Earnings call transcript: TeraGo Inc. reports Q1 2025 revenue decline, churn rises

TeraGo Inc. reported a slight decline in revenue for Q1 2025 to $6.41 million, down from $6.47 million in the same quarter last year, while adjusted EBITDA increased by 11% to $1.1 million. According to InvestingPro data, the company maintains a market capitalization of $2.84 billion and has demonstrated strong revenue growth of 12.82% over the last twelve months, despite current quarter challenges. The company also noted an increase in customer churn to 1.2%, up from 0.8% the previous year. TeraGo’s stock remained unchanged at $1.17 following the earnings announcement. InvestingPro analysis indicates the company currently faces profitability challenges, with several key metrics suggesting potential areas for improvement. Subscribers can access 12+ additional ProTips and comprehensive financial analysis through the Pro Research Report. The company continues to focus on its strategic initiatives, including the expansion of its millimeter wave spectrum ownership and preparing for future wireless technologies.

Key Takeaways

• Revenue for Q1 2025 decreased slightly compared to the previous year.
• Adjusted EBITDA rose by 11%, showcasing improved operational efficiency.
• Customer churn increased to 1.2% as part of strategic account optimization.
• TeraGo’s stock price remained stable post-earnings announcement.

Company Performance

TeraGo Inc. experienced a minor revenue decline in Q1 2025, with total revenue reaching $6.41 million compared to $6.47 million in Q1 2024. Despite the revenue dip, the company improved its adjusted EBITDA by 11% to $1.1 million, indicating enhanced operational efficiency. The company maintains a healthy Altman Z-Score of 10.34 and a return on assets of 13.84%, according to InvestingPro data, suggesting strong fundamental stability despite short-term challenges. TeraGo continues to focus on its strategic initiatives, particularly in expanding its millimeter wave spectrum ownership and preparing for future wireless technologies such as 5G and 6G.

Financial Highlights

• Revenue: $6.41 million, down from $6.47 million in Q1 2024
• Adjusted EBITDA: $1.1 million, up 11% from $930,000 in Q1 2024
• Average Revenue Per Account (ARPA): $1,229, a 6.1% year-over-year increase
• Cash and Equivalents: $2.1 million
• Cash from Operations: Approximately $1 million

Outlook & Guidance

TeraGo is optimistic about its future prospects, expecting to announce debt refinancing before Q2 results. With a current ratio of 2.54 and relatively low debt-to-equity levels, the company appears well-positioned for its refinancing initiatives. Get detailed insights into TeraGo’s financial health and future prospects with InvestingPro’s comprehensive analysis tools and expert research reports. The company is also exploring the monetization of non-core assets, including 12 towers, which could provide additional capital inflow in the upcoming quarters. TeraGo remains committed to profitable growth and operational efficiency.

Executive Commentary

CEO Daniel Vucinek emphasized TeraGo’s unique market position, stating, "We are uniquely positioned by owning 91% of the millimeter wave spectrum." He also highlighted Canada’s economic challenges, noting, "Canada is at a pivotal moment where productivity continues to lag behind other similar economically developed countries." CFO Raj Saffra reiterated the company’s focus on efficiency, saying, "We continue to strive for profitable growth and driving efficiencies in the business."

Risks and Challenges

• Increased customer churn could affect long-term revenue stability.
• Economic pressures from the ongoing trade war may impact market conditions.
• The need for continuous investment in new technologies like 5G and 6G could strain financial resources.
• The Canadian SMB market’s productivity lag poses a challenge for growth.

TeraGo’s strategic initiatives and focus on operational efficiency highlight its commitment to navigating the challenging market conditions while positioning itself for future growth.

Full transcript - TeraGo Inc. (TGO) Q1 2025:

Conference Operator: Good morning, ladies and gentlemen. Welcome to Tarragos First Quarter twenty twenty five Financial Results Conference Call. Listen only mode. Following the presentation, we will conduct a question and answer session with prequalified analysts on the call and instructions will be provided at the time for you to queue up for questions. If anyone has any difficulties hearing the conference, please press followed by 0 for operator assistance at any time.

I would like to remind everyone that this conference call is being recorded. Tarragot 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 litigation. 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 the 02/2024 annual information form, which is available on www.sedar+.ca, and also consider other uncertainties and potential events. Except as may be required by Canadian securities laws, 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 Perrigo 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 provide readers with a better understanding of how management views the company’s overall performance. I will now turn the conference over to Terago’s Chief Executive Officer, Daniel Vucinek. Sir, please proceed.

Daniel Vucinek, Chief Executive Officer, Terago: Thank you, and good morning, everyone. Welcome to our first quarter twenty twenty five earnings call. Today, we are pleased to share how we are further accelerating our value creation strategy. In the first quarter, our team continues to have a disciplined focus on profitability and efficiency. Significant growth continued in our adjusted EBITDA, our cost average revenue per account and revenue backlog.

