2020
Annual Report
20 Years of Moving IT Forward
CONTENTS
CEO Letter to Shareholders
Management’s Discussion and Analysis
Auditors’ Report
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
Corporate Information
2
4
35
40
44
69
April 8, 2021
Dear Fellow Shareholders,
Although I have been part of this company for almost five years as a member of the Board, with my stepping
into the CEO role last month I want to give you a bit more background on me and how I am thinking about
TeraGo’s path forward for 2021 and onward, and then offer our thoughts on what we experienced this past
year.
I have spent over thirty years in the technology business, with much of that time working in the wireless,
cloud, IT infrastructure and data centre sectors during periods of aggressive market growth. I was fortunate
to be part of both Norand and Itronix, two wireless companies that were well positioned to take advantage
of the explosive growth in the first wave of wireless data. These companies helped organizations like AT&T,
Coca-Cola, Sears, RCMP, Frito Lay, Molson Coors and many others deploy hundreds of thousands of
wireless endpoints. Itronix was acquired by General Dynamics, and Norand eventually became part of
Honeywell. I was also involved with several companies that experienced exponential growth from the
adoption of cloud computing, including 2nd Watch and the Blue Box Group, which were respectively
acquired by ST Telemedia and IBM. Building teams that successfully position companies to capitalize on
wireless and IT infrastructure growth opportunities has been a consistent theme for me.
Much like what I have seen in my past, it feels to me that TeraGo is well positioned to take advantage of
the secular growth that is happening in the wireless and IT infrastructure markets as we all use, send, store,
and manage ever-increasing amounts of data, especially when 5G connectivity becomes broadly available
and acts as a further accelerant for these growth trends. With our spectrum, wireless network, cloud and
colocation assets, coupled with the managed network services that make it easier for Canadian businesses
to deploy next generation solutions, TeraGo is very well positioned to take advantage of the ever-growing
need for more communication and computing capabilities, including high speed wireless connectivity.
The growth opportunity in front of us is reflected in the results we started to see in 2020, and despite the
external challenges we all faced with the COVID-19 pandemic and its impacts to Canadian businesses and
consumers, we feel our 2020 performance represents an inflection point for our team and company.
We were quick to react to the prospective impacts of COVID-19 by strategically implementing our Pandemic
Response Plan in early 2020 to ensure full operational capabilities of our network, data centres and critical
facilities as well as maintain our 24/7 industry leading customer support service. This proactive measure
gave us the ability to fully operate at maximum capacity to support our customers and partners, as an
essential service.
In addition to the adjustments made on the front-end, we executed certain initiatives on the back end of the
business to best set ourselves up for success. We entered into an amended credit agreement with The
Royal Bank of Canada and The Toronto-Dominion Bank, which bolstered our financial flexibility, appointed
Ken Campbell, a proven wireless industry veteran, to our board of directors and expanded Blake Wetzel’s
role to be Chief Operating Officer in addition to his role as Chief Revenue Officer.
Furthermore, we enhanced our product offerings with a set of new solutions. In particular, after a successful
launch of Managed SD-WAN, in partnership with NetFortris, we continued to gain significant traction from
customers. More recently, we further expanded this segment of our business with our Managed Network
Services offering, which enables business customers to optimize performance, and reduce outages and
2 costs on their network infrastructure by leveraging our advanced management systems and team of
network experts.
Our preparation with our operations team and continued progress with our customer facing teams has
helped us achieve encouraging results across our Key Performance Indicators (KPI). We experienced an
uptick in MRR backlog, stabilization in churn, and an increase in ARPU, which we expect will drive growth
in our business this year.
In addition to our KPI’s, another metric that isn’t highlighted in our financial statements is our Net Promoter
Score (NPS). After a couple years of instituting multiple initiatives to improve our relationship with
customers, we have seen an increase in our NPS, which proves that we are providing best-in-class service
and driving customer loyalty. These measures have reduced and stabilized our churn and demonstrated
improvement in expanding our portfolio of products with our existing and new customers. Our team at
TeraGo understands the importance of customer service and we intend to sustain and grow this vital metric.
