Welcome!

News Feed Item

TeraGo Reports First Quarter 2014 Results; Solid First Step in Transition Year

- Immediate Improvements in Churn and Customer Additions

TORONTO, ONTARIO -- (Marketwired) -- 05/07/14 -- TeraGo Inc. (TSX: TGO) (www.terago.ca) today announced financial and operating results for the quarter ended March 31, 2014.

Stewart Lyons, President and CEO, TeraGo Inc., commented, "TeraGo made a solid start to what is planned to be a transitional and transformational year. We further expanded our data center capability and now operate three facilities, including a new Data Center in downtown Vancouver where we are now up to 14,000 square feet of space. In our access business, we moved decisively to implement enhanced customer retention programs that generated a marked improvement in churn and customer additions, with some expected decrease in ARPU."

Mr. Lyons concluded, "TeraGo's objective remains to transform our leadership in broadband services into a multi-product IT services company, controlling more of the value chain to serve the growing business need for data center and cloud services, and enhance the loyalty of our unique base of small and medium businesses across Canada. With the progress made in Q1, we are well-positioned for Q2 and are moving onto our next steps in in rolling out our strategy. In short, we are focused on achieving growth in data centers; establishing a presence in cloud services, and creating stability in access services to drive improved returns on assets for our shareholders."

First Quarter 2014 Financial and Operational Highlights

--  Total revenue for the three months ended March 31, 2014 was $12.9
    million compared to $12.6 million for the same period in 2013, an
    increase of 2.4%;
--  Gross profit margin for the three months ended March 31, 2014 was 77.7%
    compared to 78.0% for the same period in 2013;
--  Adjusted EBITDA for the three months ended March 31, 2014 was $3.8
    million compared to $4.3 million for the same period in 2013, a decrease
    of 12%. The adjusted EBITDA decrease was due to a decrease in access
    revenue and selective investments in sales and marketing;
--  Net loss for the three months ended March 31, 2014 was $1.1 million
    compared to net earnings of $1.3 million for the same period in 2013, a
    decrease of 182%;
--  For the three months ended March 31, 2014, basic and diluted loss per
    share were $(0.10) compared to basic and diluted earnings per share of
    $0.12 and $0.11, respectively, for the same period in 2013;
--  Ended the period with $1.0 million of cash, cash equivalents and short-
    term investments;
--  As at March 31, 2014, $19.0 million of the Company's $41.8 million
    credit facilities remains undrawn and available for future use;
--  Average monthly churn rate for the three months ended March 31, 2014 was
    1.01% for access customer locations compared to 1.50% for the three
    months ended December 31, 2013 and 1.21% for the same period in 2013
    which is a result of the enhanced retention programs now in place;
--  Net access customer locations increased by 22 in the first quarter 2014
    ending the period with 6,475 net access customer locations in service
    compared to 80 net access customers locations lost in the fourth quarter
    of 2013 and 12 net access customer locations lost in the same period in
    2013. This increase results from management's continued focus on
    retention initiatives and offerings, customer service, the needs of
    small and medium-sized businesses ("SMB") and renewed sales activity
    with competitive product offerings;
--  Average revenue per access customer location ("ARPU") for the three
    months ended March 31, 2014 was $615 compared to $624 for the same
    period in 2013. This is primarily the result of the retention program
    launched by the Company for customers coming to the end of contract term
    by offering them lower pricing in exchange for long-term contract
    renewals as well as the impact of competitive pricing on both customer
    renewals and new sales.

First Quarter 2014 Key Developments

--  The Company announced that its Board of Directors has appointed Stewart
    Lyons as President and CEO of the company and a member of the Board of
    Directors effective January 16, 2014 and appointed Joe Prodan as Chief
    Financial Officer of the company effective February 4, 2014.
--  The Company has received notice that a new wireless entrant customer
    will be disconnecting their services during 2014.
--  The Company announced that it has established a fibre-optic core network
    in Western Canada through the acquisition of newly constructed fibre
    facilities in downtown Vancouver, British Columbia ("BC"). These fibre
    facilities connect the Company's Vancouver data center facility, as well
    as twelve high customer density buildings in downtown Vancouver. This
    will ensure secure broadband connectivity between customer locations and
    the data center. In January 2014, the Company drew down $0.6 million
    from its term debt facility with the Royal Bank of Canada ("RBC") to
    finance this. This facility bears interest at the rate of 4.17%.

