- Board of Directors Name CFO David Charron as Interim CEO and Initiates
Search for New CEO to Lead Company's Next Phase of Growth -
- Industry Veteran Ken Campbell Appointed to the Board of
Directors -
TORONTO, Aug. 5, 2020
/CNW/ -
TeraGo Inc. ("TeraGo" or the "Company") (TSX: TGO) www.terago.ca, today
reported financial and operating results for the second quarter
ended June 30, 2020.
Second Quarter 2020 Financial Highlights
- Total revenue for the second quarter of 2020 decreased 4.9% to
$11.6 million compared to
$12.2 million for the same period in
2019. The decrease in total revenue was driven by customer churn
exceeding provisioning activity.
- Connectivity revenue for the second quarter of 2020 decreased
3.9% to $7.3 million compared to
$7.6 million for the same period in
2019. The decrease in connectivity revenue was primarily due to
churn exceeding customer provisioning.
- Cloud and colocation revenue for the second quarter of 2020
decreased 4.3% to $4.4 million
compared to $4.6 million for the same
period in 2019. The decrease in cloud and colocation revenue was
primarily driven by churn exceeding customer provisioning.
- Net loss for the second quarter of 2020 totaled $0.7 million compared to net loss of $2.8 million for the same period in 2019. The
decrease in net loss was primarily driven by government grants
received as a result of COVID-19, lower stock-based compensation,
and lower severance charges.
- Adjusted EBITDA(1)(2) for the second quarter of 2020
increased 6.7% to $4.8 million
compared to $4.5 million for the same
period in 2019. The increase was primarily driven by the factors
described in net loss above in addition to cost reduction
efforts.
________________
|
(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.
|
Second Quarter 2020 and Recent Operational
Developments
- Amended and restated the credit agreement with The National
Bank of Canada to The Royal Bank
of Canada (the new administrative
agent and lead lender) and The Toronto-Dominion Bank for access to
a total of $35.0 million, comprising
of a $30.0 million non-revolving term
facility and a $5.0 million revolving
operating credit facility.
- Advanced 5G fixed wireless technical trials in the Greater Toronto area utilizing 5G fixed
wireless network equipment from Nokia Inc. and Customer Premise
Equipment from Askey Computer Corp.
- Board of Directors name CFO David
Charron as Interim CEO and initiates Search for New
CEO.
- Industry veteran Ken Campbell
appointed to the Board of Directors.
Management Commentary
"Our solid financial performance in the second quarter during
the COVID-19 pandemic demonstrates the resiliency of our business
model and the critical services we provide our customers with as
they navigate the new 'normal' operating environment," said
David Charron, CFO and Interim CEO.
"The success on our key operational initiatives over the last year
allowed us to stabilize churn and generate strong cash flow as well
as realize one of the industry's leading net promoter scores, which
is a testament to our outstanding level of customer service.
Additionally, our amended credit agreement strengthens our
financial position by reducing our financing costs while providing
us with capital to implement our strategic growth initiatives.
"As we move through the third quarter, we are encouraged by the
overall sales and business development activity, particularly in
our global partner channel and connectivity business. Furthermore,
we continue to make good progress on our 5G technical trials with
Nokia and Askey. The results we have experienced to date have been
very encouraging and are in line with our expectations with the
current generation of technology. Private 5G networks and
broadband internet in dense urban areas continue to be the most
promising 5G use cases we are exploring, and we look forward to
continued testing in the second half of 2020. In the meantime, our
diversified base of mid-market and enterprise customers,
predictable recurring revenue and cash flow generation, as well as
solid and durable liquidity position will help to ensure we
successfully navigate these uncertain times."
Leadership Changes
The Board of Directors has named CFO David Charron as Interim CEO, succeeding
Tony Ciciretto, effective
immediately. Charron has assumed operating responsibilities and
will continue to do so until a new CEO has been appointed while
retaining his duties as CFO. With support from the Board of
Directors and other members of the management team, TeraGo has
initiated a search for a new CEO to execute on the Company's
long-term growth plan.
"On behalf of the Board of Directors, we would like to thank
Tony for his service to TeraGo over the last four years," said
Matthew Gerber, Chair of the Board.
