TeraGo Inc.

Good morning, ladies and gentlemen. Welcome to TerraGoals Q1 2020 Financial Results Conference Call. At this time, 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. 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. TerraGo 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. 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 in each of the annual MD&A for the year ended December 31, 2019. and the Q1 2020 MD&A, which are available on www.cedar.com. Except as many be required by Canadian security laws, the company does not undertake any obligation to update any forward-looking statements as a result of new information. We would also like to remind listeners that TerraGo users certain non-GAAP financial measures to arrive at adjusted results to assess its business and to measure overall performance. Terrigal 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 Mr. Tony Ciceretto, President and Chief Executive Officer of Terrigal. Please go ahead.

Thank you, Cheryl. Good morning, everyone, and thank you for joining Terrigal's first quarter 2020 earnings conference call. With me on today's call is our CFO, Dave Chiron. After the market closed yesterday, we issued a press release announcing our results for the first quarter ended March 31st, 2020. Our press release, financial statements, and MD&A are currently available on CDAR and our company website, along with a slide presentation accompanying this call. What an extraordinary time we're living through. as we undergo a global transition in how we all work. The COVID-19 health crisis requires remarkable efforts from people, communities, organizations, and governments to safeguard our health and safety. We're thankful for the frontline workers and healthcare providers who are continuing to provide essential services to us all during this challenging and unprecedented time. It also goes without saying that the crisis has impacted companies and people all over the world, and our thoughts go out to all those affected. Like most companies, we were impacted by the COVID-19 outbreak as it spread through Canada. By quickly implementing our pandemic response plan, we were able to fully maintain business operations while ensuring employee safety. We continue to provision and maintain services for our customers, even with the unprecedented global business closures and slowdown caused by the pandemic event. Our network, data centres and critical facilities are all up and running and we're supporting customers 24-7, despite having our non-essential employees working remotely. Maintaining our business operations will allow us to help our customers meet the increasing demands and challenges of today's dynamic remote work environment. and in turn, help restore some normalcy to their day-to-day lives. As anticipated, overall online usage, network volume, and demand for virtual collaboration continues to increase. The crisis has made it even more apparent that broadband connectivity is crucial to their business success. Terrigal delivers networking and infrastructure solutions that our customers rely on for critical services such as virtual collaboration, telehealth, distance education, and remote applications. It's also worth noting that our customer base is diverse, both in terms of numbers and industries represented. As I mentioned, we remain focused internally on employee safety, and our team is delivering on our valuation proposition to our partners and customers. thereby ensuring the long-term health and viability of our business. I continue to be impressed daily by our team's resilience and productivity navigating these uncharted waters. Our uninterrupted operational execution in the first quarter is a testament to their unwavering commitment to helping our customers and partners in a time of increased need. This includes accommodating customer requests for additional bandwidth, and enhance storage and server capacity, among other things. Recognizing the ongoing uncertainty from the global pandemic and its downstream effects on the business and the economy, we believe it was prudent to enact precautionary measures to ensure our business remains secure and our long-term viability remains intact. To that end, we have implemented certain cost measures and reduce discretionary CapEx spending. The goal of these programs is to maintain the long-term economic health of our business and to ensure that we have the financial flexibility needed to withstand potential downturns should they arise. To be clear, we remain confident in the state of our business over a long-term horizon. These actions are being taken as a protective measure and we believe Terrigal will ultimately come out in a better position than we entered. So with that context, let's look at our key operating metrics for Q1 in more detail. On slide five, you can see that our sales and customer success initiatives are helping to stabilize and improve our key operating metrics. Starting first with backlog monthly recurring revenue, or MRR, in our connectivity business. At March 31, 2020, backlog MRR increased 25% to $89,296 from $71,624 in the comparable period last year, driven by higher volumes than in the prior period. Cloud relocation backlog MRR at March 31, 2020, was $18,225. down from $37,094 in the comparable period last year. The decrease was primarily due to the timing of customer provision activity. And as I mentioned on our last call, cloud deals typically take less than a quarter to provision, especially if it's an upgrade, which is why we don't anticipate a large backlog in our cloud and co-location line of business unless it's a larger co-location or cloud infrastructure deal. now shifting to average revenue per user, or ARPU. In our connectivity business, ARPU for the first quarter of 2020 was $1,033, which was unchanged from Q1 of last year as we continue to focus on acquiring and retaining mid-market business customers. Our cloud and co-location ARPU for Q1 2020 was $3,240, up from $3,221 in Q1 of last year. In the first quarter of 2020, cloud and co-location ARPU was negatively impacted by an increase in customer count as we contracted directly with 28 customers that were previously contracted through a wholesale partner. Normalizing for this increase in customer count, cloud and co-location ARPU for the three months ended March 31, 2020, would have been $3,450, an increase of 7% compared to Q1 last year. The increase was due to upgrades from existing customers and churn of lower ARPU customers. Looking at our third key operating metric, churn. For the first quarter of 2020, churn in our connectivity business was 1.5%, which was flat compared to Q1 of last year. churn in our cloud and colocation business slightly decreased to 1% in the first quarter of 2020 from 1.1% in Q1 of last year due to increased retention efforts. So far in Q2, we have not seen a material change in churn, but that could change depending on the length and severity of the health crisis. Longer term, we continue to believe that our proactive, customer-oriented process will help to further improve churn levels. I'll now turn the call over to our CFO, Dave Chiron, to walk you through the financial details for the quarter. Then I'll return to provide an update on our growth strategy and outlook. David?

