q1 2020 earnings conference call … · $2.2 16.7% 14.7% 10.4% 13.6% 19.0% q1'19 q2'19...
TRANSCRIPT
Q1 2020 Earnings Conference Call
May 6, 2020
2
Forward Looking Information
This presentation includes certain forward-lookingstatements that are made as of the date hereof and arebased upon current expectations, which involve risks anduncertainties associated with our business and the economicenvironment in which the business operates. All suchstatements are made pursuant to the “safe harbour”provisions of, and are intended to be forward-lookingstatements under applicable Canadian securities laws. Thispresentation includes, but is not limited to, forward lookingstatements relating to TeraGo’s growth strategy, enhancingsales effectiveness, building sales pipeline, broadening salesreach through channel partnerships, higher growthopportunities in 5G, investments redirected to potential 5Gservices, the Company’s 5G technical and customer trials inadvance of launching a fixed wireless 5G business, andoptions available to leverage spectrum to create greatervalue for shareholders. By their nature, forward-lookingstatements require us to make assumptions and are subjectto inherent risks and uncertainties. When relying onforward-looking statements, whether written or oral, tomake decisions with respect to the Company, investors andothers should carefully consider the risks, uncertainties andassumptions, including the risk that TeraGo’s growth strategyand strategic plan will not generate the result intended bymanagement, cross-selling of TeraGo’s cloud services maynot succeed, future ISED decisions in upcomingConsultations being unfavourable to the Company, the
technical 5G trial the Company is currently conducting maynot generate the results intended, the lack of availability ofsuitable 5G radio equipment, the inability of the Company tosuccessfully launch a 5G fixed wireless business, new marketopportunities for 5G may not exist or require additionalcapital that may not be available to the Company, TeraGo’sPandemic Response Plan may not mitigate all impacts ofCOVID-19, current COVID-19 pandemic becoming prolongedand having a material adverse impact on the Company andits operations and 5G trials, and those risks set forth in the“Risk Factors” sections in each of the annual MD&A of theCompany for the year ended December 31, 2019 and theMD&A for the three months ended March 31, 2020, bothavailable on www.sedar.com. All the forward-lookingstatements in this presentation are expressly qualified bythese cautionary statements and there can be no assurancethat the actual results or developments anticipated by theCompany will be realized or, even if substantially realized,that they will have the expected consequences for theCompany.
Except as may be required by applicable Canadian securitieslaws the Company does not intend, and disclaims anyobligation to update or revise any forward-lookingstatements, whether oral or written as a result of newinformation, future events or otherwise.
Adjusted EBITDA
The term “EBITDA” refers to earnings before deducting interest, taxes, depreciation and amortization. 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 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. 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.
Adjusted EBITDA does not have any standardized meaning under 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. Please refer to the Company’s MD&A for the three and nine months ended September 30, 2019 for a reconciliation of net loss to Adjusted EBITDA. Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by Revenue in the applicable period.
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.
