TORONTO, Nov. 4, 2020
/CNW/ -
TeraGo Inc. ("TeraGo" or the "Company") (TSX: TGO, www.terago.ca), today
reported financial and operating results for the third quarter
ended September 30, 2020.
Third Quarter 2020 Financial Highlights
- Total revenue for the third quarter of 2020 decreased 4.2% to
$11.3 million compared to
$11.8 million for the same period in
2019. The decrease in total revenue was driven by lower
connectivity revenue.
- Connectivity revenue for the third quarter of 2020 decreased
8.0% to $6.9 million compared to
$7.5 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 third quarter of 2020
increased 1.7% to $4.3 million
compared to $4.3 million for the same
period in 2019. The increase in cloud and colocation revenue was
primarily driven by customer upgrades.
- Net loss for the third quarter of 2020 totaled $3.2 million compared to net loss of $915,000 for the same period in 2019. The higher
net loss was primarily driven by lower revenue, severance charges,
and impairment of network assets, property, and equipment.
- Adjusted EBITDA(1)(2) for the third quarter of 2020
decreased 13.6% to $3.8 million
compared to $4.4 million for the same
period in 2019. The decrease was primarily driven by the decrease
in revenue.
Third Quarter 2020 and Recent Operational
Developments
- Signed on as Connected2Fiber's first Canadian provider of
networking solutions, enabling TeraGo to connect to and service
customers more effectively, both international and domestic,
including remote regions.
- Effective on September 25, 2020,
Blake Wetzel was appointed as Chief
Operating Officer in addition to his role as Chief Revenue
Officer.
Management Commentary
"Our results for the third quarter again validated the
resiliency of our business model and the essential services we
provide to our diverse customer base," said David Charron, CFO and Interim CEO. "In addition
to the growth we realized in ARPU for both segments of our
business, we were able to increase backlog MRR, reflecting our
sales team's ability to secure new wins in the current operating
environment. Our continued focus on key operational initiatives has
allowed us to stabilize churn and generate strong cash flow as well
as further increase our leading net promoter scores, which serves
as a competitive advantage and speaks to TeraGo's outstanding level
of customer service.
"Looking ahead, we remain focused on several key initiatives,
including capitalizing on our backlog, providing industry-leading
customer service and prudently deploying capital toward high-growth
opportunities. We expect our execution on these initiatives to
further diversify our base of mid-market and enterprise customers,
generate consistent cash flow, as well as position us for long-term
success. In conjunction with our ongoing 5G test trials throughout
the Greater Toronto Area, we are
exploring several initiatives to augment our already strong
networking product portfolio. We look forward to expanding our
partnerships with Nokia and Askey to meet the rising demand for
commercial 5G fixed wireless services in Canada."
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(1) Adjusted EBITDA is a Non-GAAP
measure. See "Non-IFRS Measures" below.
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(2) See "Adjusted EBITDA" below for a
reconciliation of net loss to Adjusted EBITDA.
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RESULTS OF OPERATIONS
Comparison of the three months ended September 30, 2020 and 2019
(in
thousands of dollars, except with respect to gross profit margin,
earnings per share, Backlog MRR, and ARPU)
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Three months
ended
September
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Nine months
ended
September
30
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2020
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2019
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2020
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2019
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Financial
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Cloud and Colocation
Revenue
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$
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4,349
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4,277
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13,045
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13,358
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Connectivity
Revenue
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$
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6,930
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7,537
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21,499
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23,082
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Total
Revenue
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$
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11,279
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11,814
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34,544
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36,440
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Cost of
Services1
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$
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2,506
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2,324
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7,093
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6,943
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Selling, General,
& Administrative Costs
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$
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7,151
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5,795
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18,543
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19,196
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Gross profit
margin1
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77.8%
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80.3%
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79.5%
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80.9%
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Adjusted
EBITDA1,2
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$
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3,775
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4,358
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12,225
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13,471
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Net loss
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$
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(3,179)
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(915)
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(6,038)
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(4,874)
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Basic loss per
share
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$
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(0.19)
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(0.06)
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(0.36)
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(0.30)
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Diluted loss per
share
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$
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(0.19)
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(0.06)
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(0.36)
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(0.30)
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Operating
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Backlog
MRR1
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Connectivity
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$
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113,231
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47,672
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113,231
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47,672
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Cloud &
Colocation
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$
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31,935
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37,237
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31,935
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37,237
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Churn
Rate1
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Connectivity
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1.4%
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1.3%
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1.5%
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1.5%
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Cloud &
Colocation
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0.9%
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1.3%
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1.0%
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1.4%
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ARPU1
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Connectivity
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$
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1,028
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1,014
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1,034
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1,023
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Cloud &
Colocation
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$
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3,468
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3,248
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3,321
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3,218
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(1) See "Non-IFRS Measures"
below.
