TeraGo Reports First Quarter 2021 Financial Results

TORONTO, May 11, 2021 /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, 2021.

First Quarter 2021 and Recent Operational Developments

• Chosen by Ducks Unlimited Canada to provide Managed SD-WAN (Software-Defined Wide Area Networking) services for its operating locations.
  
  
• Selected by Pure Storage as its first Canadian elite managed service provider partner.
  
  
• Closed a $14.7 million private placement in support of the Company's proposed launch of 5G fixed wireless services in Canada.
  
  
• Expanded product portfolio with managed networking services for business customers.
  
  
• Appointed TeraGo's former Chair of the Board, Matthew Gerber as new Chief Executive Officer.
  
  
• Advanced 5G fixed wireless technical trials and experienced improved through-put speeds, increasing current results to approximately 1.5 gigabits per second ("Gbps").
  
  
• Selected as the national Managed SD-WAN service provider for a large Canadian healthcare provider.

First Quarter 2021 Financial Highlights

• Total revenue for the first quarter of 2021 decreased 1% to $10.8 million compared to $10.9 million in the previous quarter and decreased 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 first quarter of 2021 was $6.5 million which was consistent with $6.5 million for the previous quarter and decreased from $7.3 million for the same period in 2020. The year over year decrease in connectivity revenue was primarily due to churn exceeding customer provisioning.
  
  
• Cloud and colocation revenue for the first quarter of 2021 decreased 2% to $4.3 million from $4.4 million for the previous quarter and was consistent with $4.3 million for the same period in 2020. The consistent cloud and colocation revenue was primarily driven by new customer provisioning offset by customer churn.
  
  
• Net loss for the first quarter of 2021 totaled $2.2 million which was consistent with $2.2 million in the prior quarter and $2.2 million for the same period in 2020. Net loss was held flat despite the decline in revenues due to lower operating expenses and finance costs.
  
  
• Adjusted EBITDA⁽¹⁾⁽²⁾ for the first quarter of 2021 was $3.2 million compared to $3.7 million in the prior quarter and decreased from $3.6 million in the same period in 2020. The decrease was driven primarily by the decrease in revenue.

Management Commentary

"Our performance the past few months continues to reinforce our view that we are turning a corner," said TeraGo CEO Matthew Gerber. "We have consistently seen new bookings surpass churn and have built momentum across every facet of our business. With the recent financing that bolstered our balance sheet, we are now equipped to capitalize on growth opportunities across all fronts. In particular, this investment gives us the ability to further develop our 5G fixed wireless business and will facilitate our strategic growth plan of becoming one of Canada's first 5G fixed wireless operators. As we approach the second half of this year, we will continue to enhance our product portfolio, expand partnerships, and demonstrate our commitment to deliver industry leading services as evidenced by our strong Net Promoter Score of 74, all of which provide us with a competitive edge."

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⁽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 months ended March 31, 2021 and 2020
(in thousands of dollars, except with respect to gross profit margin, earnings per share, Backlog MRR, and ARPU) 

			Three months ended March 31
			2021	2020
Financial
Cloud and Colocation Revenue	$		4,296	4,299
Connectivity Revenue	$		6,533	7,318
Total Revenue	$		10,829	11,617
Cost of Services^1	$		2,514	2,259
Selling, General, & Administrative Costs	$		5,904	6,187
Gross profit margin^1			76.8%	80.6%
Adjusted EBITDA^1, 2	$		3,233	3,622
Net loss	$		(2,166)	(2,203)
Basic loss per share	$		(0.13)	(0.13)
Diluted loss per share	$		(0.13)	(0.13)
Operating
Backlog MRR^1
Connectivity	$		131,078	89,296
Cloud & Colocation	$		34,518	18,225
Churn Rate^1
Connectivity			1.3%	1.5%
Cloud & Colocation			1.6%	1.0%
ARPU^1
Connectivity	$		1,008	1,033
Cloud & Colocation	$		3,623	3,240

⁽¹⁾ See "Non-IFRS Measures" below.

⁽²⁾ See "Adjusted EBITDA" below for a reconciliation of net loss to Adjusted EBITDA.

First Quarter 2021 Operating Highlights

Backlog Monthly Recurring Revenue (MRR)⁽¹⁾

• Connectivity backlog MRR was $131,078 as of March 31, 2021, compared to $89,296 as of March 31, 2020. The increase in backlog MRR was driven primarily by higher sales volume from both the direct sales team and the channel team compared to the prior year period.
  
  
• Cloud and colocation backlog MRR was $34,518 as of March 31, 2021 compared to $18,225 as of March 31, 2020. The increase in backlog MRR was driven higher sales volume compared to the prior year.

Average Revenue per User (ARPU)⁽¹⁾

• For the three months ended March 31, 2021 connectivity ARPU was $1,008 compared to $1,033 for the same period in 2020. The slight decrease in ARPU was due to customer contract renewals at lower rates.
  
  
• For the three months ended March 31, 2021 cloud and colocation ARPU was $3,623 compared to $3,240 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.

Churn⁽¹⁾

• For the three months ended March 31, 2021, connectivity churn was 1.3% compared to 1.5% for the same period in 2020. The decrease was due to ongoing customer retention initiatives and the increasing mix of mid-market and enterprise customers in the Company's customer base.
  
  
• For the three months ended March 31, 2021, cloud and colocation churn was 1.6% compared to 1.0% for the same period in 2020. Churn in the three months ended March 31, 2021 increased due to a higher churn of low ARPU small business customers.

⁽¹⁾  See "Non-IFRS Measures" below.

Conference Call

Management will host a conference call on Wednesday, May 12, 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 and fiscal year ended March 31, 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 May 19, 2021. To listen to the recording, call 416-621-4642 or 800-585-8367 and enter passcode 3895674.

⁽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, 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 months ended March 31, 2021 and 2020.

(in thousands of dollars)			Three months ended March 31
			2021	2020
Net earnings (loss) for the period	$		(2,166)	(2,203)
Foreign exchange loss (gain)			(21)	121
Finance costs			1,003	1,516
Finance income			(12)	(55)
Earnings (loss) from operations			(1,196)	(621)
Add:
Depreciation of network assets, property and equipment and amortization of intangible assets			3,607	3,792
Loss on disposal of network assets			6	45
Impairment of Assets and Related Charges			157	68
Stock-based Compensation Expense (Recovery)			229	347
Restructuring, acquisition-related, integration costs and other			430	(9)
Adjusted EBITDA	$		3,233	3,622

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 licenses 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, facilitate strategic growth plan of becoming one of Canada's first 5G fixed wireless operators, being equipped to capitalize on growth opportunities, turning a corner on financial performance, enhancing product portfolio, expanding partnerships and Net Promoter Score 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 months ended March 31, 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 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.

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

Related Links

www.terago.ca