TERAGO Reports Fourth Quarter and Full Year 2022 Financial Results

TORONTO , March 15, 2023 /CNW/ - TERAGO Inc. ("TERAGO" or the "Company") (TSX: TGO) (https://terago.ca/), today reported financial and operating results for the fourth quarter and fiscal year ended December 31, 2022.

Key Developments and Financial Highlights

• Annual connectivity revenues were $25.9 million in 2022. When normalizing for divestiture transferred customers, annual connectivity revenue increased by approximately $1.4 million or 5% over 2021, halting a nine-year period of declining fixed wireless access revenues.
• In the fourth quarter of 2022, the Company had to take some revenue adjustments for customers that were transitioned to Hut 8, which then subsequently got transitioned back to TERAGO. On a pro forma basis, connectivity revenues for the quarter ended December 31, 2022, were $6.6 million which is an increase both year over year and quarter over quarter.
• The Company experienced the highest connectivity bookings and lowest churn since 2012 and exited the year with the strongest backlog, as a result of the Company's direct and channel sales organizations delivering robust results.
• For the year ended December 31, 2022, churn was at 0.8% compared to 1.1% in the prior year as the Company continues to execute on its strategy of providing superior service and support versus its competitors.
• Net loss for the three months ended December 31, 2022, was $2.4 million compared to a loss of $9.0 million in the same period in 2021.The higher net loss in the prior year was driven by a $4.5 million impairment loss on cloud and colocation assets and liabilities that were classified as held for sale as at December 31, 2021, and a $1.6 million impairment loss on intangible assets. Net loss was $11.6 million for the year ended December 31, 2022, compared to a net loss of $15.2 million for the same period in 2021. Furthermore, the 2021 net loss was bolstered by $0.8 million in government grants under the CEWS and CERS programs as a result of the COVID-19 pandemic. Such programs were not available to the Company in 2022.

Management Commentary

"When normalizing for the impact of the divesture this past year, the pro forma results we achieved in the fourth quarter and full year 2022 are very encouraging," said TERAGO CEO Matthew Gerber. "This past fiscal year marks a turning point in a nine-year period during which we experienced an average decline in connectivity revenues of 7% annually. In 2022 we halted this decline and delivered connectivity revenue growth of 5% from 2021 to 2022. Thanks to the performance of our team, we experienced the best connectivity bookings and churn since 2012, and exited the year with the strongest connectivity backlog ever as a result of our direct and channel sales organizations delivering robust results. Our team's ability to execute has set us up well for continued success in 2023."

Fourth Quarter 2022 Connectivity Financial Highlights

• Connectivity revenues for the quarter ended December 31, 2022, were $6.3 million, compared to $6.5 million in the same quarter in the prior year. On a pro forma basis, when accounting for revenue adjustments related to the divestiture, Connectivity revenues for the quarter ended December 31, 2022 were $6.6 million which is an increase both year over year and quarter over quarter.
• Connectivity backlog MRR was $178,948 as at December 31, 2022, compared to $110,481 as at December 31, 2021. The increase in backlog was a result of a strong sales performance in signing up new customers, particularly through the Company's channel partners.
• Connectivity ARPU was $1,063 as of December 31, 2022, compared to $1,043 for the same period in December 31, 2021. The increase in ARPU was a result of the Company's ongoing focus to attract mid-market and large scale, predominantly multi-location customers.
• Connectivity churn was 0.9% as of December 31, 2022, compared to 0.7% for the same period in 2021.

Full Year 2022 Connectivity Financial Highlights

• Connectivity revenue for the full year 2022 decreased 1.5% to $25.9 million compared to $26.3 million in 2021. The decrease was a result of the divested customers, otherwise, as stated above revenue would have increased, year over year by 5%.
• Connectivity ARPU for the full year 2022 was $1,085 compared to $1,035 in 2021. The increase in ARPU was a result of the Company's ongoing focus to attract mid-market and large scale, predominantly multi-location customers.
• Connectivity churn was 0.8% for the full year 2022 compared to 1.1% in 2021. The decrease in churn was driven by the Company's ability to execute on its strategy of providing superior service and support versus its competitors.

