TORONTO, Nov. 10, 2021 /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, 2021.
Third Quarter 2021 and Recent Operational
Developments
- Partnered with McMaster
University to jointly build and deploy the first
university-based 5G millimeter wave private network for
research
- Confirmed TeraGo is on track to complete planned 5G core
network expansion projects for 2021, preparing for deployment of 5G
wireless access services to existing customer base and 5G private
networking applications
- Expanded Microsoft product portfolio with the addition of
Microsoft 365, Managed Microsoft Azure, and Managed Disaster
Recovery
- Appointed Andy Ramsey as VP of Finance and Interim Chief
Financial Officer
Third Quarter 2021 Financial Highlights
- Total revenue for the third quarter remained consistent at
$10.9 million compared to
$10.9 million in the previous quarter
and decreased 3.5% from $11.3 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 third quarter of 2021 slightly
decreased to $6.5 million from
$6.6 million in the prior quarter and
decreased from $7.1 million for the
same period in 2020. The decrease in both periods was
attributable to churn exceeding customer provisioning.
- Cloud and colocation revenue for the third quarter of
2021 increased to $4.4 million
compared to $4.3 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 third quarter of 2021 increased to
$2.3 million from $1.8 million in the prior quarter but decreased
from $3.2 million for the same period
in 2020. The year-over-year decrease in net loss was driven by
lower salaries and related costs and other operating expenses.
- Adjusted EBITDA(1)(2) for the third quarter of 2021
decreased to $3.1 million from
$3.4 million in the prior quarter,
and decreased from $3.8 million in
the same period in 2020. The decrease in both periods was driven
primarily by the decrease in revenue and higher cost of
services due to the mix of services sold.
Management Commentary
"Overall, our operating results in the third quarter were in
line with expectations, as we continued to make significant
progress towards launching our mmWave based 5G private networks,"
said TeraGo CEO Matthew Gerber. "Our
5G readiness efforts included completing the majority of our core
network enhancement projects that were planned for this year,
achieving the required in-field connection speeds using the new
mmWave 5G equipment we have been testing, and securing pilot sites
that will allow us to further test, develop and deploy the new
capabilities that mmWave 5G private networks bring to
customers."
_________________________________
|
(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.
|
RESULTS OF OPERATIONS
Comparison of the three- and nine-months September 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
September
|
|
Nine months
ended
September
30
|
|
|
2021
|
2020
|
|
2021
|
2020
|
Financial
|
|
|
|
|
|
|
Cloud and Colocation
Revenue *
|
$
|
4,369
|
4,167
*
|
|
12,796
|
12,488
*
|
Connectivity Revenue
*
|
$
|
6,507
|
7,112
*
|
|
19,812
|
22,056
*
|
Total
Revenue
|
$
|
10,876
|
11,279
|
|
32,608
|
34,544
|
Cost of
Services1
|
$
|
2,841
|
2,506
|
|
8,038
|
7,093
|
Selling, General,
& Administrative Costs
|
$
|
5,714
|
7,151
|
|
16,995
|
18,543
|
Gross profit
margin1
|
|
73.9%
|
77.8%
|
|
75.3%
|
79.5%
|
Adjusted EBITDA1,
2
|
$
|
3,116
|
3,775
|
|
9,718
|
12,225
|
Net loss
|
$
|
(2,255)
|
(3,179)
|
|
(6,217)
|
(6,038)
|
Basic loss per
share
|
$
|
(0.11)
|
(0.19)
|
|
(0.34)
|
(0.36)
|
Diluted loss per
share
|
$
|
(0.11)
|
(0.19)
|
|
(0.34)
|
(0.36)
|
Operating
|
|
|
|
|
|
|
Backlog
MRR1
|
|
|
|
|
|
|
Connectivity
|
$
|
102,911
|
113,231
|
|
102,911
|
113,231
|
Cloud &
Colocation
|
$
|
38,665
|
31,935
|
|
38,665
|
31,935
|
Churn
Rate1
|
|
|
|
|
|
|
Connectivity
|
|
0.9%
|
1.4%
|
|
1.2%
|
1.5%
|
Cloud &
Colocation
|
|
1.1%
|
0.9%
|
|
1.3%
|
1.0%
|
ARPU1*
|
|
|
|
|
|
|
Connectivity
|
$
|
1,026
|
1,056
*
|
|
1,032
|
1,062
*
|
Cloud &
Colocation
|
$
|
3,785
|
3,323
*
|
|
3,656
|
3,178
*
|
|
*The three and nine
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 Q3 2021.
