TeraGo Q3 2024 Earnings Call Transcript

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November 12, 2024

There are 4 speakers on the call.

Operator

Good morning, ladies and gentlemen. Welcome to TeraGo's Third Quarter 2024 Financial Results Conference Call. 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 risks set forth in the Risk Factors section of the 2023 Annual MD and 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 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 provided readers with a better understanding of how management views the company's overall performance. I will now turn the conference over to Deric Terrego's Chief Executive Officer, Daniel Businic.

Operator

Sir, the floor is yours.

Speaker 1

Thank you. Good morning, everyone, and welcome to our Q3 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 5 quarters into the transformation of TeraGo.

Speaker 1

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, 31% reduction in customer churn, 2.8% rise in adjusted EBITDA, 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 engines. The growing demand for our services supported by a diverse range of network solutions, sound execution, strong industrial tailwinds positions us well for continued success and long term value creation for our stakeholders.

Speaker 1

The company's commitment to enhancing client experience has set the stage for future success, positioning TeraGo for profitable business growth. TeraGo 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 multimillion dollar agreement will transform connectivity across the retailer's nationwide operations, enhancing performance and customer experience.

Speaker 1

Raj, over to you.

Speaker 2

Thanks, Dan. Good morning, everyone. Turning to Slide 4 of our Q3 financial results presentation posted on our website for a look at our KPIs for the Q3 of 2024, our average revenue per account or ARPA for our connectivity business was $12.21 in Q3 of 2024, an 8.3% increase compared to $11.27 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.

Speaker 2

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. Turning to Slide 5 to go through our broader Q3 2024 financial highlights. Total revenues for Q3 2024 was 6,540,000 dollars as compared to $6,490,000 from same period in 2023. The increase in revenue is the result of increase in sales bookings and lower customer churn as compared to the same period in 2023. Adjusted EBITDA was $944,000 in Q3 2024 compared to $918,000 from the same period in 2023.

Speaker 2

The company continues to strive for profitable growth, driving efficiencies in the business and monitoring our spend. Net loss for Q3 was $3,300,000 compared to net loss $3,100,000 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. These have been partially offset by higher interest cost on the debt facility for the Q3 of 2024 as compared to the Q3 of last year. Turning now to Slide 6, to the balance sheet, we ended the Q3 of 2024 with $5,700,000 in cash and cash equivalents and short term investments.

Speaker 2

In the Q3 of 2024, we generated $1,100,000 in cash from operations for the business as compared to $700,000 of cash from operations in the same period in 2023. With that said, I would like to turn the call back over to Dan.

Speaker 1

Dan? 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.

Speaker 1

And we can now open up the call for questions. Operator, back to you.

Operator

Certainly. Your first question is coming from David McFadgen from Cormark Securities. Your line is live.

Speaker 3

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 debt?

Speaker 2

Thanks, David. Yes, no, the reason, as you rightly pointed out, it's current because it's a less than 12 months maturity. We are, as 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, and that is something we're looking at as a management team and Board and actively looking to refinance. And we're pretty confident.

Speaker 2

I mean, the liquidity in the markets have gone up. I mean, the interest rates have come down, and we feel very confident that this would be refinanced fairly quickly.

Speaker 3

Okay, okay, good. And then just on the revenue, nice to see the ARPA churn down, and I know the focus now is on the revenues 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.

Speaker 2

Obviously, we don't provide guidance, but what I can say is that the large deal, a multimillion 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 half of next year. And then it's typically the deals we sign, it's a 3 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.

Speaker 2

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. So that is the whole focus to wanted 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.

Speaker 3

Okay, great. That's it for me. Thank you.

Operator

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

Speaker 1

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 continue to do an outstanding job.

Speaker 1

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 Q3 2024 earnings call. You may now disconnect.

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