3
Non-GAAP Measures
4
TONY CICIRETTOPRESIDENT & CHIEF EXECUTIVE OFFICER
Key Operating Metrics
$37,094
$17,049$37,237
$18,615 $18,225
$71,624
$57,081$47,672
$92,096 $89,296
Q1'19 Q2'19 Q3'19 Q4'19 Q1'20
Cloud &Colocation
Connectivity
1.1%
1.7%
1.3%
0.9%1.0%
1.5%
1.6%
1.3%
1.4% 1.5%
Q1'19 Q2'19 Q3'19 Q4'19 Q1'20
Cloud &Colocation
Connectivity
Backlog Monthly Recurring Revenue ($) Churn Rate (%)
$3,221 $3,185 $3,248$3,393
$3,240
$1,033 $1,023 $1,014 $1,019 $1,033
Q1'19 Q2'19 Q3'19 Q4'19 Q1'20
Cloud &Colocation
Connectivity
Average Revenue Per User ($)
Programs underway to improve enhance sales effectiveness, build our sales pipeline and broaden our sales reach through channel partnerships
In 2020, cloud and colocation ARPU was negatively impacted by an increase in customer count as TeraGo contracted directly with 28 customers that were previously contracted through one wholesale partner. Normalizing for this increase in customer count, cloud and colocation ARPU for the three months ended March 31, 2020 would have been $3,450, an increase of 7.1% compared to the prior year period
*
*
6
DAVID CHARRONCHIEF FINANCIAL OFFICER
2014
7
Quarterly Revenue
$4.5 $4.6 $4.3 $4.7 $4.3
$7.9 $7.6$7.5
$7.3$7.3
$12.4 $12.2$11.8 $12.0
$11.6
Q3 2
019
Q4 2
019
Connectivity
Cloud and Colocation
All
$ f
igure
s in
CA
D m
illio
ns
Q2 2
019
Q1 2
019
Q1 2
020
8
Quarterly Adjusted EBITDA
All
$ f
igure
s in
CA
D m
illio
ns
*Adjusted EBITDA excludes impact of IFRS 16 in Q1’19
2014
Adjusted EBITDA
$4.6$4.5
$4.4
$4.0
$3.6
Q1 2
019
Q2 2
019
Q3 2
019
Q1 2
020
Q4 2
019
$2.1$1.8
$1.2$1.6
$2.2
16.7%14.7%
10.4%
13.6%
19.0%
Q1'19 Q2'19 Q3'19 Q4'19 Q1'20
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
Q1'19 Q2'19 Q3'19 Q4'19 Q1'20
9
Capital Expenditures & Liquidity
Balance Sheet at Mar. 31, 2020
Cash and cash equivalents $7.5
Unused operating line of credit $9.4
Available acquisition facility $24.2
Total cash and access to credit $41.1
Long-term debt $29.0
Operating Leverage 3.05x
Cash from Operations ($ millions)
$4.1
$3.1
$4.4 $4.0
$2.6
Q1'19 Q2'19 Q3'19 Q4'19 Q1'20
Capital Expenditures ($ millions)
10
TONY CICIRETTOPRESIDENT & CHIEF EXECUTIVE OFFICER
11
Multi-Pronged Strategy – Update & Outlook
Profitablebusiness and positive FCF generation
Building a premier channel and alliance program
Positioned for 5G Fixed Wireless
1. 2. 3.
400 400 400 400
160
400
160
400
200
200 600 600
100
200 200
400
600 600
Toronto
2,659
Montreal
1,682
Vancouver
1,074
Ottawa
577
Calgary
500
Barrie
404
Okanagan
249
Edmonton
234
Niagara
221
Victoria
216
Winnipeg
207
London
166
Windsor
156
Red Deer
144
Kingston
106
Largest Holder of mmWave Spectrum in Canada
~8.6 B MHz-Pops
15Metropolitan
Markets
>2/3Canada’s Population
Coverage includes 2,210 MHz of Canada’s 6 largest cities
Spectrum Coverage Map –24 GHz (14 of 20 licenses issued)
Spectrum Coverage Map –38 GHz (25 of 27 licenses issued)
24 GHz
38 GHz
MHz-PoPs(mm)
WindsorNiagara
London Kingston
BarrieCalgary
Winnipeg
Victoria
Red Deer
TorontoMontreal
OttawaBarrie
Vancouver
Edmonton
Calgary
Victoria Okanagan
Licenses from 100-199 MHz Licenses from 200-299 MHz Licenses over 300 MHz
12
13
Summary
Enterprise-Class Cloud, Colocation, and Connectivity
One of Canada’s Largest Holders of MillimetreWave Spectrum
A Clear Growth Opportunity in 5G Fixed Wireless Access
Financial Strength to Fund Our Growth Strategy
Experienced Management Team Committed to Value Creation
14