TeraGo Inc. (TGO) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to TERAGO's Fourth Quarter 2024 and Annual 2024 Financial Results Conference Call. [Operator Instructions] I would like to remind everyone that this conference call is being recorded. TERAGO 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 the 2024 Annual Information Form, which is available on www.sedarplus.com 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 statements 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. 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 Vucinic. Sir, please proceed.

Good morning, everyone, and welcome to our fourth quarter and full year 2024 earnings call. Today, we are pleased to share how we are further accelerating our value creation strategy. Looking back to 2024, we continue to see a clear affirmation 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 expenditures. Specifically, a 16.9% rise in adjusted EBITDA, 18% reduction in customer churn, a 5.2% growth in average revenue per account, $4.5 million increase in cash flows from operations, all of this by spending also $1.5 million less in CapEx as we continue to focus growth on existing assets. TERAGO is a critical player in the Canadian communications landscape, driving competition, innovation, investments. We are uniquely focused on mid-market and lower enterprise size businesses, leveraging our national carrier-grade wireless and fiber networks. In addition to this, TERAGO owns 91% of all the millimeter wave spectrum, and we leverage it across 400-plus hubs. Those 400-plus hubs cover 9.6 billion megahertz population in 15 of the largest metropolitan communities, which have a population greater than 26 million, and we pass by 11 million homes. Plus, we have 70 network-to-network interconnections with all the major carriers. Truly, there was really no one else like TERAGO in Canada. Businesses depend on TERAGO premium white glove service, our agility, responsiveness, combined with our highly reliable, redundant and secure connectivity network. Being the largest millimeter wave spectrum owners, TERAGO continues to work closely with ISED to continue to drive competition, investments and innovation. We have been working with ISED to ensure our spectrum licenses continue to be renewed and currently responding to ISED's latest consultation that is proposing repurposing the lower 26 gigahertz band, previously known as the 24 gigahertz, for flexible use. A flex-use decision would mean that millimeter wave spectrum can be used for both fixed and mobile. Today, it's only allowed for fixed use. As an example, other countries that have previously deemed millimeter wave for flex use are significantly leveraging it to grow residential and business revenues as it's quick to install, no construction costs, higher speeds and higher performance. This opens up a huge market potential for TERAGO as well as for Canada. We have many exciting and transforming initiatives on the go. So with that said, I will turn it over to our CFO, Raj Sapra. Raj?

Thanks, Dan. Welcome, everyone. Turning to Slide 4 of our financial results presentation for a look at our KPIs. Our average revenue per customer, or ARPA, for our connected business was $1,212 in Q4 of 2024, a 4.1% increase compared to $1,164 for the same period in 2023. ARPA levels continue to improve as a result of smart profitable growth coupled with changes in customer base and our product mix. Our churn was 0.8% compared to 0.9% (sic) [ 1.0% ] for the same period last year. Customer churn continues to reduce due to continued execution of the company's strategy 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 5 to go through our broader Q4 2024 and 2024 financial highlights. Total revenue for Q4 2024 was $6.57 million as compared to $6.54 million from same period in 2023. Total revenues for fiscal 2024 was $26.16 million as compared to $26.05 million. The marginal increase in revenue is a result of increase in sales bookings and lower customer churn as compared to the same periods in 2023. At the end of 2024, our backlog was approximately $112,000 monthly recurring revenue as compared to $65,000 in at the end of 2023, which is a massive improvement, and this backlog will fuel our revenues for 2025. Adjusted EBITDA was $1,201 thousand -- $1.201 million in Q4 2024 as compared to $1.190 million from the same period in 2023. As Dan mentioned, our adjusted EBITDA at the end of 2024 saw a rise of approximately 17% and was $4.016 million as compared to $3.425 million (sic) [ $3.435 million ] from the same period in 2023. The company continues to strive for profitable growth and driving efficiencies in the business and managing our cost base. Net loss for Q4 2024 was $3.2 million compared to a net loss of $3.6 million for the same period in 2023. Net loss for 2024 was $13.2 million as compared to a net loss of $13.1 million for the same period in 2023. Turning now to Slide 6. Turning to the balance sheet. We ended the fourth quarter of 2024 with $4.4 million in cash and cash equivalents and short-term investments. In the fourth quarter of 2024, we generated $1.6 million in cash from operations for the business as compared to $1.2 million of cash from operations in the same period in 2023. In the fiscal 2024, we generated $5 million in cash from operations for the business as compared to $523,000 in the same period in 2023, which is a massive improvement and goes to show that management is really focused on running the business optimally and efficiently. Regarding our current debt facility, we are confident in securing a refinancing solution, positioning the company for sustained growth and success, so stay tuned. With that said, I would like to turn the call back over to Dan. Dan?

