TeraGo Inc.

Good morning, ladies and gentlemen. Welcome to Tarah Doe's Q3 2020 Financial Results Service Call. At this time, our 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. Instructions will be provided at that time for you to queue up for questions. If anyone has any difficulties in the process, please press star followed by zero or operate at a distance at any time. I would like to remind everyone that this conference call is being recorded. Tarasco 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. are made pursuant to the state public provisions of and are intended to be forward listed statements under actual Canadian securities legislation. When relying on forward listed statements to make decisions with respect to the company, we should carefully consider the risk set forth and the risk of the consumption of each of the annual MD&A The year ended December 31, 2019, and the Q3 2020 MD&A, which are available on www.pdar.com. Except as may be required by Canadian security laws, the company does not undertake any obligation to update any for the statement as a result of new information. We would also like to remind listeners that TARIC uses certain non-negotiable financial measures to arrive and adjusted results to assess its business and to measure overall performance. Tarago 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. David Shirai, Interim BOMT Financial Officer at Tarago. Please go ahead.

Well, thank you, and good morning, everyone, and thank you for joining Tarago's third quarter 2020 earnings conference call. After the market closed yesterday, we issued a press release announcing our results in the third quarter and it's December 30th. And in that press release, that financial statements and MD&A are currently available on CDAR as well as our company's website, along with the slide deck that I will use for this call. Before I get into the financials, I want to provide an update with respect to our operations. First, I wanted to preface that every year around this time, the board and the leadership team hold detailed strategic planning sessions And one of the main topics this year, among other things, is the appointment of a permanent CEO. And given the importance of this decision, the board has elected to continue their confidential review to first solidify the long-term strategy of the business and then align on the skill sets, qualifications, and requirements of TerraGo's next CEO. Nevertheless, the board has full confidence in our current management team, with me as interim CEO, and the rest of the senior leadership team. I'm pleased to share that we have recently promoted our Chief Revenue Officer, Blake Russell, to the additional position of Chief Operating Officer. Blake's expanded mandate includes growing both Parago's top-line revenue as well as leading the engineering and operations team in delivering best-in-class service to our customers. I'd also like to quickly touch on some C-Street operational highlights and KPIs. Again, I'm pleased to share that we are exceeding our expectations as we continue to operate within this era of the COVID pandemic. As an essential service in Canada, we've been tracking our progress with bookings, cash collection, cash management, and other internal metrics, and I'm very pleased with the results across these three stats. We've achieved year-over-year growth in our cloud and co-location business, stabilized custom returns, and significantly grew our productivity backlog, all of which I'll discuss further. Additionally, as a reference in our previous earnings call, we received a net promoter score of 70, which is well above the industry average in the class of superior customer service and our ability to swiftly provision new services to customers. This accomplishment is certainly a testament to our resilient business model, as well as our team's ability to adapt and execute. In fact, let's take a quick look at our key operating metrics for Q3. On slide five, starting first with our backlog monthly recurring revenue, or MER, in our connectivity business. At September 30th, the backlog MER increased to 113.2K, driven by higher sales volumes from both the direct sales team and the channel. The cloud and co-location backlog MER in Q3 grew to 71.9K. The increase was due to strong bookings activity in the quarter that had yet to be provisioned. Taking a look at average revenue for customer in ARPU in our connectivity business, ARPU for the third quarter of 2020 was relatively flat at 10.28 compared to 10.14 in Q3 of last year. However, our cloud and co-location ARPU for Q3 was 34.68, up 7%. from 3248 and Q3 of last year. The increase is due to strong upgrade activity from existing customers, and we've seen increased demand for more CPU, storage, and other options within our cloud and co-location portfolio. Looking at our third key operating metric, churn, for the third quarter of 2020, churn in our connectivity business was 1.4%, down significantly from the 1.7% recorded last quarter. churn in our cloud and co-location business decreased to 0.9% in the second quarter of 2020. Overall, the decrease in churn levels were a result of improved retention efforts and reflects the essential nature of our service to our customer service. Turning now to the financial performance for the third quarter, on slide 6, you can see that our total revenue in the third quarter declined 4% from the prior year period, to $11.3 million compared to $11.8 million in Q3 of last year. Connectivity revenue in the quarter decreased 8% to $6.9 million compared to $7.5 million in Q3 of 2019. The decrease was attributable to churn exceeding customer provisioning. Cloud and co-location revenue for the third quarter of 2020 grew by 1.7% to $4.3 million in the quarter. Turning now to EBITDA in the third quarter, our adjusted EBITDA decreased to $3.8 million compared to $4.4 million in Q3 of last year. The decrease was primarily due to the decrease in revenue as well as the in our go-to-market scheme. Moving down the income statement, net loss in the third quarter of 2020 totaled $3.2 million compared to the net loss of $0.9 million in Q3 of last year. The increase in net loss was primarily driven by lower revenue and the severance charges recorded in the quarter. Turning to our cash flow on Friday, in the third quarter, we generated $3.7 million in cash from operating activities, while capital expenditures were $2 million, or 18% of total revenue, driven primarily by strong success effects in the connectivity business. At quarter end, we had $7.6 million in cash, which was down from $8.7 million at the end of Q4 of 2019. Additionally, as we shared on the last call, we continue to have access to a revolving credit facility with RBC and TD Bank. And although this facility provides cargo with additional financial flexibility, we have no plans to draw from it in the near future. Instead, I intend to continue using cash in the balance sheet We expect that our growing bookings and provisioning activities will generate incremental cash flow from operations. I'd now like to review the current progress on executing our multi-pronged growth strategy, which we think of as three pillars on slide nine. Starting with the first pillar of stabilizing our business and generating free cash flow. As I mentioned earlier, we saw excellent progress on churn returning to more normal rates as a result of an excellent customer retention efforts which have certainly been encouraging. On the second pillar, we have significantly increased our overall backlog MER. In particular, I'm pleased to see continued increases in our connectivity backlog, which validates improvements we've seen in our sales efforts in our business across inside sales, direct sales, and our channel teams. And finally, I'd like to provide an update on our 5G testing, which will continue to advance in our technical trials in the greater Toronto area. We are optimistic in achieving even greater performance with higher power radios from Nokia and next-gen CPE devices from both ASCII and Integra, which we now expect to receive in C4. We're having meaningful discussions with partners and potential customers about promising 5G private network use cases in logistics, manufacturing, mining, education, and transportation to name a few. In the meantime, we continue to add innovative capabilities to our connectivity portfolio, such as network-managed services we plan to launch in 2021, in addition to our internet SD-PEN and SD-LAN solutions which we recently announced. In conclusion, thanks to our diversified customer base, predictable recurring revenue, prudent approach to cash management, strong order backlog, and outstanding customer service, I believe we are well poised for both its exceptional end as well as exciting future growth. That concludes my prepared remarks, and we can now open the call for questions.

And as a reminder, if you would like to ask a question, please press star, then the number one on your telephone card. And then press star, then the number one.