TeraGo Q3 2024 Earnings Report

TeraGo EPS Results

• Actual EPS: -C$0.17
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: -C$0.16

TeraGo Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

TeraGo Announcement Details

• Quarter: Q3 2024
• Date: 11/11/2024
• Time: After Market Closes
• Conference Call Date: Tuesday, November 12, 2024
• Conference Call Time: 10:00AM ET

TeraGo (TSE:TGO) provides managed network and security services to businesses across Canada ensuring highly secure, reliable, and redundant connectivity including private 5G wireless networks, Fixed Wireless access, fiber, and cable wireline network connectivity. As Canada's biggest mmWave spectrum holders, the Company possesses spectrum licenses in the 24 GHz and 38 GHz spectrum bands, which it utilizes to provide secure, dedicated SLA guaranteed enterprise grade performance that is technology diverse from buried cables ensuring high availability connectivity services. TERAGO serves 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.

TeraGo Q3 2024 Earnings Call Transcript

Key Takeaways

• TeraGo reported Q3 adjusted EBITDA of $944K, up 2.8%, and improved gross margin by 1.2% while reducing customer churn by 31% and increasing ARPA by 8.1%.
• Operating cash flow rose 56% to $1.1M, leaving $5.7M in cash and equivalents as management pursues refinancing of short-term debt maturing in September 2025 at lower interest rates.
• TeraGo secured a multimillion-dollar deal with a major Canadian retailer for managed fixed wireless Internet and SD-WAN solutions, with revenue contributions expected in the second half of fiscal 2025.
• The sales pipeline continues to expand, and management is focused on re-energizing the sales engine to drive top-line growth amid strong industrial tailwinds and renewed customer demand.

Presentation

[Operator]

Good morning, ladies and gentlemen. Welcome to TeraGo's Third Quarter 2024 Financial Results Conference call. Currently, all participants are on a listen-only mode. Following the presentation, we will conduct a question-and-answer session with pre-qualified analysts on the call, and instructions will be provided at that time for you to queue up for questions. If anyone has any difficulties hearing the conference, please press star followed by zero for operator assistance at any time. I would like to remind everyone that this conference call is being recorded. TeraGo would like to remind listeners that the company's remarks and answers to your questions today may contain forward-looking statements that are based upon management's current expectations. All such statements are made pursuant to the safe harbor provisions that are intended to be forward-looking statements under applicable Canadian securities legislation.

[Operator]

When relying on forward-looking statements to make decisions with respect to the company, you should carefully consider the risk set forth in the risk factor section of the 2023 annual MD&A, which is available on www.sedar.com, and also consider other uncertainties and potential events. Except as to what may be required by Canadian securities laws, the company does not undertake any obligation to update any forward-looking statements as a result of new information. We'd also like to remind listeners that TeraGo's uses certain non-GAAP financial measures to arrive at adjusted results to assess its business and to measure overall performance. TeraGo believes that these financial measures provide readers with a better understanding of how management views the company's overall performance. I will now turn the conference over to TeraGo's Chief Executive Officer, Daniel Vucinic. Sir, the floor is yours.

[Daniel Vucinic, President and CEO at TERAGO]

Thank you. Good morning, everyone, and welcome to our Third Quarter 2024 earnings call. Today, we are pleased to share how we are further accelerating our value creation strategy. Our latest quarter of strong results is a clear affirmation that TeraGo's strategy is delivering. We are now five quarters into the transformation of TeraGo. My first order of business was to address the cash flow profile of the business. Today, we see a better gross margin, a reduction in operating expenditures, superior deal-level economics, and a more efficient approach to capital expenditures. Specifically, a 1.2% increase in gross margin, a 31% reduction in customer churn, a 2.8% rise in Adjusted EBITDA, an 8.1% growth in ARPA, and a 56% increase in cash flow from operations. Now, my focus is on driving the top line of TeraGo by re-energizing the sales engine.

[Daniel Vucinic, President and CEO at TERAGO]

The growing demand for our services, supported by a diverse range of network solutions, sound execution, and strong industrial tailwinds, positions us well for continued success and long-term value creation for our stakeholders. The company's commitment to enhancing client experience has set the stage for future success, positioning TeraGo for profitable business growth. TeraGo's sales pipeline continues to expand. In fact, last week, we announced a major Canadian retailer has selected TeraGo as a strategic partner to enhance their applications and network infrastructure across all locations nationwide. They chose TeraGo's advanced Managed Fixed Wireless Internet and SD-WAN solutions based on its superior product offering, speed to market, premium white-glove service, and cost profile. This multi-million-dollar agreement will transform connectivity across the retailer's nationwide operations, enhancing performance and customer experience. Raj, over to you.

[Raj Sapra, CFO at TeraGo]

Thanks, Dan. Good morning, everyone. Turning to slide four of our Q3 financial results presentation posted on our website for a look at our KPIs for the third quarter of 2024, our average revenue per account, or ARPA, for our connectivity business was CAD 1,221 in Q3 of 2024, an 8.3% increase compared to CAD 1,127 for the same period in 2023. ARPA levels continue to improve as a result of smart profitable growth, coupled with changes in customer base and product mix. Our churn, which has continued to trend downwards, was 0.9% compared to 1.1% for the same period last year. One of the reasons for the churn to continue to reduce downwards is due to continued execution of the company's strategy to focus on mid-market and large-scale customers, increasing our wallet share, as well as implementing new strategies for customer renewals and retention.