Events subsequent to March 31, 2014

--  To strengthen the Company's balance sheet and provide flexibility to
    pursue additional opportunities, the Company signed a commitment letter
    with National Bank of Canada and RBC for Credit Facilities totaling
    $50.0 million, consisting of a $5.0 million revolving operating credit
    facility, a $20.0 million non-revolving term credit facility to
    refinance the existing credit facility and a $25.0 million non-revolving
    acquisitions and capital expenditure facility (collectively, the "Credit
    Facilities"). The Credit Facilities would replace TeraGo's existing
    facility and are expected to close prior to May 31, 2014.
--  In April 2014, the Company announced that it has continued to expand its
    data center business in Western Canada through the acquisition of an
    additional 7,000 square foot data center facility in downtown Vancouver,
    BC, bringing the total amount of its data center capacity in downtown
    Vancouver to 14,000 square feet.
--  For the third consecutive year, the Company has earned a place in the
    top 100 among Canada's top technology companies on the Branham 300 list.

Key Financial & Operational Highlights

(All financial results are in thousands of dollars, except gross profit margin, earnings per share and operating metrics)

                                                   Three months ended March
                                                              31
                                                          2014         2013
                                                   (unaudited)  (unaudited)
Financial
Revenue                                             $   12,874   $   12,570
Cost of Services                                    $    2,874   $    2,770
Gross profit margin                                       77.7%        78.0%
EBITDA(i)                                           $    3,291   $    4,333
Adjusted EBITDA(i)                                  $    3,802   $    4,333
Earnings (loss) from operations                     $     (760)  $    1,539
Net earnings (loss)                                 $   (1,093)  $    1,340
Basic earnings (loss) per share                     $    (0.10)  $     0.12
Diluted earnings (loss) per share                   $    (0.10)  $     0.11

Operating
Churn rate(i)                                             1.01%        1.21%
Customer locations in service                            6,475        6,563
ARPU(i)                                             $      615   $      624
Number of employees                                        190          187

(i)See Key Performance Indicators, Additional GAAP and Non-GAAP Measures
 below

The table below reconciles net earnings to EBITDA and Adjusted EBITDA for the three months ended March 31, 2014 and 2013.

                                               Three months ended March 31
                                                        2014           2013
                                                 (unaudited)    (unaudited)
Net earnings (loss) for the period              $     (1,093)  $      1,340
Foreign exchange (gain)                                   33             19
Finance costs                                            319            188
Finance income                                           (19)            (8)
Earnings (loss) from operations                         (760)         1,539
Add:
  Depreciation of networks assets, property
   and equipment and amortization of
   intangible assets                                   3,288          2,846
  Loss (gain) on disposal of network assets               12            (39)
  Stock-based compensation expense (recovery)            751            (13)
EBITDA                                          $      3,291          4,333
Restructuring, acquisition-related and
 integration costs                                       511              -
Adjusted EBITDA                                 $      3,802   $      4,333

First Quarter 2014 Results of Operations

The Company's cash flow and earnings are typically impacted in the first quarter of the year due to several annual agreements requiring payments in the first quarter including annual spectrum payments, annual rate increases in long-term contracts and the restart on January 1st of payroll taxes and other levies related to employee compensation.

Revenue

Total revenue increased 2.4% to $12.9 million for the three months ended March 31, 2014 compared to $12.6 million for the same period in 2013.

Service revenue increased by 3.4% to $12.7 million for the three months ended March 31, 2014 compared to $12.3 million for the same period in 2013. The increase in service revenue was driven primarily by revenue from the data center partially offset by a reduction in access revenue. Revenue from the data center was $0.8 million for the three months ended March 31, 2014.

Installation revenue was $0.2 million for the three months ended March 31, 2014 compared to $0.3 million for the same period in 2013.

Customer locations

Total customer locations in service decreased to 6,475 as at March 31, 2014 compared to 6,563 as at March 31, 2013. Net access customer locations increased by 22 in the first quarter 2014 ending the period with 6,475 net access customer locations in service compared to 80 net access customers locations lost in the fourth quarter of 2013 and 12 net access customer locations lost in the same period in 2013. This increase results from management's continued focus on retention initiatives and offerings, customer service, the needs of small and medium-sized businesses ("SMB") and renewed sales activity with competitive product offerings.

Churn rate

The average monthly churn rate was 1.01% for the three months ended March 31, 2014 compared to 1.21% for the same period in 2013 primarily as a result of the enhanced retention focus now in place. Management continues to focus on retention initiatives and offerings, customer service, the needs of small and medium-sized businesses ("SMB") and renewed sales activity with competitive product offerings in addition to monitoring customer creditworthiness and churn levels.