|
|
(1) See "Non-IFRS
Measures" below.
|
(2) See "Adjusted
EBITDA" below for a reconciliation of net loss to Adjusted
EBITDA.
|
Third Quarter 2021 Operating Highlights
Backlog Monthly Recurring Revenue (MRR)(1)
- Connectivity backlog MRR was $102,911 as of September
30, 2021, compared to $113,231
as of September 30, 2020. The
decrease in backlog MRR was driven primarily by lower sales volume
compared to the prior year period.
- Cloud and colocation backlog MRR was $38,665 as of September
30, 2021 compared to $31,935
as of September 30, 2020. The
increase 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 September 30,
2021 connectivity ARPU was $1,026 compared to $1,056 for the same period in 2020. ARPU
decreased slightly due to customer contract renewals at lower
rates. For the nine months ended September
30, 2021 connectivity ARPU was $1,032 compared to $1,062 for the same period in 2020. The decrease
was driven by the factors described above.
- For the three months ended September 30,
2021 cloud and colocation ARPU was $3,785 compared to $3,323 for the same period in 2020. The increase
was due to customer upgrades and cross-selling activities as well
as the churn of lower ARPU customers. For the nine months ended
September 30, 2021 cloud &
colocation ARPU was $3,656 compared
to $3,178 for the same period in
2020. The increase was driven by the factors described above.
Churn(1)
- For the three months ended September 30,
2021, connectivity churn was 0.9% compared to 1.4% for the
same period in 2020. The decrease in churn was driven by a focused
efforts on customer retention through upgrades. For the nine months
ended September 30, 2021 connectivity
churn was 1.2% compared to 1.5% for the same period in 2020. The
decrease was driven by the factors described above.
- For the three months ended September 30,
2021, cloud and colocation churn was 1.1% compared to 0.9%
for the same period in 2020. The slight increase was due to the
timing of customer renewals. For the nine months ended September 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 over the second and third quarter of 2021.
See "Non-IFRS
Measures" below.
|
Conference Call
Management will host a conference call on Thursday, November 11, 2021, at 9:00 a.m. Eastern Time to discuss these
results.
To access the conference call, please dial 866-521-4909 or
647-427-2311, and use conference ID 5763217 if applicable. 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, 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 November 18, 2021. To
listen to the recording, call 800-585-8367 or 416-621-4642 and
enter passcode 5763217.
(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,
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 nine months ended September 30,
2021, and 2020.
(in thousands
of dollars)
|
|
Three months
ended
September
30
|
|
Nine months
ended
September
30
|
|
|
2021
|
2020
|
|
2021
|
2020
|
Net earnings
(loss) for the period
|
$
|
(2,255)
|
(3,179)
|
$
|
(6,217)
|
(6,038)
|
Foreign exchange loss
(gain)
|
|
19
|
54
|
|
(21)
|
208
|
Finance
costs
|
|
929
|
1,053
|
|
2,981
|
3,662
|
Finance
income
|
|
(13)
|
(7)
|
|
(37)
|
(90)
|
Earnings (loss)
from operations
|
|
(1,320)
|
(2,079)
|
|
(3,294)
|
(2,258)
|
Add:
|
|
|
|
|
|
|
Depreciation of
network assets, property and equipment and
amortization of intangible assets
|
|
3,641
|
3,701
|
|
10,869
|
11,166
|
Loss on disposal of
network assets
|
|
46
|
46
|
|
169
|
121
|
Impairment of assets
and related charges
|
|
81
|
309
|
|
308
|
485
|
Stock-based
compensation expense (recovery)
|
|
155
|
475
|
|
634
|
1,239
|
Restructuring,
acquisition-related, integration costs and other
|
|
513
|
1,323
|
|
1,032
|
1,472
|
Adjusted
EBITDA1
|
$
|
3,116
|
3,775
|
$
|
9,718
|
12,225
|
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 nine months ended September 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.