2015 Q2 Earnings Conference Call TeraGo Networks Inc.

Transcription

1 2015 Q2 Earnings Conference Call

2 Forward Looking Statements This presentation includes certain forward-looking statements that are made as of the date hereof and are based upon current expectations, which involve risks and uncertainties associated with our business and the economic environment in which the business operates. All such statements are made pursuant to the safe harbour provisions of, and are intended to be forward-looking statements under applicable Canadian securities laws. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. For example, the words anticipate, believe, plan, estimate, expect, intend, should, may, could, objective and similar expressions are intended to identify forward-looking statements. This presentation includes, but is not limited to, forward looking statements relating to TeraGo s growth strategy and revenue growth, cloud services, investments in data centres and other IT services, the realization of annualized synergies and achieving internal synergy targets, the integration of Rackforce Networks Inc. into the Company, the data centre and cloud services industry gaining acceptance, sales momentum, growing pipeline of opportunities for the Company and future financial results. By their nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties. We caution readers of this document not to place undue reliance on our forward-looking statements as a number of factors could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed with the forward-looking statements. When relying on forward-looking statements, whether written or oral, to make decisions with respect to the Company, investors and others should carefully consider the risks, uncertainties and assumptions, including the risk that backlog orders may not be filled in a timely manner or are cancelled by a customer prior to delivery of services, retention efforts decreasing profit margins, pipeline of opportunities for expansion and acquisition not being available or at unfavourable terms, the Company not being able to realize the anticipated benefits and synergies from combining and integrating Rackforce Networks Inc., cross-selling of TeraGo s products and services may not succeed, revenue growth strategies may not materialize, trends in the global cloud and data centre markets may not be accurately projected, transition to a multi-product IT services company will not generate the results intended by management, those risks set forth in the Risk Factors section in our annual MD&A for the year ended December 31, 2014 available on and other uncertainties and potential events. In particular, if any of the risks materialize, the expectations, and the predictions based on them, of the Company may need to be re-evaluated. Consequently, all of the forward-looking statements in this presentation are expressly qualified by these cautionary statements and other cautionary statements or factors contained herein, and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequences for the Company. Except as may be required by applicable Canadian securities laws, the Company does not intend, and disclaims any obligation to update or revise any forward-looking statements, whether oral or written as a result of new information, future events or otherwise. 2

3 Stewart Lyons President & Chief Executive Officer

4 Successful Implementation of Transformational Plan TeraGo s transformational plan introduced in Q has been successfully implemented Business has been successfully transitioned from a network services provider to an end to end data solutions provider Churn has been reduced due to increased focus on customer service Product set has been expanded into data centre and cloud services Revenue per customer has grown due to availability of comprehensive solutions to meet customers IT needs Data Centres Colocation Managed Services Hosting Cloud Infrastructure-as-a-Service High Performance Storage Managed Backups Data Archiving/ Vaulting Disaster Recovery Network & Voice Speeds/Feeds Redundancy Managed Services Unified Communications Net Result is TeraGo s Emergence as Canada s Premier Enterprise Class Network, Data, Voice and Cloud Services Provider 4

5 Q Highlights Continued success in TeraGo s Data Centre and Cloud Services business Total revenue increased ~15% to $15.1 million for the quarter compared to 2014 Segment is ~26% of total revenues, which is the result of the Company s transformation over the last year Well positioned to receive benefits going-forward from Q2 initiatives Significant RackForce synergies of >$1.0 million and additional operational improvements implemented during the quarter Speed of realization surpassed expectations while continuing to grow revenue Expanded cloud architecture into Mississauga facility, providing geo-redundant cloud infrastructure fully located within Canada Launched data centre colocation services in Winnipeg, Manitoba based on strong demand from customers Successfully completed $10.0 million equity issuance to access robust acquisition pipeline TeraGo was presented with the Canadian Telecommunications Employer of Choice (EOC) Recognition Award for 2015 Second consecutive year TeraGo has been awarded this honour 5

