TORONTO, May 5, 2020 /CNW/
-
TeraGo Inc. ("TeraGo" or the "Company") (TSX: TGO, www.terago.ca), today
reported financial and operating results for the first quarter
ended March 31, 2020.
"Like most businesses, we were impacted by the COVID-19 crisis
as it spread through Canada," said
Tony Ciciretto, President and CEO of
TeraGo. "However, the impact to TeraGo was less than most because
our solutions are critical to our customer's operations even as
they temporarily closed operations and transitioned to a remote
work environment."
"Internally, the Pandemic Response Plan we implemented
prioritizes the health and safety of our employees and eliminates
non-essential spending, while enabling us to remain fully
operational, despite the unprecedented global business closures and
slowdown caused by the health crisis. Our success is a testament to
our organization's nimbleness and commitment to helping our
customers meet the increasing demands and challenges of the current
crisis. We remain committed to continued cost management and
prudent capital spending during these times. COVID-19 has made it
even more apparent that broadband connectivity is crucial to
business success. Our technology delivers networking and
infrastructure solutions that our mid-market and enterprise
customers rely on for critical services such as virtual
collaboration, telehealth and remote applications."
"In connection with our 5G growth strategy we recently began
technical trials in the Greater Toronto
Area with our partners, Nokia and Askey. We are seeing the
continued evolution of 5G network technology, and our ongoing
interoperability testing of network and customer premise equipment
in real-world environments is a critical step in enabling this
transition. Our prudent approach in pursuing near- and long-term
opportunities by leveraging strategic partnerships will further
expand our markets, minimize initial capital outlay and reduce
operational risk."
"Looking ahead, we believe our diversified customer base,
predictable recurring revenue, and judicious approach to cash
management will help to ensure we navigate these uncertain times.
Our success today will better position TeraGo in a post-COVID-19
environment and enable the realization of our vision to be one of
the first operators to launch commercial 5G fixed wireless services
in Canada."
First Quarter 2020 Financial Highlights
- Total revenue for the first quarter of 2020 decreased 6.5% to
$11.6 million compared to
$12.4 million for the same period in
2019. The decrease in total revenue was primarily due to customer
churn exceeding provisioning activity.
- Connectivity revenue for the first quarter of 2020 decreased
7.6% to $7.3 million compared to
$7.9 million for the same period in
2019. The decrease in connectivity revenue was primarily due to
churn exceeding provisioning as a result of lower sales volume.
- Cloud and colocation revenue for the first quarter of 2020
decreased 4.4% to $4.3 million
compared to $4.5 million for the same
period in 2019, which partially offset the decrease in connectivity
revenue. The decrease in cloud and colocation revenue was primarily
driven by churn and lower provisioning.
- Net loss for the first quarter of 2020 totaled $2.2 million compared to net loss of $1.2 million for the same period in 2019. The
increase in net loss was due to lower total revenue and a decrease
in gross margin.
- Adjusted EBITDA(1)(2) for the first quarter of 2020
decreased 21.7% to $3.6 million
compared to $4.6 million for the same
period in 2019. The decrease was primarily driven by lower revenue
and decrease in gross margin.
__________________
|
(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.
|
First Quarter 2020 and Recent Operational
Developments
- Commenced 5G technical trials in the Greater Toronto area utilizing 5G fixed
wireless network equipment from Nokia Inc. and Customer Premise
Equipment from Askey Computer Corp.
- Enacted a Pandemic Response Plan in March to ensure full
operational capabilities of its network, data centres and critical
facilities as well as maintain 24/7 customer support. The proactive
measures have allowed TeraGo to operate at full capacity to support
its customers and partners.
RESULTS OF OPERATIONS
Comparison of the three months ended March 31, 2020 and 2019
(in
thousands of dollars, except with respect to gross profit margin,
earnings per share, Backlog MRR, and ARPU)
|
Three months
ended
March
31
|
|
|
2020
|
2019
|
Financial
|
|
|
|
Cloud and Colocation
Revenue
|
$
|
4,299
|
4,494
|
Connectivity
Revenue
|
$
|
7,318
|
7,903
|
Total
Revenue
|
$
|
11,617
|
12,397
|
Cost of
Services1
|
$
|
2,259
|
2,261
|
Selling, General,
& Administrative Costs
|
$
|
6,187
|
5,963
|
Gross profit
margin1
|
|
80.6%
|
81.8%
|
Adjusted
EBITDA1, 2
|
$
|
3,622
|
4,590
|
Net loss
|
$
|
(2,203)
|
(1,188)
|
Basic loss per
share
|
$
|
(0.13)
|
(0.08)
|
Diluted loss per
share
|
$
|
(0.13)
|
(0.08)
|
Operating
|
|
|
|
Backlog
MRR1
|
|
|
|
Connectivity
|
$
|
89,296
|
71,624
|
Cloud &
Colocation
|
$
|
18,225
|
37,094
|
Churn
Rate1
|
|
|
|
Connectivity
|
|
1.5%
|
1.5%
|
Cloud &
Colocation
|
|
1.0%
|
1.1%
|
ARPU1
|
|
|
|
Connectivity
|
$
|
1,033
|
1,033
|
Cloud &
Colocation
|
$
|
3,240
|
3,221
|
|
(1) See "Non-IFRS
Measures" below.
|
(2) See "Adjusted
EBITDA" below for a reconciliation of net loss to Adjusted
EBITDA.
|
First Quarter Operating Highlights
Backlog Monthly Recurring Revenue (MRR)(1)
- Connectivity backlog MRR was $89,296 as of March 31,
2020, compared to $71,624 as
of March 31, 2019. The increase
in backlog MRR was driven primarily by higher sales volume than in
the prior year period.
