TORONTO, Aug. 10, 2021
/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, 2021.
Second Quarter 2021 and Recent Operational
Developments
- Selected by Compusense to provide private cloud, security,
back-up, and data migration services within TeraGo's data
centres.
- Chosen by Ducks Unlimited Canada to provide National Managed
SD-WAN services for its operating locations.
- Selected by Pure Storage as its first Canadian Elite managed
service provider partner.
- Expanded Microsoft product portfolio with the addition of
Microsoft 365, Managed Microsoft Azure, and Managed Disaster
Recovery.
- Announced election of Directors at the 2021 Annual and Special
Meeting of Shareholders.
- Extended credit agreement with Royal Bank of Canada and The Toronto-Dominion Bank.
- Closed a $14.7 million private
placement in support of the Company's proposed launch of 5G fixed
wireless services in Canada.
Second Quarter 2021 Financial Highlights
- Total revenue for the second quarter increased 1% to
$10.9 million compared to
$10.8 million in the previous quarter
and decreased 6% from $11.6 million
for the same period in 2020. The year over year decrease in total
revenue was driven by lower connectivity revenue.
- Connectivity revenue for the second quarter of 2021 decreased
to $6.6 million from $6.7 million in the prior quarter and decreased
from $7.4 million for the same period
in 2020. The declines in both periods were attributable to churn
exceeding customer provisions.
- Cloud and colocation revenue for the second quarter of 2021
increased to $4.3 million compared to
$4.1 million in the prior quarter,
and increased from $4.2 million for
the same period in 2020. The growth in both periods was driven by
new customer acquisition and upgrades from existing customers.
- Net loss for the second quarter of 2021 decreased to
$1.8 million from $2.2 million in the prior quarter but increased
from $0.7 million for the same period
in 2020. The year-over-year increase in net loss was driven by
lower revenues, higher cost of services due to the mix of services
sold, as well as lower government grants received due to
COVID-19.
- Adjusted EBITDA(1)(2) for the second quarter of 2021
totaled $3.4 million which was an
improvement from $3.2 million in the
prior quarter but decreased from $4.8
million in the same period in 2020. The decrease was driven
primarily by the decrease in revenue, higher cost of services due
to the mix of services sold, and lower government grants received
due to COVID-19.
_______________
|
(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.
|
Management Commentary
"Based on our success this past quarter with increased sales and
a reduction in churn, we saw an uptick in quarterly revenues," said
TeraGo CEO Matthew Gerber. "Thanks
to our team's ability to consistently execute across all fronts of
the business, not only did we see an uptick in recurring revenues,
but we were once again able to achieve an industry leading Net
Promoter Score of 79, which is significantly better than the scores
of competitors and is evidence that we deliver on our promise of
'exceptional customer service.' The results are also indicative of
our success in providing Canadian enterprises with managed services
alongside our wireless connectivity, cloud and colocation
services."
RESULTS OF OPERATIONS
Comparison of the three- and six-months June 30, 2021 and 2020
(In
thousands of dollars, except with respect to gross profit margin,
earnings per share, Backlog MRR, and ARPU)
|
Three months
ended
June
|
|
Six months
ended
June
30
|
|
|
2021
|
2020
|
|
2021
|
2020
|
Financial
|
|
|
|
|
|
|
Cloud and Colocation
Revenue *
|
$
|
4,324
|
4,203*
|
|
8,427
|
8,321*
|
Connectivity Revenue
*
|
$
|
6,579
|
7,445*
|
|
13,305
|
14,944*
|
Total
Revenue
|
$
|
10,903
|
11,648
|
|
21,732
|
23,265
|
Cost of
Services1
|
$
|
2,683
|
2,328
|
|
5,197
|
4,587
|
Selling, General,
& Administrative Costs
|
$
|
5,377
|
5,205
|
|
11,281
|
11,392
|
Gross profit
margin1
|
|
75.4%
|
80.0%
|
|
76.1%
|
80.3%
|
Adjusted EBITDA1,
2
|
$
|
3,369
|
4,828
|
|
6,602
|
8,450
|
Net loss
|
$
|
(1,796)
|
(656)
|
|
(3,962)
|
(2,859)
|
Basic loss per
share
|
$
|
(0.09)
|
(0.04)
|
|
(0.22)
|
(0.17)
|
Diluted loss per
share
|
$
|
(0.09)
|
(0.04)
|
|
(0.22)
|
(0.17)
|
Operating
|
|
|
|
|
|
|
Backlog
MRR1
|
|
|
|
|
|
|
Connectivity
|
$
|
126,834
|
86,903
|
|
126,834
|
86,903
|
Cloud &
Colocation
|
$
|
15,454
|
18,864
|
|
15,454
|
18,864
|
Churn
Rate1
|
|
|
|
|
|
|
Connectivity
|
|
1.4%
|
1.7%
|
|
1.4%
|
1.6%
|
Cloud &
Colocation
|
|
1.1%
|
1.1%
|
|
1.3%
|
1.0%
|
ARPU1*
|
|
|
|
|
|
|
Connectivity
|
$
|
1,032
|
1,069
*
|
|
1,035
|
1,065
*
|
Cloud &
Colocation
|
$
|
3,722
|
3,108
*
|
|
3,591
|
3,105
*
|
*The three and six months 2020 comparative numbers for Cloud and
Colocation Revenue, Connectivity Revenue, and ARPU have changed to
conform with the presentation of revenue stream allocations for Q2
2021.
