For the three months ended December 31,
2019, connectivity churn was 1.4% compared to 1.4% for the
same period in 2018. The Company's increased retention efforts have
stabilized churn levels. For the year ended December 31, 2019 connectivity churn was 1.4%
compared to 1.5% in 2018.
- For the three months ended December 31,
2019, cloud and colocation churn was 0.9% compared to 1.3%
for the same period in 2018. For the year ended December 31, 2019 cloud and colocation churn was
1.3% compared to 1.9% for the same period in 2018. The decrease in
cloud and colocation churn levels for the fourth quarter and full
year 2019 was the result of increased retention efforts.
(1) See "Non-IFRS Measures"
Conference Call
Management will host a conference call on, Friday, February 21, 2020, at 8:30 a.m. Eastern Time to discuss these
results.
To access the conference call, please dial 647-427-2311 or
1-866-521-4909. The Financial Statements and Management's
Discussion & Analysis for the fiscal year ended December 31, 2019, along with a presentation in
connection with the conference call will be made available on the
Company's website at
https://terago.ca/company/investor-relations/.
An archived recording of the conference call will be available
until February 28, 2020. To listen to
the recording, call 416-621-4642 or 1-800-585-8367 and enter
passcode 5599345.
ACCOUNTING PRONOUNCEMENTS ADOPTED IN 2019
a) IFRS 16 Leases
IFRS 16 introduced a single, on-balance sheet accounting
approach for leases. Effective January 1,
2019, the Company adopted IFRS 16 using the modified
retrospective approach by recognizing the cumulative effect of
initially applying IFRS 16 as an adjustment to the opening balance
of retained earnings at January 1,
2019. Comparative information has not been restated and
continues to be reported under IAS 17.
Under the new standard, the Company assesses whether at contract
inception, such contract contains a lease based on the new
definition of a lease. Under IFRS 16, a contract is, or contains a
lease if the contract conveys a right to control or use an
identified asset for a period of time in exchange for
consideration. The Company has also elected to apply the practical
expedient to grandfather the assessment of which transactions were
leases, as previously determined by IAS 17 and IFRIC 4. Therefore,
the definition of a lease under IFRS 16 was only applied to
contracts entered into or changed on or after January 1, 2019.
i) Significant Accounting Policies
The Company records a right-of-use asset and lease liability at
the lease commencement date. The right-of-use asset is initially
measured at cost, and subsequently at cost less any accumulated
depreciation and impairment losses and adjusted for certain
remeasurements of the lease liability.
The lease liability is initially measured at the present value
of lease payments that are not paid at the commencement date,
discounted using the Company's incremental borrowing rate. Payments
included in the measurement of the liability include fixed payments
and payments expected to be made where a renewal/extension option
is reasonably certain to be exercised. The lease liability is
subsequently increased by the interest cost and decreased by lease
payments made. The liability is remeasured when there is a change
in the future lease payments arising from the exercise of extension
options, changes in the assessment of extension options reasonably
expected to be exercised, renegotiations with lessors and contract
amendments, changes in the scope of a lease due to certain contract
rights being exercised, and changes in assessments of termination
options reasonably expected to be exercised.
The Company elected to record the right-of-use assets based on
the corresponding lease liability. In addition, the Company has
elected to apply the practical expedient to account for leases for
which the lease term ends within 12 months of the date of initial
application as short term leases.
Judgments
The Company has applied judgment to determine the lease term for
some lease contracts in which it is a lessee that includes renewal
options. The assessment of whether the Company is reasonably
certain to exercise such options will impact the lease term, which
significantly impacts the amount of lease liabilities and
right-of-use assets recognized.
A large portion of the Company's leases include renewal options
that are exercisable by the Company and not the lessor. The Company
typically exercises these options when they relate to rooftop
locations that service its fixed wireless network. From time to
time, the Company will reassess whether these options are
reasonable expected to be exercised and remeasure the lease
liability accordingly.
ii) Impacts on Financial Statements
On initial transition, the Company has recognized right-of-use
assets representing its rights to use the underlying assets and
lease liabilities representing its obligation to make lease
payments. Right-of-use assets and lease liabilities of $30.5 million were recorded on January 1, 2019. In addition, the Company had
previously recognized prepaid assets and deferred rent liabilities
at December 31, 2018 for timing
differences in contractual operating lease cash flows. Under the
new standard, timing differences are recognized in the right-of-use
asset and lease liability and as a result, these prepaid assets and
deferred rent liabilities were adjusted through the January 1, 2019 right-of-use asset balance. There
was no net impact on opening retained earnings on adoption.
The 2019 audited consolidated financial statements contain a
table that reconciles the Company's operating lease obligations at
December 31, 2018 as previously
disclosed in the Company's 2018 Consolidated Financial Statements
to the IFRS 16 lease liability recognized on January 1, 2019. A reconciliation of the lease
liabilities during the year ended December
31, 2019 is presented in Note 11 of the 2019 audited
consolidated financial statements. The weighted average discount
rate applied at January 1, 2019 was
9.29%.
