TeraGo Q4 2023 Earnings Report

TeraGo EPS Results

• Actual EPS: -C$0.18
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

TeraGo Revenue Results

• Actual Revenue: $6.54 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

TeraGo Announcement Details

• Quarter: Q4 2023
• Date: 3/6/2024
• Time: N/A
• Conference Call Date: Thursday, March 7, 2024
• Conference Call Time: 10:00AM ET

TeraGo (TSE:TGO), together with its subsidiaries, provides connectivity services for businesses primarily in Canada. It owns and operates a carrier-grade multi-protocol label switching enabled wireline and fixed wireless, and Internet protocol communications network that provide Internet access, private interconnection, and data connectivity services. The company also offers data connectivity services that allow businesses to connect their various sites within a city or across the company's geographic footprint through a private virtual local area network; and a range of diverse Ethernet-based services over a wireless connection to customer locations. It provides its services through direct and indirect sales channels. TeraGo Inc. was incorporated in 2000 and is headquartered in Thornhill, Canada.

TeraGo Q4 2023 Earnings Call Transcript

[Operator]

Good morning, ladies and gentlemen. Welcome to TeraGo's 4th Quarter and Annual 2023 Financial Results Conference Call. Currently, all participants are in 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. I would like to remind everyone that this conference call is being recorded.

[Operator]

Tarrago 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 of and are intended to be forward looking statements under applicable Canadian securities legislation. While 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 in the 2023 Annual MD and A, which is available on www.sedar.com and also consider other uncertainties and potential events. Except as may be required by Canadian Securities Law, the company does not undertake any obligation to update any forward looking statement as a result of new information. We would 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.

[Operator]

TeraGo believes that these financial measures provide readers with a better understanding of home management, views, the company's overall performance. I will now turn the conference over to Terrigo's Chief Executive Officer, Daniel Vucinic. Sir, please proceed.

[Speaker 1]

Thank you. Good morning, everyone, and welcome to our Q4 and annual 2023 earnings call. I am proud to report my 2nd quarter since becoming CEO on June 12. Our value creation strategy accelerated delivery on behalf of customers, employees, shareholders continue to pace in the final quarter of 2023. In our prior earnings release, I highlighted improvements across all our financial indicators.

[Speaker 1]

Today, I'm pleased to share that in the second half of twenty twenty three, we have continued the trend of strengthening these metrics. Improvements in the second half of twenty twenty three as compared to the second half of twenty twenty two, we increased adjusted EBITDA by 8%. Positive cash flow from operations went up by 96%. In the second half of twenty twenty three, we have delivered substantial financial wins, which have afforded TeraGo the opportunity to reinvest in this transformation. This will drive a reenergizing of our top line.

[Speaker 1]

With new sales leadership in place and further growth investments anticipated, it is my intention to drive value as much from the top line revenue growth as from cost optimization and careful management of our capital expenditures. TeraGo is extremely well positioned as a nimble, carrier grade managed service provider of choice with differentiated frequencies, deep capabilities and a delivery track record in emerging growth areas. Smart, profitable growth will be a theme in 2024 and beyond. Moving on, as mentioned in Q3 2023, ISED published the spectrum outlook 2023 to 2027, elevating the 24 gigahertz band to priority 1, which is a major tailwind for our organization. As we anticipated in Q4 of 2023, Icet also launched a consultation on license renewals impacting our 38 gigahertz and 24 gigahertz bands as well as the preliminary consultation launched on changes to our 24 Gigahertz band.

[Speaker 1]

Like any wireless business, spectrum is our lifeblood. Reasonable long term visibility and our ability to put our spectrum to work in a way that fosters a growing competitive knowledge based economy is absolutely critical for us to be able to invest in our diverse and innovative service offerings. We remain fully engaged in this important process. Now given the exciting potential, TeraGo uniquely provides considerable value to the Canadian business ecosystem in 3 ways. Number 1, TeraGo only focuses on business and primarily the SMB market, which is a vital economic engine for Canada as the SMB market accounts for 88% of the employment and contributes over 50% of Canada's GDP.

[Speaker 1]

Number 2, TeraGo owns its own wireless spectrum, largest holder of millimeter wave spectrum, owns its own wireless network and owns its own national back bone network. TeraGo is not a reseller. And number 3, TeraGo continues to invest in this business, enabling customers to fuel innovation. With that said, there is significant momentum in market growth in private networks as it's a transformative technology trend that enables various customer verticals to differentiate and achieve their business outcomes. TeraGo has actively begun building an ecosystem of vendors, customers and partners to forge a consortium of strategic stakeholders that can collaboratively develop enterprise solutions for our clients.