Regarding our 5G technical trials in the Greater Toronto area, we kickstarted 2020 with leveraging fixed
wireless network equipment from Nokia Inc. and customer premise equipment from Askey Computer Corp.
After some bumps in the road this past year due to the pandemic, we recently announced advancements
and have experienced improved through-put speeds by increasing results to approximately 1.5 gigabits per
second. We remain the largest holder of millimetre wave spectrum in Canada and are uniquely positioned
to be one of the first operators to launch commercial 5G fixed wireless services. Our vast spectrum
coverage, along with the technological advantages offered by 5G, is expected to deliver new innovative
communications solutions to our customers, improve the efficiency of our network and open new market
opportunities for TeraGo.
The positive trends that started for us in 2020 have continued into 2021. At the start of this year, we made
significant advancements to our 5G fixed wireless technical trials, expanded our product portfolio with
managed networking services, jointly developed a security solution that protects online elections from
potential cyber-attacks with Radware and were selected by a large national Canadian healthcare provider
for our Managed SD-WAN solution. With TeraGo’s resilient business model, diversified customer base,
significant growth in order backlog, stabilization of churn, predictable recurring revenue, judicious approach
to cash and launch of new products and services, I am confident that the positive trends we have
experienced at the start of this year will bode well for TeraGo through 2021 and beyond.
As you can tell our team is excited about both the near-term and long-term opportunity in front of us, and
the trends we are currently experiencing with our business. In sharing what we experienced in 2020 and
are currently seeing continue into 2021, we hope you also share this excitement with us. Many of you have
been long term shareholders and our team is grateful for your continued support as we realize our vision
of launching the first commercial 5G fixed wireless services in Canada.
Sincerely,
(signed) “Matthew Gerber”
Matthew Gerber
Chief Executive Officer
3 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL RESULTS FOR THE THREE
MONTHS AND FISCAL YEAR ENDED DECEMBER 31, 2020 AND 2019
The following Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand the results
of operations and financial condition of TeraGo Inc. All references in this MD&A to “TeraGo”, the “Company”, “we”,
“us”, “our” and “our company” refer to TeraGo Inc. and its subsidiaries, unless the context requires otherwise. This
MD&A is dated February 17, 2021 and should be read in conjunction with our audited consolidated financial statements
for the fiscal year ended December 31, 2020 and the notes thereto. Additional information relating to TeraGo, including
our most recently filed Annual Information Form (“AIF”), can be found on SEDAR at www.sedar.com and our website
at www.terago.ca. For greater certainty, the information contained on our website is not incorporated by reference or
otherwise into this MD&A. All dollar amounts included in this MD&A are in Canadian dollars unless otherwise indicated.
Certain information included herein is forward-looking and based upon assumptions and anticipated results that are
subject to uncertainties. Should one or more of these uncertainties materialize or should the underlying assumptions
prove incorrect, actual results may vary significantly from those expected. For a description of material factors that
could cause our actual results to differ materially, see the “Forward-Looking Statements” section and the “Risk Factors”
section in this MD&A. This MD&A also contains certain industry-related non-GAAP and additional GAAP measures that
management uses to evaluate performance of the Company. These non-GAAP and additional GAAP measures are
not standardized and the Company’s calculation may differ from other issuers. See “Definitions – Key Performance
Indicators, IFRS, Additional GAAP and Non-GAAP Measures”.