ARPU

ARPU from access customers decreased to $615 for the three months ended March 31, 2014 compared to $624 for the same period in 2013. The decrease in ARPU was driven primarily by lower usage revenue in the quarter as the company offers incentives in the form of free or discounted usage packages to increase our customer renewal rate, the result of the retention program launched by the Company for customers coming to the end of contract term by offering them lower pricing in exchange for long-term contract renewals as well as the impact of competitive pricing on new sales. The Company believes the current retention campaign will help long-term revenue growth by offering more complimentary services such as data center and IT services to its existing base.

Gross margin

For the three months ended March 31, 2014, gross profit margin was 77.7% compared to 78.0% for the same period in 2013. This decrease is primarily due to an increase in property access costs.

SG&A

For the three months ended March 31, 2014, SG&A expenses increased to $6.8 million compared to $5.4 million for the same period in 2013. The increase was primarily due to higher stock-based compensation of $0.6 million relating to a tax indemnity claim by a former officer, restructuring costs due to a re-aligning of Company strategy and acquisition costs, selective investments in sales and marketing and higher utility and facilities expenses from the operations of the data centre. As of March 31, 2014, the number of direct sales personnel was 32 compared to 28 as of March 31, 2013.

EBITDA and Adjusted EBITDA

Adjusted EBITDA for the three months ended March 31, 2014 was $3.8 million compared to $4.3 million for the same period in 2013, a decrease of 12%. EBITDA for the three months ended March 31, 2014 was $3.3 million compared to $4.3 million for the same period in 2013, a decrease of 24%. The adjusted EBITDA decrease was due to a decrease in access revenue and selective investments in sales and marketing as discussed above. The decrease in EBITDA also included restructuring costs due to a re-aligning of Company strategy and acquisition related costs related to searching for new opportunities. This is in line with management's expectation as the Company continued to focus on transforming into a multi-product IT services company. Consistent with prior years, EBITDA and Adjusted EBITDA for the quarter ended March 31, 2014 is impacted due to the seasonal nature of certain expenses.

Deferred income taxes

The Company reviewed and updated the assumptions and projections regarding future profitability as at March 31, 2014. Based on management's analysis, no additional deferred income tax assets resulting from temporary tax differences were recognized in the three months ended March 31, 2014.

Net earnings (loss)

For the three months ended March 31, 2014, net loss was $1.1 million compared to net earnings of $1.3 million for the same period in 2013. The changes are due to the items noted above.

Capital resources

As at March 31, 2014, the Company had cash and cash equivalents and short-term investments of $1.0 million and access to the $19.0 million undrawn portion of its $41.8 million credit facilities.

The Company anticipates incurring additional capital expenditures for the purchase and installation of network assets and customer premise equipment. As economic conditions warrant, the Company may expand its network coverage into new Canadian markets using wireless or fibre optics and making additional investments in data centers and other IT services through acquisitions or expansion.

Management believes the Company's current cash, short-term investments, anticipated cash from operations, access to the undrawn portion of debt facilities and its access to additional financing in the form of debt or equity will be sufficient to meet its working capital and capital expenditure requirements for the foreseeable future.

Share Capital

As of March 31, 2014, there were 11,552,398 Common Shares and two Class B Shares outstanding.

Conference Call and Webcast

Management will host a conference call on Thursday, May 8, 2014, at 9:00 am EDT to discuss these results. To access the conference call, please dial 416-340-8527 or 1-800-766-6630. The call will also be available via webcast at www.terago.ca or http://www.investorcalendar.com/IC/CEPage.asp?ID=172646. An archived recording of the conference call will be available until May 8, 2015 at midnight EDT. To listen to this recording, call 905-694-9451 or 1-800-408-3053 and enter passcode 8479162.

TeraGo's unaudited financial statements for the three months ended March 31, 2014, and the notes thereto, and its Management Discussion and Analysis for the same period, have been filed on SEDAR at www.sedar.com.

Key Performance Indicators, Additional GAAP and Non-GAAP Measures

EBITDA and Adjusted EBITDA

The term "EBITDA" refers to earnings before deducting interest, taxes, depreciation and amortization. The Company believes that EBITDA and Adjusted EBITDA are 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. The Company believes that Adjusted EBITDA is useful additional information to management, the Board and investors as 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 imply they are non-recurring. The Company calculates 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 and stock-based compensation. In addition, the Company excludes restructuring, acquisition-related and integration costs in its calculation of Adjusted EBITDA. Investors are cautioned that EBITDA and Adjusted EBITDA should not be construed as an alternative to operating earnings or net earnings determined in accordance with IFRS as an indicator of our financial performance or as a measure of our liquidity and cash flows. EBITDA and Adjusted EBITDA do 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.