[Speaker 1]

TeraGo will be at the heart of this evolution given its spectrum ownership and expertise. Now I'll turn it over to our Interim CFO, Parveen Mitra. Parveen, over to you.

[Speaker 2]

Thank you, Dan. Starting at Slide 5 with connectivity revenues. Connectivity revenues were flat at $6,500,000 for both quarter 4 prior quarter of 2023 and up $200,000 compared to the same period last year. This was a result of increased overall average revenue per user in the current year due to strategic pricing initiatives. Turning to Slide 6, for a look at our connectivity KPIs for the Q4 of 2023 and the prior 4 quarters.

[Speaker 2]

On average revenue, our average revenue per user or ARPU for our connectivity business was $11.64 in Q4 2023 compared to $10.63 for the same period in 2022. ARPU levels have been increasing each of the last 5 consecutive quarters due to changes in customer base, product mix and a new pricing strategy implemented in Q4 2023. Next, connectivity churn was 1% compared to 1.3% in the prior quarter and 0.9% for the same period in the prior year. The increase in customer churn was a result of certain customers at the end of terms switching to fiber based connectivity solutions that were not previously available to them. Thanks to our new policies and strategies in regards to customer renewals and retention, we are already seeing early signs of progress in churn post quarter end.

[Speaker 2]

Turning to Slide 7 to go through our broader full year 2023 financial highlights. Connectivity revenues for year ended December 31, 2023 were $26,000,000 compared to $25,900,000 for the same period in 2022. The increase of $1,100,000 being the result of higher ARPU. The increase in ARPU is a result of the company's ongoing focus to attract mid market and large scale predominantly multi location customers combined with changes in pricing strategy. Net loss for the year ended December 31, 2023 was $13,200,000 compared to a loss of $11,600,000 for the same period in 2022.

[Speaker 2]

The increase in net loss was a combination of higher finance costs, lower total revenues as prior year included $1,400,000 of cloud and colocation revenue combined with non recurring costs associated with staffing and management changes. These were partially offset by reduction in overall operating expenses year over year. Adjusted EBITDA was $3,400,000 for the year ended December 31, 2023, compared to $4,100,000 for the same period in 2022. The decrease is a result of the prior year including 1 month of cloud and colocation revenue as mentioned earlier, partially offset by reduction of overall operating expenses in the current year. Turning now to Slide 8.

[Speaker 2]

Although adjusted EBITDA dropped in the first half of twenty twenty three due to higher cost of services and selling, general and administrative or SG and A costs, improvements were seen in the second half of the year resulting in slightly higher adjusted EBITDA in Q4 2023 compared to the same period in prior year. The company continues its smart growth strategy, lower its SG and A costs and other optimization initiatives. Turning now to the balance sheet. We ended the year 2023 with $4,400,000 in cash and cash equivalents and $200,000 in short term investments. The second half of twenty twenty three resulted in improved positive cash from operations at $800,000 in Q3 and $1,100,000 in Q4 compared to negative cash from operations in the first half of twenty twenty three.

[Speaker 2]

With that said, I would like to turn the call back to Dan.

[Speaker 1]

Thanks, Parveen. The value accretion strategy has gained sufficient traction and is already yielding tangible benefits. I expect that TeraGo's efforts will be further buoyed by the addition of a permanent Chief Financial Officer following the departure of the previous CFO due to personal family reasons after a brief tenure. A search is well underway for a permanent Chief Financial Officer and I look forward to reacquainting the investor community with TeraGo and the value accretion strategy in the second half of twenty twenty four, following the integration of this key member of our team. 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]

Thank you. Ladies and gentlemen, the floor is now open for questions. Thank you. We have a question from Sid Dillard with Cormark Securities. Your line is live.

[Speaker 3]

Yes, thanks. A few for me. Just firstly on your ARPU, we've seen a few quarters of ARPU growth now and that's finally starting to show up a bit more in the top line now. And then this quarter was obviously the strongest quarter in terms of ARPU growth at 10%. And Daniel, you alluded to changes in pricing strategy during the quarter, which really helped your ARPU.

[Speaker 3]

Can you maybe talk about some of these pricing strategies from a higher level and maybe your customer mix now versus few years ago in the connectivity business? And then just how sustainable this level of growth is in 2024?