Thanks, Raj. Our comprehensive strategy is enhancing value for our clients, employees and shareholders. TERAGO is uniquely positioned to drive innovation and increase investments in the next-generation offerings for businesses. That wraps up the prepared remarks for us today, and now we can open up the call for questions. So operator, back to you.

[Operator Instructions] And your first question this morning is coming from David McFadgen from Cormark Securities.

A couple of questions. So I'll just start off with the ISED news that you talked about previously. Any idea on when ISED will actually make a final decision on this lower 26 or -- which includes the 24-gig spectrum as to whether they will allow it to be used for mobile use or not?

David, so I'll take the question. So from an ISED perspective, so they put out this consultation earlier this month in March, and we have -- all of us have 60 days to respond, and then there's a short 30 days after that to respond to the responses. So that takes you into June of this year. And then it's hard to predict in terms of how long ISED will take to make that decision, but it could be as early as 3 months or potentially up to 6 months, but I see a decision happening in 2025. And that's for a couple of reasons. One is Canada is way behind the other countries. We're still stuck in paperwork here. Whereas the U.S., Europe and Asia have already deemed these frequencies as flex use as 5G 3GPP standard, and they are fully leveraging that to improve productivity, competition and everything else. So Canada definitely is behind and needs to pick up the pace. At the same time, moving to an auction, which could be 12 months from the decision, that too, obviously, brings revenue to Canada as well. So multiple benefits for ISED to try and accelerate and get this out the door sooner rather than later.

Okay. So just moving on into the debt. Just wondering how that's going in terms of your discussions and negotiations on renewing and restructuring the debt.

We continue to make progress there. And I think we would have some announcements coming up, but we are confident that this would be refinanced and resolved well before the maturity date of the debt.

Okay. So something may be announced between now and when you report your next quarter? Would that be reasonable?

I mean you can say yes. Yes.

Okay. Okay. Great. And then just on the sales pipeline, I know you gave the MRR, but I was wondering if you can give us any other metrics or just kind of outlook on the sales pipeline, just get an idea on the potential for increased growth on the connectivity side.

Yes. So our pipeline now compared to previous is growing significantly because we have been, as you can see on the ARPA that have been going up the customer segment in multisite. So the environment now is pretty ripe out there where our big giant telcos have been doing significant reductions. And they've always struggled to provide great service for the, call it, the SMB market. And now even so it's even more tough for them to deliver that type of service. So that pipeline has been growing for us from a connectivity, managed services security perspective. In addition to that, on our 5G private wireless networks, that pipeline is also significantly growing as Canada continues to lag in productivity compared to the other top 38 economically developed countries. And with everything going on with the trade wars and so forth, it's even putting more pressure on Canada to figure out ways to be more productive. So we have our pipeline to help those companies to really improve their productivity, automation and efficiencies so that they can be more competitive, not only domestically but in international markets as well.

And at this time, this concludes our question-and-answer session. I'd now like to turn the call back over to Mr. Vucinic for closing remarks.

Thanks again, everyone, for joining us on our call today. I'd like to thank our customers and shareholders who continue to support the company and also a huge thank you to TERAGO and all our employees for doing an outstanding job. So we look forward to providing an update on our progress on our next quarterly earnings call. Operator?

Thank you for joining us today for TERAGO's Fourth Quarter 2024 and Annual 2024 Earnings Call. You may now disconnect.