TeraGo Reports Fourth Quarter and Full Year 2021 Financial Results

TORONTO, March 23, 2022 /CNW/ - TeraGo Inc. ("TeraGo" or the "Company") (TSX: TGO) (www.terago.ca), today reported financial and operating results for the fourth quarter and fiscal year ended December 31, 2021.

Fourth Quarter 2021 and Recent Operational Developments

• Completed strategic divestiture of cloud and colocation business lines to a subsidiary of Hut 8 Mining Corp. for aggregate cash consideration of Cdn.$30 million.
• Partnered with IKIN to jointly develop innovative solutions that combine 5G mmWave with IKIN's holographic technologies for Canadian enterprises.
• Selected Intracom Telecom, a global telecommunication systems and solutions vendor, for the supply of its leading wireless solutions, WiBAS™ G5 evo-BS and WiBAS™ G5 Connect+, operating at 24 GHz frequency band.
• Partnered with McMaster University to jointly build and deploy the first university-based 5G millimeter wave private network for research.

Fourth Quarter 2021 Connectivity Financial Highlights

• Connectivity revenues stabilized quarter over quarter, with connectivity revenue totaling $6.5 million for the three months ended December 31, 2021, compared to $6.5 million in the prior quarter. The stabilization of connectivity revenues was driven by favourable customer churn results, and provisioning of new customers.
• Connectivity backlog MRR was $110,000 as of December 31, 2021, compared to $130,000 as of December 31, 2020. The decrease in backlog MRR was driven by the timing of sales bookings and customer provisioning.
• Connectivity ARPU was $1,043 as of December 31, 2021, compared to $1,057 for the same period in 2020. The decrease in ARPU was driven by customer renewals at lower rates.
• Connectivity churn was 0.7% as of December 31, 2021, compared to 1.4% for the same period in 2020. The decline in churn was driven by the Company's retention initiative to upgrade and retain its customers with new service offerings.

Full Year 2021 Connectivity Financial Highlights

• Connectivity revenue for the full year 2021 decreased 8.7% to $26.3 million compared to $28.8 million in 2020. The decrease in connectivity revenue was attributable to churn exceeding customer provisioning.
• Connectivity ARPU for the full year 2021 was $1,035 compared to $1,061 in 2020. The decrease in ARPU was driven by customer renewals at lower rates.
• Connectivity churn for the full year 2021 was 1.1% compared to 1.5% for the same period in 2020. The decline in churn was driven by the Company's retention initiative to upgrade and retain its customers with new service offerings.

Full Year 2021 Financial Highlights

• Total revenue for the full year 2021 decreased 4.6% to $43.3 million compared to $45.4 million in 2020. The decrease in total revenue was driven by lower connectivity revenue.
• Net loss for the full year 2021 totaled $15.2 million compared to net loss of $8.3 million in 2020. The higher net loss was driven by an impairment loss on cloud and colocation assets held for sale, an impairment loss on intangible assets, and a decline in total revenue.
• Adjusted EBITDA⁽¹⁾⁽²⁾ for the full year 2021 was $12.0 million compared to $15.9 million in 2020. The lower adjusted EBITDA was driven primarily by a decline in gross profit, one-time operating expenses and lower government grants.

Management Commentary

"The past quarter and extending into the start of this year was a pivotal period for TeraGo as we made encouraging operational progress in our connectivity business and repositioned our company to better capitalize on the growing 5G industry tailwinds," said TeraGo CEO Matthew Gerber. "The divestiture of the cloud and colocation lines of business coupled with an hitting an inflection point with our connectivity revenues is a great strategic step for our team. We can now focus exclusively on making progress towards launching our mmWave based 5G private networks, and we are confident we'll be able to capitalize on our near- and long-term milestones in our efforts to become Canada's leading provider of millimeter wave 5G private networks."