- Cloud and colocation backlog MRR was $18,225 as of March 31,
2020 compared to $37,094 as of
March 31, 2019. The change in backlog
MRR was driven primarily by the timing of customer provisioning
activity.
Average Revenue per User (ARPU)(1)
- For the three months ended March 31,
2020 connectivity ARPU was $1,033 compared to $1,033 for the same period in 2019. The ARPU was
consistent with the prior year period as the Company continues to
focus on acquiring and retaining mid-market business customers.
- For the three months ended March 31,
2020 cloud and colocation ARPU was $3,240 compared to $3,221 for the same period in 2019. In 2020,
cloud and colocation ARPU was negatively impacted by an increase in
customer count as TeraGo contracted directly with 28 customers that
were previously contracted through one wholesale partner.
Normalizing for this increase in customer count, cloud and
colocation ARPU for the three months ended March 31, 2020 would have been $3,450, an increase of 7.1% compared to the prior
year period. The increase was due to upgrades from existing
customers and churn of lower ARPU customers.
Churn(1)
- For the three months ended March 31,
2020, connectivity churn was 1.5% compared to 1.5% for the
same period in 2019. The Company's increased retention efforts have
stabilized churn levels.
- For the three months ended March 31,
2020, cloud and colocation churn was 1.0% compared to 1.1%
for the same period in 2019. Decreased churn levels were a result
of increased retention efforts.
See
"Non-IFRS Measures" below.
|
Conference Call
Management will host a conference call on, Wednesday, May 6, 2020, at 8:30 a.m. Eastern Time to discuss these
results.
To access the conference call, please dial 647-427-2311 or
866-521-4909. The Financial Statements and Management's Discussion
& Analysis for the quarter ended March
31, 2020, 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 May 13, 2020. To listen to the
recording, call 416-621-4642 or 800-585-8367 and enter passcode
7994563.
(1) Non-IFRS Measures
This press release contains references to "Cost
of Services", "Gross Profit Margin",
"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 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, 2020. 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 for
the three months ended March 31, 2020
and 2019.
(in thousands
of dollars)
|
|
Three months
ended
March
31
|
|
|
2020
|
2019
|
Net earnings
(loss) for the period
|
$
|
(2,203)
|
(1,188)
|
Foreign exchange loss
(gain)
|
|
121
|
(6)
|
Finance
costs
|
|
1,516
|
1,415
|
Finance
income
|
|
(55)
|
(25)
|
Earnings (loss)
from operations
|
|
(621)
|
196
|
Add:
|
|
|
|
Depreciation of
network assets, property and equipment and amortization of
intangible assets
|
|
3,792
|
3,977
|
Loss on disposal of
network assets
|
|
45
|
23
|
Impairment of Assets
and Related Charges
|
|
68
|
82
|
Stock-based
Compensation Expense (Recovery)
|
|
347
|
342
|
Restructuring,
acquisition-related, integration costs and other
|
|
(9)
|
(30)
|
Adjusted
EBITDA
|
$
|
3,622
|
4,590
|
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 in the period. 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 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 has changed from the Company's past disclosures to
exclude revenue from early termination fees, where ARPU was
previously calculated as revenue divided by the number of customers
in service during the period. TeraGo's method 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. 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 cancellations. The
information is presented as the average monthly churn rate during
the period. 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. 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 24GHz and
38GHz 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
the 5G fixed wireless trials being conducted with Nokia and Askey,
the timing and length of such trials and future customer trials, 5G
expanding our markets, minimizing initial capital outlay and
reducing operational risk, TeraGo becoming one of the first
operators to launch commercial 5G FWA services, and TeraGo's
ability to mitigate the risks and negative impacts of the current
COVID-19 pandemic . 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 each of the annual MD&A of the Company for the year
ended December 31, 2019 and the
MD&A for the three months ended March
31, 2020, both 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 5G technical trials with Nokia and Askey, the
impacts and restrictions caused by the COVID-19 pandemic are
prolonged which may further delay customer trials and/or cause a
negative impact on future financial results of the Company,
TeraGo's Pandemic Response Plan may not mitigate all impacts of
COVID-19, the results of the 5G trials not being satisfactory to
TeraGo or any of its technology partners, regulatory requirements
may delay or inhibit the trial, the economic viability of any
potential services that may result from the trial, the ability for
TeraGo to finance and support any new market opportunities that may
present itself, and industry competitors who may have superior
technology or are quicker to take advantage of 5G technology.
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.