FORWARD-LOOKING STATEMENTS
This MD&A includes certain forward-looking statements that are made as of the date hereof only and 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 MD&A includes, but is not limited to, forward looking statements
regarding TeraGo’s growth strategy, strategic plan, the growth in TeraGo’s cloud and data centre businesses, retention
campaign and initiatives to improve customer service, additional capital expenditures, investments in products and
other IT services, and the Company’s 5G technical trials and 5G fixed wireless business strategy. 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 to
make decisions with respect to the Company, you should carefully consider the risks, uncertainties and assumptions,
including the risk that TeraGo’s growth strategy and strategic plan will not generate the result intended by management,
cross-selling of TeraGo’s cloud services may not succeed, retention efforts decreasing profit margins, opportunities for
expansion and acquisition not being available or at unfavourable terms, TeraGo’s “go-to-market” strategy may not
materialize, trends in the global 5G, connectivity, cloud and data centre sectors may not be accurately projected, future
ISED decisions in upcoming Consultations being unfavourable to the Company, the technical 5G trial the Company is
currently conducting may not generate the results intended, the lack of availability of suitable 5G radio equipment, the
inability of the Company to successfully launch a 5G fixed wireless business, new market opportunities for 5G may not
exist or require additional capital that may not be available to the Company, prolonged economic impacts from the
current COVID-19 pandemic, and those risks set forth in the “Risk Factors” section of this MD&A and other uncertainties
and potential events. If any of the risks materialize, the expectations and predictions of the Company may need to be
re-evaluated. Consequently, all of the forward-looking statements in this MD&A 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, we do not intend, and disclaim any obligation, to
update or revise any forward-looking statements whether in words, oral or written as a result of new information, future
events or otherwise.
4 Management’s Discussion and Analysis
Quarter and Year Ended December 31, 2020
OVERVIEW
Financial Highlights
Total revenue decreased 9.2% to $10.9 million for the three months ended December 31, 2020 compared to $12.0
million for the same period in 2019. The decrease in revenue was driven by lower connectivity revenue which
decreased 11.0% to $6.5 million compared to $7.3 million for the same period in 2019. The decrease in connectivity
revenue was attributable to churn exceeding provisioning. Cloud and colocation revenue decreased 6.4% to $4.4
million compared to $4.7 million for the same period in 2019. The decline was due to one-time revenue recognized
for an early termination in the prior year period. Total revenue decreased 6.2% to $45.4 million for the year ended
December 31, 2020 compared to $48.4 million for the same period in 2019. The decrease was driven by the factors
described above.
Net loss increased 4.8% to $2.2 million for the three months ended December 31, 2020 compared to a net loss of
$2.1 million for the same period in 2019. The higher net loss was driven by the decline in revenue. Net loss was
$8.3 million for the year ended December 31, 2020 compared to a net loss of $7.0 million for the same period in
2019. The higher net loss was driven by the factor described above.
Adjusted EBITDA1,2 decreased 7.5% to $3.7 million for the three months ended December 31, 2020 compared to
$4.0 million for the same period in 2019. The decrease was driven primarily by the decrease in revenue. For the
year ended December 31, 2020, Adjusted EBITDA decreased 9.1% to $15.9 million compared to $17.5 million for
the same period in 2019. The decrease was driven by the factor described above.
Key Developments
The COVID-19 pandemic continues to impact the Canadian and global economy, including the markets in which
the Company and its customers operate. The Company’s offices and data centres remain open and in operation
to support its customers. Management continues to operate under its pandemic response plan for the Company
to ensure it continues to provide services to the customer base while supporting the health and well-being of
TeraGo employees. These include: alternative work arrangements and work-from-home policies for back office
and other non-field service employees, online education and promotion of social distancing, mandated face
coverings at its data centres and other facilities attended by customers and vendors, as well as utilizing the
Company’s Health and Safety committee, its Senior Leadership Team and the Board of Directors to oversee the
administration of the pandemic response plan.
Due to the uncertainty of the outcome, length, and full extent of the impact the pandemic will have at this time,
Management will continue to actively monitor the impacts to the business and make appropriate adjustments to
policies, practices, and spending to ensure we continue to offer our services.
In mid-2019, TeraGo reinstituted a regularly measured Net Promoter Score (“NPS”), a widely utilized industry
measurement of customer loyalty and relationships with its customers. TeraGo’s NPS score across Q4 2020 was
a +62, which compares favourably across both Network and Cloud Operators.
On June 30, 2020, the Company entered into an amended and restated credit agreement with each of Royal
Bank of Canada (“RBC”, as new administrative agent and lead lender) and The Toronto-Dominion Bank (“TD”).