[Raj Sapra, CFO at TeraGo]

Turning to slide five to go through our broader Q3 2024 financial highlights, total revenues for Q3 2024 was CAD 6.54 million as compared to CAD 6.49 million from the same period in 2023. The increase in revenue is the result of an increase in sales bookings and lower customer churn as compared to the same period in 2023. Adjusted EBITDA was CAD 944,000 in Q3 2024 compared to CAD 918,000 from the same period in 2023. The company continues to strive for profitable growth, driving efficiencies in the business and monitoring our spend. Net loss for Q3 was CAD 3.3 million compared to net loss of CAD 3.1 million for the same period in 2023. The company's efforts over the past few quarters to optimize its cost structure by reducing costs and operating the business efficiently have been a great success.

[Raj Sapra, CFO at TeraGo]

These have been partially offset by higher interest costs on the debt facility for the third quarter of 2024 as compared to the third quarter of last year. Turning now to slide six, to the balance sheet, we ended the third quarter of 2024 with CAD 5.7 million in cash and cash equivalents and short-term investments. In the third quarter of 2024, we generated CAD 1.1 million in cash from operations for the business as compared to CAD 0.7 million of cash from operations in the same period in 2023. With that said, I would like to turn the call back over to Dan. Dan.

[Daniel Vucinic, President and CEO at TERAGO]

Thanks, Raj. Our comprehensive strategy is enhancing value for our clients, employees, and shareholders. TeraGo is uniquely positioned to drive innovation and increase investments in its next-generation offerings for businesses. That wraps up the prepared remarks for us today, and we can now open up the call for questions. Operator, back to you.

[Operator]

Certainly. Everyone, at this time, we'll be conducting a question-and-answer session. If you have any questions or comments, please press star one on your phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. Once again, if you have any questions or comments, please press star one on your phone. Please hold while we poll for questions. Your first question is coming from David McFadgen from Cormark Securities. Your line is live.

[David McFadgen, Director, Analyst, and Communications & Media at Cormark Securities]

Oh, yes. Hi. A couple of questions. First of all, just on the balance sheet, I noticed that all the debt has been reclassified to short-term. I guess it matures in September 2025. I was just wondering if you could give us an update on what your plans are there to refinance the debt and if the existing lenders would continue to finance the debt?

[Raj Sapra, CFO at TeraGo]

Thanks, David. Yeah, no, the reason, as you rightly pointed out, it's current because it's less than 12 months maturity. We are, as a management team, actively looking to refinance the debt, potentially looking at new lenders at the same time talking to our existing lender. One of the opportunities we have to optimize our cost, as you can see from our financial statements, our existing debt, which was undertaken in the height of COVID at a pretty expensive interest rate. That is something we're looking at as a management team and board and actively looking to refinance. We're pretty confident. I mean, the liquidity in the markets has gone up. I mean, the interest rates have come down. We feel very confident that this would be refinanced fairly quickly.

[David McFadgen, Director, Analyst, and Communications & Media at Cormark Securities]

Okay. Good. And then just on the revenue, nice to see the ARPA churn down. And I know the focus now is on the revenue growth. Can you give us any idea as to whether you think that the revenue will start to pick up in the short term, or you just can't say right now? Just any comments would be helpful.

[Raj Sapra, CFO at TeraGo]

Obviously, we don't provide guidance, but what I can say is that the large deal, a multi-million dollar deal, which we signed and announced last week, we expect a bunch of revenue from that deal starting to add to our top line potentially in the second to third half of next year. Then it's typically the deals we sign. It's a three-year contract. So we would see that increasing the top line. However, we are also seeing a lot of activity in our sales pipeline. I mean, that large deal is just one of the large deals. I mean, there are tons of activity in the market. Our head of sales, who's highly connected, Dan is also out in the market.

[Raj Sapra, CFO at TeraGo]

So that is the whole focus to want to get the house in order in terms of our cost and spend, what Dan and team inherited from the previous administration. And we see a lot of potential over the next couple of years to grow the top line.

[David McFadgen, Director, Analyst, and Communications & Media at Cormark Securities]

Okay. Okay. Great. That's all for me. Thank you.

[Raj Sapra, CFO at TeraGo]

Thanks. Thank you.

[Operator]

Thank you. At this time, this concludes our question-and-answer session. I'd now like to turn the call back over to Mr. Vucinic for his closing remarks.

[Daniel Vucinic, President and CEO at TERAGO]

Great. Thank you, Operator. Thanks again for everyone for joining us on our call today. I'd like to thank our customers, shareholders who continue to support the company. I'd like to thank everyone at TeraGo who continued to do an outstanding job. We look forward to providing an update on our progress on our next quarterly earnings call. Operator.

[Operator]

Thank you for joining us today for TeraGo's Third Quarter 2024 earnings call. You may now disconnect.

Participants

Executives

• Raj Sapra, CFO

Analysts

• Daniel Vucinic, President and CEO at TERAGO
• David McFadgen, Director, Analyst, and Communications & Media at Cormark Securities