This combined with our improved cost control affirms that Terago is delivering on our smart growth strategy and operational enhancements. We are seeing better gross margins, reductions in operating expenditures, superior deal level economics, and a more efficient approach to capital investments. Being the largest millimeter wave spectrum owners, Terago continues to work closely with ISED to drive competition, investment and innovation. We are in the middle of ISED’s latest consultation that is proposing to repurpose the lower 26 gigahertz band, previously called 24 gigahertz, for flexible use and also proposing the framework for a millimeter wave auction. A flex use decision excuse me.

A flex use decision would mean that millimeter wave spectrum can be used for both mobile and fixed wireless services. As per I said, spectrum is a critical input for wireless service providers. The release of additional spectrum for flex use will enable providers to increase network capacity, addressing growth, growing traffic demands and supporting the provision of five gs wireless technologies. Furthermore, preparations are underway for six gs wireless technology. Six gs is expected to build upon the capabilities of five gs, enabling new applications such as ultra reliable low latency advanced automation across industries.

The development and deployment of millimeter wave five gs and six gs technologies will position Canada to become a global center for innovation and will bring the country to the forefront of digital adoption. Millimeter wave spectrum in a five gs private wireless network offers a significant opportunity for industry verticals like manufacturing to automate operations and leverage robotics. This requires high levels of bandwidth, high network performance, ultra low latency and a robust and secure network. I am encouraged by all the progress iFit is making in positioning millimeter wave spectrum in the Canadian connectivity ecosystem and for providing greater clarity and longer term certainty. Canada is at a pivotal moment where productivity continues to lag behind other similar economically developed countries, and the current trade war certainly adds significant pressure to this.

Canada’s SMB market is a critical economic engine for Canada as it accounts for 88% of the employment and just over 50% of the GDP. This is a focused segment for Terrego, and it is segment by the large service operators. So Terrego is a critical player in the Canadian communications landscape. We are uniquely positioned by owning 91% of the millimeter wave spectrum. We have our own national backbone network with 400 plus wireless hubs covering 26,000,000 population and passing 11,000,000 homes.

There is no one like us. With that said, I’ll turn it over to our CFO, Raj Saffra. Raj? Thanks, Dan. Welcome, everyone.

Turning to slide four of our q one financial results for a look at our KPIs. As Dan already mentioned, our average revenue per customer account or ARPA for our connectivity business continues to increase and improve, was $1,229 in q one of twenty twenty five, a 6.1% increase compared to $1,158 for q one and twenty twenty four. ARPA levels continue to increase as a result of smart profitable growth coupled with changes in customer base and product mix. Our churn was 1.2% compared to point 8% for the same period last year, a little bit higher. The increase was primarily driven by management’s continued initiatives to optimize the customer base by discontinuing service to unprofitable accounts, partially offset by increase in revenue from new customers which were deployed in the current year period.

The company continues to review, modify, and improve its customer experience practices to increase customer engagement, focus on mid market and large scale customers, as well as implementing new strategies for customer renewals and retention. Turning to slide five to go through our broader Q1 financials. Total revenue for q one was 6,410,000.00 as compared to 6,470,000.00 from same period in 2024. The marginal decrease, as I’ve already indicated, was primarily driven by churn where, you know, we look at unprofitable accounts and if it doesn’t make sense for the business, you know, we we discontinued services on those accounts. This was obviously partially offset by provisioning numbers, which resulted in some increase in the revenue for the current period.

As noted in the MD and A, the company has a strong backlog of approximately 96,000 in monthly recurring revenue, which is equal to almost $1,200,000 of annual revenue. The majority of which we expect to be provisioned within the current fiscal year contributing positively to the company’s revenue for 2025. Adjusted EBITDA was an increase of almost 11% compared to q one of twenty twenty four at $11,032,000 versus 930,000 for the same period in Q1 twenty twenty four. The company continues to strive for profitable growth and driving efficiencies in the business, looking and managing costs on a daily basis. Net loss for Q1 was similar to the net loss in q one of twenty twenty four.

Turning to the balance sheet. We ended the first quarter of twenty twenty five with 2,100,000 in cash and cash equivalents and short term investments. The company received additional 2,000,000 in US in April as a result of the second amendment to the credit agreement, which was announced on March 31. The amendment also allowed the company to look at some of its noncore assets and to be able to monetize those assets, and the company is continuing to work towards that, expecting some capital inflow through those non current assets Q2, Q3. In the first quarter of twenty twenty five, we generated approximately $1,000,000 in cash from operations, where almost all of it was attributable to cash generated from business operations.