The parties to the credit agreement agreed, among other things, to extend the maturity date from June 14, 2021
to June 30, 2022. The new facilities under the credit agreement total $35.0M, comprising of a $30.0M non-
revolving term facility and a $5.0M revolving operating credit facility.
On August 4, 2020, Tony Ciciretto ceased to serve as President & CEO of the Company. The Board of Directors
appointed David Charron as Interim-CEO. David Charron continues to serve as the Chief Financial Officer.
1 Adjusted EBITDA is a Non-GAAP measure. See "Definitions – Key Performance Indicator, IFRS, Additional GAAP and Non-GAAP Measures.
2 See “Adjusted EBITDA” for a reconciliation of net loss to Adjusted EBITDA
5 Management’s Discussion and Analysis
Quarter and Year Ended December 31, 2020
TERAGO OVERVIEW
TeraGo provides businesses across Canada with network connectivity, cloud, and colocation services. The Company
provides cloud Infrastructure as a Service (“IaaS”) computing and storage solutions, data centre colocation solutions,
and operates five (5) data centres across Canada. With respect to the Company’s connectivity services, it owns and
operates a carrier-grade, Multi-Protocol Label Switching (“MPLS”) enabled fixed wireless, IP communications network
in Canada targeting businesses that require Internet access, private interconnection, and data connectivity services.
The Company provides enterprise-class cloud services to multiple high value, mid-market and enterprise customers
across a variety of industry verticals, federal, provincial and municipal governments and agencies, as well as non-profit
organizations. The Company is focussed on providing customers with tailored hybrid IT solutions, running their IT
workloads with the appropriate mix of on-premise, data centre colocation, private and public cloud environments. It
currently has strategic relationships with several technology partners that give it access to certain products and
solutions to provide enterprise cloud services.
The Company’s subscription-based business model generally generates stable and predictable recurring revenue from
cloud, colocation and connectivity services. Once a customer is obtained, TeraGo’s strategy is to generate incremental
recurring revenue from that customer by cross-selling to bundle customers with multiple services and up-selling within
services provided.
Network Connectivity Services
Cloud Services
Colocation Services
National high performance,
scalable Internet access
principally via wireless and
fibre optics
Active redundancy capability
with bundled connectivity
solution
Managed network service
Private and hybrid cloud
Colocation services in partial,
IaaS utility computing on virtual
and dedicated compute
platforms
High performance and secure
data storage and archiving
Business Continuity services
for critical situations
Managed Services for public
and hybrid cloud offerings
full, or customized cabinets
Managed, Private Dedicated,
and Co-location hosting
services
Private Vaults protected with
biometrics for maximum
security
Other value-added services
such as hybrid cloud
TERAGO’S BUSINESS MODEL
TeraGo’s business strategy is to provide enterprise-class hybrid IT solutions tailored to the mid-market and larger
businesses. The Company leverages its existing nationwide data centre footprint, private/multi-tenant cloud
capabilities, all underpinned by a resilient national carrier grade network infrastructure, to align with customers’ current
IT landscape. This allows customers to operate on platforms best suited for their workloads – on-premise, data centre
colocation, TeraGo private and multi-tenant cloud, and AWS public cloud – all securely interconnected.
TeraGo’s customers typically sign one, two or three-year contracts. Services are billed monthly over the term of the
contract.
6 Management’s Discussion and Analysis
Quarter and Year Ended December 31, 2020
NETWORK CONNECTIVITY SERVICES
TeraGo owns and operates a carrier-grade Multi-Protocol Label Switching (“MPLS”) enabled wireline and fixed
wireless, Internet Protocol (“IP”) communications network in Canada, providing businesses with high performance,
scalable, and secure access and data connectivity services.
TeraGo’s carrier grade IP communication network serves an important and growing demand among Canadian
businesses for network access diversity by offering wireless services that are redundant to their existing wireline
broadband connections.
TeraGo’s IP network has been designed to eliminate single points of failure and the Company backs its services with
customer service level commitments, including 99.9% service availability, industry leading mean time to repair, and 24
x 7 telephone and e-mail access to technical support specialists.