iii) Impacts on Financial results
The following table highlights some of the key impacts on our
financial metrics discussed in the MD&A:
(In
thousands)
|
Three months
ended
December 31,
2019
|
|
|
Balances
without
adoption
of IFRS 16
|
Effect
of
IFRS
16
|
Balances
subsequent
to
transition
|
%Change
|
Financial
|
|
|
|
|
|
Selling, General,
& Admin Costs
|
$
|
7,211
|
(583)
|
6,628
|
(8%)
|
Depreciation &
Amortization
|
$
|
2,409
|
1,339
|
3,748
|
56%
|
Cost of
Services
|
$
|
3,851
|
(1,147)
|
2,704
|
(30%)
|
Finance
Costs
|
$
|
(418)
|
(672)
|
(1,090)
|
161%
|
Gross
Margin
|
$
|
8,146
|
1,147
|
9,293
|
14%
|
Adjusted
EBITDA(1) (2)
|
$
|
2,421
|
1,585
|
4,006
|
65%
|
Net Income
(Loss)
|
$
|
(1,838)
|
(281)
|
(2,119)
|
15%
|
Total
Assets
|
$
|
84,432
|
26,245
|
110,677
|
31%
|
Total
Liabilities
|
$
|
35,025
|
27,547
|
62,572
|
79%
|
Total Liabilities
& Shareholders' Equity
|
$
|
84,432
|
26,245
|
110,677
|
31%
|
|
|
(In
thousands)
|
Year
ended
December 31,
2019
|
|
|
Balances
without
adoption
of IFRS 16
|
Effect of
IFRS 16
|
Balances
subsequent
to
transition
|
%
Change
|
Financial
|
|
|
|
|
|
Selling, General,
& Admin Costs
|
$
|
28,306
|
(2,481)
|
25,825
|
(9%)
|
Depreciation &
Amortization
|
$
|
9,987
|
5,300
|
15,287
|
53%
|
Cost of
Services
|
$
|
13,918
|
(4,271)
|
9,647
|
(31%)
|
Finance
Costs
|
$
|
2,015
|
2,754
|
4,769
|
137%
|
Gross
Margin
|
$
|
34,519
|
4,271
|
38,790
|
12%
|
Adjusted
EBITDA(1) (2)
|
$
|
10,950
|
6,527
|
17,477
|
60%
|
Net Income
(Loss)
|
$
|
(5,692)
|
(1,302)
|
(6,994)
|
23%
|
Total
Assets
|
$
|
84,432
|
26,245
|
110,677
|
31%
|
Total
Liabilities
|
$
|
35,025
|
27,547
|
62,572
|
79%
|
Total Liabilities
& Shareholders' Equity
|
$
|
84,432
|
26,245
|
110,677
|
31%
|
(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).
Cost of Services consists of expenses related to delivering
service to customers and servicing the operations of our networks.
These expenses include costs for the lease of intercity facilities
to connect our cities, internet transit and peering costs paid to
other carriers, network real estate lease expense, spectrum lease
expenses and lease and utility expenses for the data centres and
salaries and related costs of staff directly associated with the
cost of services.
Gross Profit Margin % consists of gross profit margin divided by
revenue where gross profit margin is revenue less cost of
services.
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 ts 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 years ended December 31, 2019 and
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 years ended December 31, 2019 and 2018.
(in thousands
of dollars)
|
|
Three months
ended
December
31
|
|
Year
ended
December
31
|
|
|
2019
|
2018(2)
|
|
2019
|
2018(2)
|
Net earnings
(loss) for the period
|
$
|
(2,120)
|
(1,972)
|
|
(6,994)
|
(4,820)
|
Foreign exchange loss
(gain)
|
|
28
|
20
|
|
69
|
2
|
Finance
costs
|
|
1,090
|
766
|
|
4,769
|
2,315
|
Finance
income
|
|
(82)
|
(53)
|
|
(166)
|
(81)
|
Earnings (loss)
from operations
|
|
(1,084)
|
(1,239)
|
|
(2,322)
|
(2,584)
|
Add:
|
|
|
|
|
|
|
Depreciation of
network assets, property and equipment and
|
|
|
|
|
|
|
amortization of
intangible assets
|
|
3,748
|
2,728
|
|
15,287
|
11,755
|
Loss on disposal of
network assets
|
|
93
|
397
|
|
296
|
757
|
Impairment of Assets
and Related Charges
|
|
625
|
333
|
|
808
|
764
|
Stock-based
Compensation Expense (Recovery)
|
|
341
|
279
|
|
1,984
|
963
|
Restructuring,
acquisition-related, integration costs and other
|
|
283
|
621
|
|
1,424
|
1,309
|
Adjusted
EBITDA(1)
|
$
|
4,006
|
3,119
|
|
17,477
|
12,964
|
|
(1) See
"Definitions – Key Performance Indicators, IFRS, Additional GAAP
and Non-GAAP Measures"
|
(2)
The Company has initially applied IFRS 16 using the modified
retrospective approach. 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.
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 news 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 regarding
TeraGo becoming one of the first operators to launch commercial 5G
fixed wireless services, technical and customer trials with Nokia
5G equipment, and extracting value out of spectrum assets. All such
statements constitute "forward-looking information" as defined
under, applicable Canadian securities laws. Any statements
contained herein that are not statements of historical facts
constitute forward-looking information. The forward-looking
statements reflect the Company's views with respect to future
events and is subject to risks, uncertainties and assumptions,
including those risks set forth in the "Risk Factors" sections in
the annual MD&A of the Company for the year ended December 31, 2019, available
on www.sedar.com under the Company's corporate profile.
Factors that could cause actual results or events to differ
materially include the inability to complete successful technical
trials currently underway, the economic viability of any potential
services that may result from current trials, the ability for
TeraGo to finance and support any new market opportunities that may
present itself, industry competitors who may have superior
technology, spectrum assets or are quicker to take advantage of 5G
technology, new product launches not resonating with customers or
having the success that the Company anticipated, and the inability
of the Company to convert sales pipeline and backlog MRR to sales
revenue. Accordingly, readers should not place undue reliance on
forward-looking statements as several 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.