"Tony was a key contributor towards stabilizing the business and
transforming TeraGo into a leading managed cloud and connectivity
solutions provider and the largest holder of millimetre wave
wireless spectrum in Canada. We
wish Tony all the best in his future pursuits."
As previously disclosed by the Company, the Corporate Governance
Committee had been conducting a broad candidate search to identify
a potential new director as part of its mandate to periodically
review and plan for the composition of the Board. TeraGo concluded
that search and has appointed Ken
Campbell to its board of directors, effective today, to
serve until the next annual meeting of shareholders.
With more than 20 years of hands-on commercial experience with
several major mobile operators, Campbell has served in a range of
senior leadership roles with telecom operators in North America, Europe and North
Africa. Most recently, he was the Directeur General for INWI
in Morocco and co-founded Mobile
Klinik, Canada's leading
smartphone and tablet repair network. Prior to that, Campbell
served as CEO of Ooredoo in Tunisia, CEO of Wind Mobile in Canada, CEO of Bite in Lithuania and Latvia, and held commercial and marketing
positions for Vodafone, Ooredoo, and Orascom. Campbell holds an MBA
from the London Business School and a
Bachelor of Arts (Honours Economics) from Carleton University in Ottawa, Canada. He is currently a Senior
Adviser with Paris-based PMP
Conseil.
In conjunction with Campbell's appointment as a new director,
the Company is formally announcing the retirement of long-time
board member James Sanger, who has
served on the board for seven years.
"I'd like to extend a warm welcome to Ken who is a great
addition to the Board with his varied international experiences and
relevant industry skillset," commented Gerber. "On behalf of the
Board and management team, we send our gratitude and appreciation
to Jim for his long-term service, leadership and substantial
contributions. We look forward to benefiting from the contributions
and expertise a seasoned veteran like Ken brings to the Board."
RESULTS OF OPERATIONS
Comparison of the three months ended June 30, 2020 and 2019
(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
|
|
|
2020
|
2019
|
|
2020
|
2019
|
Financial
|
|
|
|
|
|
|
Cloud and Colocation
Revenue
|
$
|
4,397
|
4,587
|
|
8,696
|
9,081
|
Connectivity
Revenue
|
$
|
7,251
|
7,642
|
|
14,569
|
15,545
|
Total
Revenue
|
$
|
11,648
|
12,229
|
|
23,265
|
24,626
|
Cost of
Services3
|
$
|
2,328
|
2,358
|
|
4,587
|
4,619
|
Selling, General,
& Administrative Costs
|
$
|
5,205
|
7,438
|
|
11,392
|
13,401
|
Gross profit
margin1
|
|
80.0%
|
80.7%
|
|
80.3%
|
81.2%
|
Adjusted
EBITDA1, 4
|
$
|
4,828
|
4,523
|
|
8,450
|
9,113
|
Net loss
|
$
|
(656)
|
(2,771)
|
|
(2,859)
|
(3,959)
|
Basic loss per
share
|
$
|
(0.04)
|
(0.18)
|
|
(0.17)
|
(0.25)
|
Diluted loss per
share
|
$
|
(0.04)
|
(0.18)
|
|
(0.17)
|
(0.25)
|
Operating
|
|
|
|
|
|
|
Backlog
MRR1
|
|
|
|
|
|
|
Connectivity
|
$
|
86,903
|
57,081
|
|
86,903
|
57,081
|
Cloud &
Colocation
|
$
|
18,864
|
17,049
|
|
18,864
|
17,049
|
Churn
Rate1
|
|
|
|
|
|
|
Connectivity
|
|
1.7%
|
1.6%
|
|
1.6%
|
1.5%
|
Cloud &
Colocation
|
|
1.1%
|
1.7%
|
|
1.0%
|
1.4%
|
ARPU1
|
|
|
|
|
|
|
Connectivity
|
$
|
1,041
|
1,023
|
|
1,037
|
1,028
|
Cloud &
Colocation
|
$
|
3,255
|
3,185
|
|
3,248
|
3,203
|
|
(1) See "Non-IFRS
Measures" below.
|
(2) See "Adjusted
EBITDA" below for a reconciliation of net loss to Adjusted
EBITDA.
|
Second Quarter Operating Highlights
Backlog Monthly Recurring Revenue (MRR)(1)
- Connectivity backlog MRR was $86,903 as of June 30,
2020, compared to $57,081 as
of June 30, 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 $18,864 as of June 30,
2020 compared to $17,049 as of
June 30, 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 June 30,
2020 connectivity ARPU was $1,041 compared to $1,023 for the same period in 2019. The ARPU is
slightly higher than the prior year period as the Company continues
to focus on acquiring and retaining mid-market business customers.