TeraGo's method of calculating EBITDA and Adjusted EBITDA may differ from other issuers and, accordingly, EBITDA and Adjusted EBITDA may not be comparable to similar measures presented by other issuers. See "Results of Operations - EBITDA" for reconciliation of net earnings (loss) to EBITDA and Adjusted EBITDA.

ARPU

The term "ARPU" refers to the Company's average revenue per customer location. The Company believes that ARPU is useful supplemental information as it provides an indication of our revenue from an individual customer location 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 service revenue by the average number of customer locations in service during the period and we express ARPU as a rate per month. TeraGo's method of calculating ARPU 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 locations terminated in a particular month. Churn represents the number of customer locations disconnected per month as a percentage of total number of customer locations in service during the month. The Company calculates churn by dividing the number of customer locations disconnected during a period by the total number of customer locations in service during the period. 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.

Earnings (loss) from operations

Earnings (loss) from operations exclude foreign exchange gain (loss), income taxes, finance costs and finance income. We include earnings (loss) from operations as an additional GAAP measure in our consolidated statement of earnings. We consider earnings (loss) from operations to be representative of the activities that would normally be regarded as operating for the Company. We believe this measure provides relevant information that can be used to assess the consolidated performance of the Company and therefore, provides meaningful information to investors.

Forward-Looking Statements

This press release includes certain forward-looking statements that are made as of the date hereof and based upon current expectations, which involve risks and uncertainties associated with our business and the economic environment in which the business operates. All such statements are made pursuant to the 'safe harbour' provisions of, and are intended to be forward-looking statements under, applicable Canadian securities laws. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. For example, the words anticipate, believe, plan, estimate, expect, intend, should, may, could, objective and similar expressions are intended to identify forward-looking statements. By their nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties. We caution readers of this document not to place undue reliance on our forward-looking statements as a number of 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. When relying on forward-looking statements to make decisions with respect to the Company, you should carefully consider the risks set forth herein and other uncertainties and potential events. Except as may be required by applicable Canadian securities laws, we do not intend, and disclaim 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.

About TeraGo Networks

TeraGo Networks Inc. provides businesses across Canada with carrier-grade broadband, data and voice communications services. Colocation and disaster recovery solutions are also provided by Data Centers Canada, a division of TeraGo Networks. The national service provider owns and manages its IP network servicing over 6,400 customer locations in 46 major markets across Canada including Toronto, Montreal, Calgary, Edmonton, Vancouver and Winnipeg. TeraGo Networks is a Competitive Local Exchange Carrier (CLEC) and is a wholly owned subsidiary of TeraGo Inc. (TSX: TGO). More information about TeraGo is available at www.terago.ca.

Contacts:
TeraGo Inc.
Stewart Lyons
President and CEO
1-877-982-3688
[email protected]

TeraGo Inc.
Joe Prodan
Chief Financial Officer
1-877-982-3688
[email protected]

LHA
Jody Burfening/Carolyn Capaccio
212-838-3777
[email protected]

More Stories By Marketwired .

Copyright © 2009 Marketwired. All rights reserved. All the news releases provided by Marketwired are copyrighted. Any forms of copying other than an individual user's personal reference without express written permission is prohibited. Further distribution of these materials is strictly forbidden, including but not limited to, posting, emailing, faxing, archiving in a public database, redistributing via a computer network or in a printed form.