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(2) See
"Adjusted EBITDA" below for a reconciliation of net loss to
Adjusted EBITDA.
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Third Quarter Operating Highlights
Backlog Monthly Recurring Revenue (MRR)(1)
- Connectivity backlog MRR was $113,231 as of September
30, 2020, compared to $47,672
as of September 30, 2019. The
increase in backlog MRR was driven primarily by higher sales volume
from both the direct sales team and the channel than in the prior
year period.
- Cloud and colocation backlog MRR was $31,935 as of September
30, 2020 compared to $37,237
as of September 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 September 30,
2020 connectivity ARPU was $1,028 compared to $1,014 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 nine months ended September 30,
2020 connectivity ARPU was $1,034 compared to $1,023 for the same period in 2019. The increase
was driven by the factors described above.
- For the three months ended September 30,
2020 cloud and colocation ARPU was $3,468 compared to $3,248 for the same period in 2019. The increase
is due to upgrades from existing customers and churn of lower ARPU
customers. For the nine months ended September 30, 2020 cloud & colocation ARPU
was $3,321 compared to $3,218 for the same period in 2019. The increase
was driven by the factors described above.
Churn(1)
- For the three months ended September 30,
2020, connectivity churn was 1.4% compared to 1.3% for the
same period in 2019. Connectivity Churn in the third quarter
returned to historic levels, down from the increase experienced in
the second quarter of 2020 as the number of customer closures and
restructurings declined. For the nine months ended September 30, 2020 connectivity churn was 1.5%
compared to 1.5% for the same period in 2019.
- For the three months ended September 30,
2020, cloud and colocation churn was 0.9% compared to 1.3%
for the same period in 2019. Decreased churn levels were a result
of increased retention efforts. For the nine months ended
September 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.
See "Non-IFRS
Measures" below.
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Conference Call
Management will host a conference call on Thursday, November 5, 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 September 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 November 12, 2020. To listen to
the recording, call 416-621-4642 or 800-585-8367 and enter passcode
2456669.
(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
and nine months ended September 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 September 30,
2020 and 2019.
(in thousands
of dollars)
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Three months
ended
September
30
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Nine months
ended
September
30
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2020
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2019
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2020
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2019
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Net earnings
(loss) for the period
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$
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(3,179)
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(915)
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$
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(6,038)
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(4,874)
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Foreign exchange loss
(gain)
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54
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(34)
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208
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41
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Finance
costs
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1,053
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1,082
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3,662
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3,679
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Finance
income
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(7)
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(41)
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(90)
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(84)
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Earnings (loss)
from operations
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(2,079)
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92
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(2,258)
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(1,238)
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Add:
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Depreciation of
network assets, property and equipment and
amortization of intangible assets
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3,701
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3,603
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11,166
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11,539
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Loss on disposal of
network assets
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46
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109
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121
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203
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Impairment of Assets
and Related Charges
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309
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37
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485
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183
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Stock-based
Compensation Expense (Recovery)
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475
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331
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1,239
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1,643
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Restructuring,
acquisition-related, integration costs and other
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1,323
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186
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1,472
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1,141
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Adjusted
EBITDA1
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$
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3,775
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4,358
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$
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12,225
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13,471
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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
executing against the backlog in Q4, deploying capital toward
high-growth opportunities, the generation of strong cash flow,
increasing the net promoter score, further diversifying the base of
mid-market and enterprise customers, the 5G fixed wireless trials
being conducted by the Company, expanding partnerships with Nokia
and Askey 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 nine months
ended September 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 complete successful 5G
technical trials, 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.