(1) See
"Non-IFRS Measures" below.
|
(2) See
"Adjusted EBITDA" below for a reconciliation of net loss to
Adjusted EBITDA.
|
Second Quarter 2021 Operating Highlights
Backlog Monthly Recurring Revenue (MRR)(1)
- Connectivity backlog MRR was $126,834 as of June 30,
2021, compared to $86,903 as
of June 30, 2020. The increase in
backlog MRR was driven primarily by higher sales volume compared to
the prior year period.
- Cloud and colocation backlog MRR was $15,454 as of June 30,
2021, compared to $18,864 as
of June 30, 2020. The slight decrease
in backlog MRR was driven by the timing of sales bookings and
provisioning activities.
Average Revenue per User (ARPU)(1)
- For the three months ended June 30,
2021, connectivity ARPU was $1,032 compared to $1,069 for the same period in 2020. ARPU
decreased slightly due to customer contract renewals at lower
rates. For the six months ended June 30,
2021, connectivity ARPU was $1,035 compared to $1,065 for the same period in 2020. The decrease
was driven by the factors described above.
- For the three months ended June 30,
2021, cloud and colocation ARPU was $3,722 compared to $3,108 for the same period in 2020. The increase
was due to customer upgrades and new higher value service offerings
as well as the churn of lower ARPU customers. For the six months
ended June 30, 2021, cloud &
colocation ARPU was $3,591 compared
to $3,105 for the same period in
2020. The increase was driven by the factors described above.
Churn(1)
- For the three months ended June 30,
2021, connectivity churn was 1.4% compared to 1.7% for the
same period in 2020. The decrease was due to elevated customer
churned recorded in the prior year period due to customer closures
and restructuring related to the COVID-19 pandemic. For the six
months ended June 30, 2021,
connectivity churn was 1.4% compared to 1.6% for the same period in
2020. The decrease was driven by the factors described above.
- For the three months ended June 30,
2021, cloud and colocation churn was flat at 1.1%. For the
six months ended June 30, 2021, cloud
and colocation churn was 1.3% compared to 1.0% for the same period
in 2020. The increase in churn was due to a higher churn rate of
low ARPU small business customers in the first quarter of 2021,
which subsequently stabilized in the second quarter.
(1)
See "Non-IFRS Measures" below.
|
Conference Call
Management will host a conference call on Wednesday, August 11, 2021, 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, 2021,
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 18, 2021. To listen to
the recording, call 416-621-4642 or 800-585-8367 and enter passcode
6476788.
(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 six months ended June 30, 2021.
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 and six months ended June 30,
2021, and 2020.
(In thousands
of dollars)
|
|
Three months
ended
June
30
|
|
Six months
ended
June
30
|
|
|
2021
|
2020
|
|
2021
|
2020
|
Net earnings
(loss) for the period
|
$
|
(1,796)
|
(656)
|
$
|
(3,962)
|
(2,859)
|
Foreign exchange loss
(gain)
|
|
(19)
|
33
|
|
(40)
|
154
|
Finance
costs
|
|
1,049
|
1,093
|
|
2,052
|
2,609
|
Finance
income
|
|
(12)
|
(28)
|
|
(24)
|
(83)
|
Earnings (loss)
from operations
|
|
(778)
|
442
|
|
(1,974)
|
(179)
|
Add:
|
|
|
|
|
|
|
Depreciation of
network assets, property and equipment and
amortization of intangible assets
|
|
3,621
|
3,673
|
|
7,228
|
7,465
|
Loss on disposal of
network assets
|
|
117
|
30
|
|
123
|
75
|
Impairment of Assets
and Related Charges
|
|
70
|
108
|
|
227
|
176
|
Stock-based
Compensation Expense (Recovery)
|
|
250
|
417
|
|
479
|
764
|
Restructuring,
acquisition-related, integration costs and other
|
|
89
|
158
|
|
519
|
149
|
Adjusted
EBITDA
|
$
|
3,369
|
4,828
|
$
|
6,602
|
8,450
|
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 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
further developing our 5G Fixed Wireless Access program,
consistently executing across all fronts of the business, success
in providing Canadian enterprises with managed services and
the 5G fixed wireless trials being conducted by the Company. 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, 2020 and the MD&A of the Company
for the three and six months ended June 30,
2021, each 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 consistently
achieve sales growth across all lines of TeraGo's business
including managed services, 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 further 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.