[Speaker 1]

Sure. Thanks for the question, Sid. So a number of factors go into the higher ARPU as you briefly mentioned. So TeraGo previously was trying to be everything to every segment in every area and we've really focused on going up segment in terms of the higher mid market, lower enterprise, multi site managed service type solutions, which make a big difference in terms of our strategy. As well as from a pricing perspective.

[Speaker 1]

We looked at our pricing, looked at the competition and really positioned our fixed wireless as a premium product as it is so, as it is not only carrier diverse from the other telcos, but it's also technology diverse, meaning that buried cables continue to get cut out there and multiple carriers go down, whereas the fixed wireless type service will stay up because it's obviously through the air as an example. So we've done a number of different things to really focus on these particular areas and to further make investments and expand in those areas going forward.

[Speaker 3]

Okay. Just to follow-up on that, 5 year expansion is obviously ongoing across the country. So you just touched on it briefly here. So just hoping to get your thoughts on how these rate hikes position you from a competitive perspective against some of your fiber competitors. I know you mentioned the advantages of a fully wireless network as opposed to some of these cable operators experiencing service disruptions.

[Speaker 3]

But just in a highly competitive environment from a fiber perspective, how do you see your competitive position with these rate hikes?

[Speaker 1]

And that's the analysis that we've done compared to fiber and even broadband type cable. As we know in the SD WAN space, a lot of accesses are the what they call cheap and cheerful Internet broadband. So we've got a number of different products in our fixed wireless that either compete with fiber and are priced competitively at the higher speeds and those are more the point to point type solutions, call it, kind of 100 meg to a gig and even we are doing 10 gig now. And then we have got other products that are under 100 meg as well as asynchronous type solutions that are fiftyten megandone hundredtwenty meg. So we're making sure that we're taking a look at both the cable and the fiber market.

[Speaker 1]

And it's also important to note that although we're primarily a wireless company, we do offer an extensive fiber and cable also type accesses through our partners, because we have got a number of network to network interconnections across our network. So we do both, especially when you think about clients that have multi site locations. It will be a combination of fixed wireless as well as fiber type services or cable.

[Speaker 3]

Okay. And then you also spoke to the higher installation yield during the quarter and maybe some of the recent lessons learned from some of the hurdles you faced with installation in recent quarters where there were some limitations related to geography, technical constraints, etcetera. I would imagine that to have played a role in this high installation yield. So maybe if you can touch briefly on that, that would be great.

[Speaker 1]

Yes. That was one of the learnings when I first came in to take a look at why installs were taking such a long time and where our challenges and roadblocks were. So we took a look at that with a cross functional team and looked at it from a people, process and tools perspective, we were organized more complicated than we needed to be across multiple different groups and departments. So we consolidated a few of those groups and from an organization transformation perspective and then also enhanced our real estate process. As you know, we need to get real estate approvals at the customer end for fixed wireless specifically as well as our hub and also from a tools perspective.

[Speaker 1]

And what we found is a significant difference in terms of soon as it gets sales is booked. We are already installing weeks later and we have received many different kudos from our clients on how quickly we've been able to install as part of that. So kudos to the team and the leadership as part of the team to really make a significant difference there.

[Speaker 3]

Got it. And then just one last one for me and maybe Praveen can take this one. You talked about upcoming growth related investments in 2024. Just wondering if we should expect any masking strength in CapEx for the year?

[Speaker 1]

Sorry, just you cut out on the last part in terms of investments?

[Speaker 3]

Yes. Just wondering if we should expect any massive swings in CapEx for 2024?

[Speaker 1]

I can take that one and Praveen feel free to jump in. From a CapEx perspective, that's also part of our strategy is to be more diligent and manage CapEx tightly and what we have been doing in the existing business is really focusing on previously invested assets that are underutilized and fully leveraging those and back to our strategy where we are not chasing every single dollar, revenue dollar at a high CapEx and OpEx. So our CapEx spending has gone down from the current business, but we are reinvesting part of that CapEx, what I'm going to call savings or diligence into additional products and expanding our SD WAN and managed service type portfolios as well as some hubs as part of that.

[Speaker 3]

Okay, great. Thanks. That's it for me.

[Speaker 1]

Thank you, Seth.

[Operator]

Thank you. As we have no further questions on the line at this time, this concludes our question and answer session. I'd now like to turn the call back over to Mr. Wusenik for his closing remarks.

[Speaker 1]

Thanks again everyone for joining our call today. Thank you for your continued support and we look forward to providing an update on our progress on our next quarterly earnings call. Thanks everyone.

[Operator]

Thank you. And thank you for joining today for Terago's 4th quarter 2023 earnings call. You may now disconnect.