Latest Stories
ChatOps is an emerging topic that has led to the wide availability of integrations between group chat and various other tools/platforms. Currently, HipChat is an extremely powerful collaboration platform due to the various ChatOps integrations that are available. However, DevOps automation can involve orchestration and complex workflows. In his session at @DevOpsSummit at 20th Cloud Expo, Himanshu Chhetri, CTO at Addteq, will cover practical examples and use cases such as self-provisioning infra...
"Storpool does only block-level storage so we do one thing extremely well. The growth in data is what drives the move to software-defined technologies in general and software-defined storage," explained Boyan Ivanov, CEO and co-founder at StorPool, in this SYS-CON.tv interview at 16th Cloud Expo, held June 9-11, 2015, at the Javits Center in New York City.
You know you need the cloud, but you’re hesitant to simply dump everything at Amazon since you know that not all workloads are suitable for cloud. You know that you want the kind of ease of use and scalability that you get with public cloud, but your applications are architected in a way that makes the public cloud a non-starter. You’re looking at private cloud solutions based on hyperconverged infrastructure, but you’re concerned with the limits inherent in those technologies.
Is advanced scheduling in Kubernetes achievable?Yes, however, how do you properly accommodate every real-life scenario that a Kubernetes user might encounter? How do you leverage advanced scheduling techniques to shape and describe each scenario in easy-to-use rules and configurations? In his session at @DevOpsSummit at 21st Cloud Expo, Oleg Chunikhin, CTO at Kublr, answered these questions and demonstrated techniques for implementing advanced scheduling. For example, using spot instances and co...
As Marc Andreessen says software is eating the world. Everything is rapidly moving toward being software-defined – from our phones and cars through our washing machines to the datacenter. However, there are larger challenges when implementing software defined on a larger scale - when building software defined infrastructure. In his session at 16th Cloud Expo, Boyan Ivanov, CEO of StorPool, provided some practical insights on what, how and why when implementing "software-defined" in the datacent...
A strange thing is happening along the way to the Internet of Things, namely far too many devices to work with and manage. It has become clear that we'll need much higher efficiency user experiences that can allow us to more easily and scalably work with the thousands of devices that will soon be in each of our lives. Enter the conversational interface revolution, combining bots we can literally talk with, gesture to, and even direct with our thoughts, with embedded artificial intelligence, whic...
The use of containers by developers -- and now increasingly IT operators -- has grown from infatuation to deep and abiding love. But as with any long-term affair, the honeymoon soon leads to needing to live well together ... and maybe even getting some relationship help along the way. And so it goes with container orchestration and automation solutions, which are rapidly emerging as the means to maintain the bliss between rapid container adoption and broad container use among multiple cloud host...
The cloud era has reached the stage where it is no longer a question of whether a company should migrate, but when. Enterprises have embraced the outsourcing of where their various applications are stored and who manages them, saving significant investment along the way. Plus, the cloud has become a defining competitive edge. Companies that fail to successfully adapt risk failure. The media, of course, continues to extol the virtues of the cloud, including how easy it is to get there. Migrating...
Blockchain is a shared, secure record of exchange that establishes trust, accountability and transparency across business networks. Supported by the Linux Foundation's open source, open-standards based Hyperledger Project, Blockchain has the potential to improve regulatory compliance, reduce cost as well as advance trade. Are you curious about how Blockchain is built for business? In her session at 21st Cloud Expo, René Bostic, Technical VP of the IBM Cloud Unit in North America, discussed the b...
Imagine if you will, a retail floor so densely packed with sensors that they can pick up the movements of insects scurrying across a store aisle. Or a component of a piece of factory equipment so well-instrumented that its digital twin provides resolution down to the micrometer.
The need for greater agility and scalability necessitated the digital transformation in the form of following equation: monolithic to microservices to serverless architecture (FaaS). To keep up with the cut-throat competition, the organisations need to update their technology stack to make software development their differentiating factor. Thus microservices architecture emerged as a potential method to provide development teams with greater flexibility and other advantages, such as the abili...
In his keynote at 18th Cloud Expo, Andrew Keys, Co-Founder of ConsenSys Enterprise, provided an overview of the evolution of the Internet and the Database and the future of their combination – the Blockchain. Andrew Keys is Co-Founder of ConsenSys Enterprise. He comes to ConsenSys Enterprise with capital markets, technology and entrepreneurial experience. Previously, he worked for UBS investment bank in equities analysis. Later, he was responsible for the creation and distribution of life settle...
Blockchain. A day doesn’t seem to go by without seeing articles and discussions about the technology. According to PwC executive Seamus Cushley, approximately $1.4B has been invested in blockchain just last year. In Gartner’s recent hype cycle for emerging technologies, blockchain is approaching the peak. It is considered by Gartner as one of the ‘Key platform-enabling technologies to track.’ While there is a lot of ‘hype vs reality’ discussions going on, there is no arguing that blockchain is b...
Product connectivity goes hand and hand these days with increased use of personal data. New IoT devices are becoming more personalized than ever before. In his session at 22nd Cloud Expo | DXWorld Expo, Nicolas Fierro, CEO of MIMIR Blockchain Solutions, will discuss how in order to protect your data and privacy, IoT applications need to embrace Blockchain technology for a new level of product security never before seen - or needed.
As DevOps methodologies expand their reach across the enterprise, organizations face the daunting challenge of adapting related cloud strategies to ensure optimal alignment, from managing complexity to ensuring proper governance. How can culture, automation, legacy apps and even budget be reexamined to enable this ongoing shift within the modern software factory? In her Day 2 Keynote at @DevOpsSummit at 21st Cloud Expo, Aruna Ravichandran, VP, DevOps Solutions Marketing, CA Technologies, was jo...