Full Year 2022 Financial Highlights

• Total revenue for the full year 2022 decreased to $27.6 million compared to $43.3 million in 2021. The decrease in total revenue was the result of the divestiture.
• Net loss for the full year 2022 totaled $11.6 million compared to net loss of $15.2 million in 2021. The lower net loss was the result of lower overall costs following the divestiture.
• Adjusted EBITDA ⁽¹⁾⁽²⁾ for the full year 2022 was $4.1 million compared to $12.0 million in 2021. The lower adjusted EBITDA was driven by the impact of the divestiture.

RESULTS OF OPERATIONS

Comparison of the three months and year ended December 31, 2022, and 2021
(In thousands of dollars, except with respect to gross profit margin, earnings per share, Backlog MRR, and ARPU)

(unaudited)		Three months ended. December 31					Year ended. December 31
		2022		2021			2022		2021
Financial
Cloud and Colocation Revenue	$	-		4,160			1,355		16,956
Connectivity Revenue	$	6,285		6,535			25,860		26,347
Other Revenue	$	50		-			407		-
Total Revenue	$	6,335		10,695			27,622		43,303
Cost of Services^1	$	1,578		3,103			7,437		11,141
Selling, General, & Administrative Costs	$	3,980		5,805			19,188		22,800
Gross profit margin^1	$	75.1 %		71.0 %			73.1 %		74.3 %
Adjusted EBITDA^1,^2	$	1,164		2,330			4,077		12,048
Net loss	$	(2,406)		(8,955)			(11,571)		(15,172)
Basic loss per share	$	(0.12)		(0.46)			(0.61)		(0.81)
Diluted loss per share	$	(0.12)		(0.46)			(0.61)		(0.81)
Operating
Backlog MRR^1
Connectivity	$	178,948		110,481			178,948		110,481
Churn^1
Connectivity		0.9 %		0.7 %			0.8 %		1.1 %
ARPU^1
Connectivity	$	1,063		1,043			1,085		1,035

^{(1) See "Definitions – Key Performance Indicators, IFRS, Additional GAAP and Non-GAAP Measures"}

^{(2) See "Adjusted EBITDA" for a reconciliation of net loss to Adjusted EBITDA.}

______________________________

¹  See "Definitions – Key Performance Indicators, IFRS, Additional GAAP and Non-GAAP Measures"
²  See "Adjusted EBITDA" for a reconciliation of net loss to Adjusted EBITDA

Conference Call

Management will host a conference call on Thursday, March 16, 2023, at 10:00 AM ET to discuss these results.

To access the conference call, please dial 888-886-7786 or 416-764-8658, and use conference ID 38929673 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.

An archived recording of the conference call will be available through Sunday, April 16, 2023. To listen to the recording, call 877-674-7070 or 416-764-8692 and enter passcode 929673 if applicable.

⁽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 30, 2022. 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 year ended December 31, 2022, and 2021.

(in thousands of dollars)					Three months ended. December 31					Year ended. December 31
					2022	2021				2022	2021
	Net loss for the period		$		(2,406)	(8,955)		$		(11,575)	(15,172)
	Foreign exchange loss (gain)				45	(8)				83	(29)
	Finance costs				491	915				2,115	3,896
	Finance income				(38)	(7)				(123)	(44)
	Loss on divestiture of assets				-	4,527				-	4,527
	Impairment loss on brand				-	1,630				-	1,630
	Impairment loss on divested assets				-	-				107	-
	Impairment on network assets, property, equipment, and intangibles assets*				156	-				327	510
	Loss from operations				(1,752)	(1,898)				(9,088)	(4,682)
	Add:
	Depreciation of network assets, property and equipment and amortization of intangible assets*				2,529	3,685				10,085	14,554
	Loss on disposal of network assets				-	116				171	285
	Impairment of Assets and Related Charges				(9)	188				399	496
	Stock-based compensation expense (recovery)				115	(470)				688	164
	Restructuring, acquisition-related, integration costs and other				281	710				1,798	1,742
	Adjusted EBITDA1		$		1,164	2,330		$		3,748	12,558

*Prior year figures have been adjusted to conform with current year presentation.

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. Forward-looking statements may include but are not limited to 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 quarter ended March 31, 2022, 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]