For the six months ended June 30,
2020 connectivity ARPU was $1,037 compared to $1,028 for the same period in 2019. The increase
was driven by the factors described above.
- For the three months ended June 30,
2020 cloud and colocation ARPU was $3,255 compared to $3,185 for the same period in 2019. The increase
is due to upgrades from existing customers and churn of lower ARPU
customers. For the six months ended June 30,
2020 cloud & colocation ARPU was $3,248 compared to $3,203 for the same period in 2019. The increase
was driven by the factors described above.
Churn(1)
- For the three months ended June 30,
2020, connectivity churn was 1.7% compared to 1.6% for the
same period in 2019. The slight increase in churn was driven by a
limited number of customer closures or restructuring of physical
locations. For the six months ended June 30,
2020 connectivity churn was 1.6% compared to 1.5% for the
same period in 2019. The increase was driven by the factors
described above.
- For the three months ended June 30,
2020, cloud and colocation churn was 1.1% compared to 1.7%
for the same period in 2019. Decreased churn levels were a result
of increased retention efforts. For the six months ended
June 30, 2020 cloud and colocation
churn was 1.0% compared to 1.4% for the same period in 2019. The
decrease was driven by the factors described above.
______________________________________________
|
3 See
"Definitions – Key Performance Indicators, IFRS, Additional GAAP
and Non-GAAP Measures"
|
4 See
"Adjusted EBITDA" for a reconciliation of net loss to Adjusted
EBITDA
|
|
See "Non-IFRS
Measures" below.
|
Conference Call
Management will host a conference call on Thursday, August 6, 2020, at 9:00 a.m. Eastern Time to discuss these
results.
To access the conference call, please dial 647-427-2311 or
866-521-4909. Please call the conference telephone number 15
minutes prior to the start time so that you are in the queue for an
operator to assist in registering and patching you through. The
Financial Statements and Management's Discussion & Analysis for
the quarter ended June 30, 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 August 13, 2020. To listen to
the recording, call 416-621-4642 or 800-585-8367 and enter passcode
9784764.
(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 June 30, 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 June 30, 2020
and 2019.
(in thousands
of dollars)
|
|
Three months
ended June
30
|
|
Six months
ended June
30
|
|
|
2020
|
2019
|
|
2020
|
2019
|
Net earnings
(loss) for the period
|
$
|
(656)
|
(2,771)
|
$
|
(2,859)
|
(3,959)
|
Foreign exchange loss
(gain)
|
|
33
|
81
|
|
154
|
75
|
Finance
costs
|
|
1,093
|
1,182
|
|
2,609
|
2,597
|
Finance
income
|
|
(28)
|
(18)
|
|
(83)
|
(43)
|
Earnings (loss)
from operations
|
|
442
|
(1,526)
|
|
(179)
|
(1,330)
|
Add:
|
|
|
|
|
|
|
Depreciation of
network assets, property and equipment and amortization of
intangible assets
|
|
3,673
|
3,959
|
|
7,465
|
7,936
|
Loss on disposal of
network assets
|
|
30
|
71
|
|
75
|
94
|
Impairment of Assets
and Related Charges
|
|
108
|
64
|
|
176
|
146
|
Stock-based
Compensation Expense (Recovery)
|
|
417
|
970
|
|
764
|
1,312
|
Restructuring,
acquisition-related, integration costs and other
|
|
158
|
985
|
|
149
|
955
|
Adjusted
EBITDA1
|
$
|
4,828
|
4,523
|
$
|
8,450
|
9,113
|
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 pending new CEO search process undertaken by the Company, 5G
fixed wireless trials being conducted with Nokia and Askey and
future progress, the timing and length of such trials and future
customer trials, encouraging sales and business development
activity for the third quarter of 2020, 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 and six months ended June 30, 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 identify and appoint a qualified and suitable new CEO within a
reasonable period, 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.