First Quarter 2014 Financial and Operational Highlights
-- Total revenue for the three months ended
March 31, 2014was $12.9 millioncompared to $12.6 millionfor the same period in 2013, an increase of 2.4%; -- Gross profit margin for the three months ended March 31, 2014was 77.7% compared to 78.0% for the same period in 2013; -- Adjusted EBITDA for the three months ended March 31, 2014was $3.8 millioncompared to $4.3 millionfor 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, 2014was $1.1 millioncompared to net earnings of $1.3 millionfor 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 $0.12and $0.11, respectively, for the same period in 2013; -- Ended the period with $1.0 millionof cash, cash equivalents and short- term investments; -- As at March 31, 2014, $19.0 millionof the Company's $41.8 millioncredit facilities remains undrawn and available for future use; -- Average monthly churn rate for the three months ended March 31, 2014was 1.01% for access customer locations compared to 1.50% for the three months ended December 31, 2013and 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, 2014was $615compared to $624for 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 Lyonsas President and CEO of the company and a member of the Board of Directors effective January 16, 2014and appointed Joe Prodanas 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 Canadathrough the acquisition of newly constructed fibre facilities in downtown Vancouver, British Columbia("BC"). These fibre facilities connect the Company's Vancouverdata 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 millionfrom 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
-- 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 Facilitiestotaling $50.0 million, consisting of a $5.0 millionrevolving operating credit facility, a $20.0 millionnon-revolving term credit facility to refinance the existing credit facility and a $25.0 millionnon-revolving acquisitions and capital expenditure facility (collectively, the "Credit Facilities"). The Credit Facilities would replace TeraGo'sexisting 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 Canadathrough 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 Vancouverto 14,000 square feet. -- For the third consecutive year, the Company has earned a place in the top 100 among Canada'stop 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 $ 12,570Cost of Services $ 2,874 $ 2,770Gross profit margin 77.7% 78.0% EBITDA(i) $ 3,291 $ 4,333Adjusted EBITDA(i) $ 3,802 $ 4,333Earnings (loss) from operations $ (760) $ 1,539Net earnings (loss) $ (1,093) $ 1,340Basic earnings (loss) per share $ (0.10) $ 0.12Diluted earnings (loss) per share $ (0.10) $ 0.11Operating Churn rate(i) 1.01% 1.21% Customer locations in service 6,475 6,563 ARPU(i) $ 615 $ 624Number 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
Three months ended March 31 2014 2013 (unaudited) (unaudited) Net earnings (loss) for the period
$ (1,093) $ 1,340Foreign 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 $ 3,2914,333 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
Total revenue increased 2.4% to
Service revenue increased by 3.4% to
Installation revenue was
Total customer locations in service decreased to 6,475 as at
The average monthly churn rate was 1.01% for the three months ended
ARPU from access customers decreased to
For the three months ended
For the three months ended
EBITDA and Adjusted EBITDA
Adjusted EBITDA for the three months ended
Deferred income taxes
The Company reviewed and updated the assumptions and projections regarding future profitability as at
Net earnings (loss)
For the three months ended
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.
Conference Call and Webcast
Management will host a conference call on
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.
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.
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.
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.
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.
FOR FURTHER INFORMATION PLEASE CONTACT:
TeraGo Inc. Stewart LyonsPresident and CEO 1-877-982-3688 IR@terago.ca TeraGo Inc. Joe ProdanChief Financial Officer 1-877-982-3688 IR@terago.ca LHA Jody Burfening/ Carolyn Capaccio212-838-3777 email@example.com Source: TeraGo Inc.