TeraGo Reports First Quarter 2020 Financial Results

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 Services^1	$	2,259	2,261
Selling, General, & Administrative Costs	$	6,187	5,963
Gross profit margin^1		80.6%	81.8%
Adjusted EBITDA^1^,^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 MRR^1
Connectivity	$	89,296	71,624
Cloud & Colocation	$	18,225	37,094
Churn Rate^1
Connectivity		1.5%	1.5%
Cloud & Colocation		1.0%	1.1%
ARPU^1
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.

TeraGo Investor Relations, Matt Glover, Gateway Investor Relations, Telephone: [phone], Email: [email protected]

Related Links

www.terago.ca