6 TeraGo s National Infrastructure 7 data centres across 4 Canadian markets with 64k ft 2 of data centre space and 13MW of power 100% IP national network (MPLS, QoS Enabled, Ethernet, Symmetrical) Coverage in 45 markets in Canada, including the 6 largest Canadian cities Network architected to provide redundancy and unique independence from ILECs MPLS network equipped with QoS capabilities to improve network performance and traffic management Victoria Seattle Kelowna 2 facilities 24,000 ft 2 Vancouver Kelowna Edmonton Red Deer Calgary Winnipeg 1 facility Winnipeg GTA 2 facilities 26,000 ft 2 Vancouver 2 facilities 14,000 ft 2 Data Centres TeraGo Service Area (1) POP Exchange National Fibre Network Chicago Windsor London Montreal Ottawa Vaughan Toronto Mississauga (1) Additional service areas in British Columbia (Richmond, Delta, Burnaby, New Westminster, Port Kells, Surrey, Langley, Coquitlam and Port Coquitlam), Alberta (Niskuand Sherwood Park), Ontario (Newmarket, Aurora, Kitchener-Waterloo, Milton, Cambridge, Pickering, Ajax, Whitby, Burlington, Hamilton, Welland, St. Catharine's, Vaughan, Richmond Hill, Oakville, Mississauga, Markham, Brantford, Brampton, Stoney Creek and Oshawa) and Quebec (East Laval, Laval, Saint-Eustache, West Island, Brossard, Longueuil and Boucherville). 6

7 Joe Prodan Chief Financial Officer

8 Operating Metrics Increase in customer count both year over year and sequentially to 4,296 compared to 4,107 in Q2 14 and 4,223 in Q1 15 Includes RackForce customers originally not included in customer count as further analysis of services used revealed numerous customers purchasing cloud services Churn within optimal range of 1.0% and 1.1% and the year to date trend continues to show an improvement compared to the prior year $927k of data centre and cloud investments in Q2 15; initial cloud infrastructure in Mississauga in place as well as over 240 racks ready for customer equipment Lower success-based capital expenditures going forward frees up additional capital for further cloud investment Operating Metrics Y/Y Change Q2'14 Q1 15 Q2'15 Unit % ARPU (1) $978 $990 $1,141 $ % Churn 1.00% 0.98% 1.05% 0.05% 5.0% Customers 4,107 4,223 4,296 Capital Expenditures (millions) $2.22 $2.34 $3.05 $ % Capital Intensity - % 16.9% 19.1% 20.2% (1) Excluding revenues from new wireless entrant decommissioned; ARPU in Q2 14 of $1,010 including revenues from new wireless entrant decommissioned. 8

9 Revenue and Adjusted EBITDA Revenue ($ millions) $13.2 $0.8 $0.9 $1.0 $3.9 $11.4 $11.3 $11.3 $0.0 $0.0 Q2'14 Q1'15 Q2'15 Network & Voice Revenue EBITDA ($ millions) $4.3 $12.2 Data Centre & Cloud Revenue $3.7 $15.1 Wireless Entrant Decommissioned Revenue $4.5 Total revenue increased 14.6% in Q2 15 compared to Q2 14 and 23.8% sequentially Data Centre and Cloud revenue increase of $3.1 million driven by acquisition of RackForce Network and Voice revenue flat excluding revenues from the decommissioning of wireless entrant; continuing to focus on more profitable higher capacity services and network services for data centre and cloud customers Successfully transitioning to higher growth Data Centre and Cloud revenues as segment now accounts for 26% of total revenue EBITDA increased 4.6% in Q2 15 compared to Q2 14 and 22.5% sequentially Low data centre utilization allows for future sales activity without incremental fixed costs Q2 14 EBITDA benefiting from large ETF for decommissioned wireless entrant Q2'14 Q1'15 Q2'15 9

10 Objectives and Strategic Priorities Continue sales momentum in data centre and cloud services segment Comprehensive solutions, platform and infrastructure in place to support significant growth Successful data centre launch events in Toronto and Vancouver contributing to growing pipeline of opportunities Seek strategic acquisitions to accelerate growth Strong pipeline of opportunities, with focus on cloud services Undrawn facilities and cash provide ability to pursue meaningful acquisitions Maintain financial flexibility Optimizing liquidity and the availability and cost of capital a key priority Capital in place to execute on organic growth plan ($11 million cash + $10 million revolver) $25 million acquisition facility available to access pipeline of potential opportunities Deliver strong financial results Achieve economies of scale as current cost structure able to drive strong growth with only success based, customer related investment Compensation tied to performance; revenue growth; focus on reducing churn/ increasing retention; positive free cash flow; net promoter score TeraGo is Canada s Premier Enterprise Class Network, Data, Voice and Cloud Services Provider 10