Mr. Tony Ciciretto reports

TERAGO REPORTS 2017 THIRD QUARTER FINANCIAL RESULTS

TeraGo Inc. has released its financial and operating results for the quarter ended Sept. 30, 2017.

"We are focused on stabilizing the connectivity business while executing on significant growth opportunities in cloud and co-location," commented Tony Ciciretto, president and chief executive officer of TeraGo. "Our investments to enhance our go-to-market effectiveness and simplify our services portfolio have begun to yield positive results in the third quarter, with a record quarter for sales bookings (1) in cloud and co-location. We will continue to manage our costs and focus on profitability as we execute our strategic plan."

Mr. Ciciretto added: "I am pleased to welcome David Charron, our new [chief financial officer], to the senior leadership team this quarter. His leadership and experience will be help TeraGo drive operating leverage as we grow revenue and increase utilization of our data centres."

Financial highlights

Total revenue decreased 7.4 per cent to $13.7-million for the three months ended Sept. 30, 2017, compared with $14.8-million for the same period in 2016. The decrease in revenue is primarily driven by lower connectivity revenue, partially offset by growth in cloud and co-location revenue. Total revenue decreased 5.9 per cent to $41.9-million for the nine months ended Sept. 30, 2017, compared with $44.5-million for the same period in 2016.

Cloud and co-location revenue increased 1.7 per cent to $4.7-million compared with $4.6-million for the same period in 2016. The increase was driven by greater provisioning of cloud services from new and existing customers. The percentage of revenues from cloud and co-location of the total revenue has increased to 34 per cent compared with 31 per cent in Q3 2016.

Net loss was $1-million for the three months ended Sept. 30, 2017, compared with a net loss of $3.5-million for the same period in 2016. The decrease in net loss was primarily driven by a decrease in selling, general and administrative and other operating costs, lower depreciation and amortization, and lower finance costs. For the nine months ended Sept. 30, 2017, net loss was $3.2-million compared with a net loss of $4.7-million for the same period in 2016.

Adjusted earnings before interest, taxes, depreciation and amortization (1) decreased to $3.2-million for the three months ended Sept. 30, 2017, compared with $4.5-million for the same period in 2016. The decrease was primarily driven by the reduction of connectivity revenue, an increase in higher resale loop costs to support third party fibre revenue, and increased real estate fees, partially offset by the growth of cloud and co-location revenue. For the nine months ended Sept. 30, 2017, adjusted EBITDA (1) decreased to $9.9-million compared with $14.1-million for the same period in 2016. The decrease was driven by the factors described above in addition to impacts of increased sales force head count and marketing costs related to TeraGo's strategic priorities and growth initiatives.

Key developments

On July 10, 2017, the company announced that Mr. Charron has been appointed as chief financial officer, effective on Sept. 5, 2017.

On Aug. 15, 2017, the company announced that it had signed the largest data centre services agreement in company history. The co-location agreement with a Canadian information technology services provider is in respect to the company's Vancouver Vault data centre facility.

In June, 2017, Innovation, Science and Economic Development Canada (ISED) issued the consultation on releasing millimetre-wave spectrum to support 5G. This consultation contemplates the future use of certain millimetre-wave spectrum to support the deployment of fifth-generation (5G) wireless networks and systems. The spectrum bands identified by ISED include (amongst others) the 38-gigahertz band which TeraGo currently holds licences in. TeraGo has participated in this consultation by submitting its comment letter to ISED on Sept. 14, 2017. It is pleased to see the large number of other stakeholders (both in the industry and outside of it) which have also taken the time to make submissions to this consultation. After having reviewed many of these other submissions, it is clear to TeraGo that there is a high interest amongst various groups in the outcome of this consultation and an appreciation for the importance that these higher-frequency bands will play in both 5G deployment and in existing fixed wireless deployments.

Comparison of the three and nine months ended Sept. 30, 2017, and 2016

 
                                     RESULTS OF OPERATIONS
  (in thousands of dollars, except with respect to gross profit margin and earnings per share)

                                       Three months ended Sept. 30       Nine months ended Sept. 30 
                                         2017                 2016         2017                2016
Financial
Cloud and co-location revenue    $      4,705          $     4,626 $     14,234         $    13,497
Connectivity revenue             $      8,975          $    10,154 $     27,615         $    30,996
Total revenue                    $     13,680          $    14,780 $     41,849         $    44,493
Cost of services                 $      3,511          $     3,328 $     10,559         $    10,155
Gross profit margin                      74.3%                77.5%        74.8%               77.2%
Adjusted EBITDA (1)              $      3,213          $     4,481 $      9,927         $    14,052
Income tax recovery (expense)    $          -          $      (704)$          -         $      (715)
Net (loss)                       $     (1,047)         $    (3,454)$     (3,233)        $    (4,669)
Basic (loss) per share           $      (0.07)         $     (0.24)$      (0.23)        $     (0.33)
Diluted (loss) per share         $      (0.07)         $     (0.24)$      (0.23)        $     (0.33)

(1) Non-international financial reporting standard measures

Refer to the heading "Definitions -- IFRS, Additional GAAP and Non-GAAP Measures" in the management discussion and analysis for the three and nine months ended Sept. 30, 2017, for a description of the components of relevant line items.

Conference call

Management will host a conference call tomorrow, Wednesday, Nov. 8, 2017, at 8:30 a.m. ET to discuss these results.

To access the conference call, please dial 647-427-2311 or 1-866-521-4909. The unaudited financial statements for the three and nine months ended Sept. 30, 2017, and management's discussion and analysis for the same periods have been filed on SEDAR. Alternatively, these documents, along with a presentation in connection with the conference call, can be accessed on the company's website.

An archived recording of the conference call will be available until Nov. 15, 2017. To listen to the recording, call 416-621-4642 or 1-800-585-8367, and enter passcode 7086308.

About TeraGo Inc.

TeraGo provides businesses across Canada and internationally with cloud, co-location and connectivity services. TeraGo manages over 3,000 cloud workloads, operates five data centres in the Greater Toronto Area, the Greater Vancouver Area and Kelowna, and owns and manages its own Internet protocol network. The company serves approximately 4,000 business customers in 46 major markets across Canada, including Toronto, Montreal, Calgary, Edmonton, Vancouver and Winnipeg.

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