Thanks, Tony, and good morning, everyone. Moving on to slide seven, you can see that our total revenue in the first quarter declined 6.5% from the prior year period, to 11.6 million compared to 12.4 million in Q1 of last year. Connectivity revenue in the quarter decreased 7.6% to 7.3 million compared to 7.9 million in Q1 of 2019. The decrease in connectivity revenue was primarily due to churn exceeding provisioning. I would also like to highlight here that we experienced quarter-over-quarter revenue growth in connectivity in Q1, for the first time since Q3 of 2018. Cloud and co-location revenue for the first quarter of 2020 decreased 4.4% to 4.3 million compared to 4.5 million in Q1 of last year. The decrease in cloud and co-location revenue was primarily driven by the churn we experienced in 2019. Now turning to EBITDA, in the first quarter of 2020, our adjusted EBITDA decreased 22% to 3.6 million compared to 4.6 million in Q1 of last year. The decrease was primarily due to the impact of lower revenues, higher costs of cloud services sold, and an increase in some corporate selling costs in the quarter. Moving down the income statement, net loss for the first quarter of 2020 totaled 2.2 million, compared to a net loss of 1.2 million in Q1 of 2019. The higher net loss was primarily due to the impact of lower revenues and the higher costs described earlier. Turning to our cash flow on slide 9, in the first quarter, we generated $2.6 million in cash from operations, while capital expenditures were $2.2 million, or 19% of total revenue, in Q1 of 2020. The increase in capital spending when compared to last quarter was driven primarily by success capital acquired for the connectivity business. Turning to the balance sheet, at quarter end, we had $7.5 million in cash, which was down from $8.7 million last quarter, but up from $3.1 million at the end of Q1 in 2019. This includes $1.4 million drawn on our debt facility as of March 31st. As such, our leverage ratio at the end of the quarter now stands at 3.05 times adjusted EBITDA, which is well below our debt covenant of 3.5 times. I would like to expand briefly on the cost reduction measures and the discretionary CapEx spending controls that Tony mentioned earlier. We've identified savings of approximately $250K per quarter in OpEx and savings of another $250K per quarter on discretionary CapEx. These measures will help improve our cash flow generation and provide us with sufficient cushion on our leverage ratio to fund our growth strategy, including our 5G trials. We believe our diversified customer base, predictable recurring revenue, and prudent approach to cash management will help ensure we successfully navigate these uncertain times. That concludes my prepared remarks. I'll turn the call back to Tony. Tony?