As compared to in q one twenty twenty four, ’1 point ’5 million of cash from operations was generated, but only $500,000 was from business operations and $1,000,000 was from working capital movements. Regarding our current debt facility, we are confident in securing a refinancing solution, positioning the company for sustained growth and success and driving shareholder value. With that said, I would like to turn the call back over to Dan. Thanks, Raj. Our comprehensive strategy is enhancing value for our clients, employees and shareholders.

Tarego is uniquely positioned to drive innovation, increase investments in its next generation offerings for businesses. That does wrap up the prepared remarks for us today, and we’ll turn it back to you, operator, questions, please.

Conference Operator: A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Your first question for today is from David McFadden with Cormark Securities.

David McFadden, Analyst, Cormark Securities: Hi. Yeah. A couple of questions. So I’m just looking at the results in q one twenty five, and I just compared with q four twenty four. There was, you know, very small but slight decline on the revenue and EBITDA line.

I noticed the churn’s up a little bit. So was just wondering what’s what’s happened since the fourth quarter just caused that slight decline.

Daniel Vucinek, Chief Executive Officer, Terago: So just just looking at the EBITDA, so typically, as you would see, you know, there there is some seasonality in terms of the expenses. So, you know, q four, q EBITDA would usually be higher than q one and q two because as we noted in our MD and A, I mean, there are a lot of front loaded costs in terms of CPPEI employee taxes, which impact the cost base in the first two quarters. And it’s pretty consistent, I think, on a yearly basis going back that the Q4 EBITDA is always higher. Last year, Q1 was $930,000 with higher revenues. This year, it is more than $1,000,000 but lower revenues slightly.

But you can see the delta in the COGS where, yes, we lost some of the revenue, but it was actually negative cash flow for us. So so that is that is the reason. So you’ll obviously see as the year progresses, the EBITDA will continue to increase.

David McFadden, Analyst, Cormark Securities: Okay. And then when you look at when you look at the churn, you know, the churn’s up a little bit in the quarter. Is that is that solely just, you know, you guys not renewing low margin or unprofitable accounts? Or is there are there some other factors that play there?

Daniel Vucinek, Chief Executive Officer, Terago: Well, I mean, you know, I’ll give some financial angle and Dan can talk about the business here. But, you know, it’s not that we don’t wanna renew them. You know, obviously, you know, we we assess if it’s unprofitable. We obviously wanna they’ve come for they’ve come for expiry of the term. We wanna give them new pricing.

And if it doesn’t work and these are smaller clients, and we basically just said, look, we can’t service you because our cost is very high, So we let them go. And, you know, some of that impact was partially offset by deployments, and we’ll see continued deployment of the backlog through the rest of the year. But we you know, our our delivery team, our customer experience team is laser focused, zoned in, hands on deck in terms of customer experience. And, you know, we continue to win larger clients then. Yeah.

So so just a reminder to to everyone that the churn percentage is based on customers and not dollars. And most of that was our smaller customers, as Raj has said, is we’re really going upscale in terms of customer segment, and that’s why you see the ARPU is going up. So combination of where customers are unprofitable and unprofitable means they could be in a part of our hub location, real estate, carrier COGS, the whole bit. So we’re constantly looking at how do we drive more margin out of this business. And again, a number of smaller customers had exited that were unprofitable.

Yeah.

David McFadden, Analyst, Cormark Securities: Okay. And then and lastly, can you give us an update on your negotiations on renewing, refinancing your debt?

Daniel Vucinek, Chief Executive Officer, Terago: Yeah. We we continue to have conversations, you know, in terms of negotiations. You know, we should expect to announce something to the market, you know, by by, before the Q2 announcements of the results. I mean that would be the target and they are fairly advanced. We are not that concerned in terms of not being able to have some sort of a renewal or an extension.

We are quite confident with that. And then in terms of additional capital in the business, as we noted in the amendment and the amendment did have a schedule, which did have a list of, you know, 12 towers. We are in advanced negotiations in terms of trying to monetize them, and we expect to announce something in the next sixty days as well. So that’s where we are.

David McFadden, Analyst, Cormark Securities: Okay. Okay. That’s it. That’s for me. Thanks so much.

Yeah.

Daniel Vucinek, Chief Executive Officer, Terago: Thank you.

Conference Operator: At this time, this concludes our question and answer session. I’d now like to turn the call back to Mr. Vucinek for closing remarks.

Daniel Vucinek, Chief Executive Officer, Terago: Thanks again, everyone, for joining us on our call today. I’d like to thank our customers, shareholders who continue to support the company. I’d also like to thank everyone at Terrego who continues to do an outstanding job. We look forward to providing an update on our progress on our next quarterly earnings call. Operator?

Conference Operator: Thank you for joining us today for Terrago’s first quarter twenty twenty five earnings call. You may now disconnect.

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