RESULTS OF OPERATIONS

Comparison of the three months and year ended December 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 December 31			Year ended December 31
		2021	2020		2021	2020
Financial
Cloud and Colocation Revenue	$	4,160	4,177 *		16,956	16,666 *
Connectivity Revenue	$	6,535	6,727 *		26,347	28,782 *
Total Revenue	$	10,695	10,904		43,303	45,448
Cost of Services^1	$	3,103	2,723		11,141	9,816
Selling, General, & Administrative Costs	$	5,805	6,629		22,800	24,194
Gross profit margin^1		71.0%	75.0%		74.3%	78.4%
Adjusted EBITDA^1, ^2	$	2,330	3,695		12,048	15,920
Net loss	$	(8,955)	(2,221)		(15,172)	(8,259)
Basic loss per share	$	(0.46)	(0.13)		(0.81)	(0.49)
Diluted loss per share	$	(0.46)	(0.13)		(0.81)	(0.49)
Operating
Backlog MRR^1
Connectivity	$	110,481	129,676		110,481	129,676
Cloud & Colocation	$	32,882	56,437		32,882	56,437
Churn Rate^1
Connectivity		0.7%	1.4%		1.1%	1.5%
Cloud & Colocation		1.5%	1.0%		1.3%	1.0%
ARPU^1
Connectivity	$	1,043	1,057 *		1,035	1,061 *
Cloud & Colocation	$	3,634	3,416 *		3,650	3,237 *

*The three months and year ended 2021 comparative numbers for Cloud and Colocation Revenue, Connectivity Revenue, and ARPU have changed to conform with the presentation of revenue stream allocations effective Q2 2021.

(1) See "Non-IFRS Measures" below.

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

Conference Call

Management will host a conference call on Thursday, March 24, 2022, 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 6448389 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 and full year ended December 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 Thursday, March 31, 2022. To listen to the recording, call 800-585-8367 or 416-621-4642 and enter passcode 6448389 if applicable.

_____________________________

3 See "Definitions – Key Performance Indicators, IFRS, Additional GAAP and Non-GAAP Measures"

4 See "Adjusted EBITDA" for a reconciliation of net loss to Adjusted EBITDA

⁽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 twelve months ended December 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 EBITDA¹ for the three months and full year ended December 31, 2021 and 2020.

		(in thousands of dollars)			Three months ended December 31					Year ended December 31
					2021	2020				2021	2020
	Net loss for the period		$		(8,955)	(2,221)		$		(15,172)	(8,259)
	Foreign exchange loss (gain)				(8)	2				(29)	210
	Finance costs				915	1,115				3,896	4,777
	Finance income				(7)	(9)				(44)	(99)
	Impairment loss on assets on held for sale				4,527	-				4,527	-
	Impairment on intangible assets				1,630	-				1,630	-
	Loss from operations				(1,898)	(1,113)				(5,192)	(3,371)
	Add:
	Depreciation of network assets, property and equipment and amortization of intangible assets				3,685	3,643				14,554	14,809
	Loss on disposal of network assets				116	77				285	198
	Impairment of Assets and Related Charges				188	654				496	1,139
	Stock-based compensation expense (recovery)				(470)	276				164	1,515
	Restructuring, acquisition-related, integration costs and other				710	158				1,742	1,630
	Adjusted EBITDA^1		$		2,330	3,695		$		12,048	15,920

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 provides wireless connectivity and private 5G wireless networking services to businesses operating across Canada. The Company holds 2120 MHz of exclusive spectrum licenses in the 24 GHz and 38 GHz spectrum bands, which  it utilizes to provide secure and reliable enterprise grade networking and connectivity services. TeraGo serves over 1,800 Canadian and Global businesses operating in major markets across Canada, including Toronto, Montreal, Calgary, Edmonton, Vancouver, Ottawa and Winnipeg, and has been providing wireless services since 1999. For more information about TeraGo, please visit www.terago.ca.

Forward-Looking Statements
This news release includes certain forward-looking statements. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond TeraGo's control. The completion of the proposed transaction with Hut 8 is subject to certain terms and conditions which TeraGo believes to be customary.  Such terms and conditions may not be satisfied or obtained in accordance with their terms, in which case the proposed transaction could be modified or terminated, as applicable. Other forward-looking statements may include but are not limited to statements regarding the timing for closing of the proposed transaction, as well as statements regarding the 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, 2021 and the MD&A of the Company for the three and full year ended December 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 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.

TeraGo Investor Relations, Matt Glover and John Yi, Gateway Group, Inc., Telephone: [phone], Email: [email protected]