TeraGo offers Canadian businesses high performance unlimited and usage-based dedicated Internet access
with upload and download speeds from 5 megabits per second (“Mbps”) up to 1 gigabit per second (“Gbps”). TeraGo
enhances service performance by minimizing the number of networks between our customers and their audiences,
using peering arrangements with multiple tier-one carriers to connect to the Internet.
To deliver its services, the Company has built and operates a carrier-grade, IP network, using licensed and license-
exempt spectrum and fibre-optic wireline infrastructure that supports commercially available equipment.
The Company owns and controls a national MPLS distribution network from Vancouver to Montreal that
aggregates customer voice and data traffic and interconnects where necessary with carrier diverse leased fibre
optic facilities. Major Internet peering and core locations are centralized in Vancouver, Toronto and Seattle, although
Internet access is also available in all regional markets for further redundancy.
TeraGo offers a range of diverse Ethernet-based services over a secured wireless connection to customer locations
up to 20 kilometres from a hub (provided line of sight or wireline networks exist) or through a fibre optic connection.
Quality of Service Capabilities
TeraGo’s MPLS network, including key high traffic hub sites, is equipped with Quality of Service (“QoS”) capabilities to
improve performance and traffic management. All of TeraGo’s major national markets are end-to-end QoS enabled
providing the foundation to support voice traffic and other potential future applications.
Radio Spectrum
24-GHz and 38-GHz Wide-area Licences
The Company owns a national spectrum portfolio of exclusive 24 GHz and 38 GHz wide-area spectrum licences which
covers major regions throughout Canada including 2,120 MHz of spectrum across Canada’s 6 largest cities and has a
total coverage of approximately 23.8 million of the population in Canada (or nearly 10 million households) 1. This
spectrum is used to deploy point-to-point and point-to-multipoint microwave radio systems, interconnecting core hubs
in ring architectures (where possible) to backhaul metro area network traffic and in the access network or “last mile” to
deliver high capacity (speeds of 20Mbps to 1Gbps) IP-based services for business, government and mobile backhaul.
On June 5, 2019, Innovation, Science, and Economic Development Canada (“ISED”), released its Decision on
Releasing Millimetre Wave Spectrum to Support 5G. Among other things in its decision document, ISED reported that
existing licensees of the 38 GHz band are eligible to apply for new “flexible use” licences for an equal amount of
spectrum upon expiry of the current 10-year licence term, or earlier upon voluntary licence cancellation. Flexible use
licences will permit licensees to deploy mobile systems to support 5G, while retaining the current ability to deploy on a
fixed wireless basis. The Company holds 25 of 27 issued 38 GHz spectrum licences in Canada.
In June 2018, ISED published its overall approach and planned activities for spectrum over the next five years in a
document titled Spectrum Outlook 2018 to 2022. In such document, ISED has confirmed that the 24 GHz band, among
1 Based on 2016 Canadian Census data cited by ISED.
7 Management’s Discussion and Analysis
Quarter and Year Ended December 31, 2020
several others has been designated as Priority 2 for future release for commercial mobile use. A definitive timeline for
the release of spectrum bands designated as Priority 2 and Priority 3 has not yet been confirmed by ISED. A timeline
for the release of the 38 GHz band, which has been designated as a Priority 1 band was previously set for the end of
2021 but may be subject to delay due to the COVID-19 pandemic.
For additional information on these Consultations and to review the response letter of the Company or other
stakeholders,
https://www.ic.gc.ca/eic/site/smt-
gst.nsf/eng/h_sf08436.html.
Consultation
webpage:
ISED’s
please
refer
to
For further details on our licensed spectrums, please refer to the Company’s 2020 AIF.
CLOUD SERVICES
TeraGo provides cloud services that seek to meet the complex and evolving IT needs of our customers. TeraGo
provides IaaS for compute, storage, disaster recovery cloud solutions and other offerings. These solutions allow the
Company to compete in the cloud services market.
TeraGo offers customized cloud storage and compute offerings to customers across Canada. TeraGo cloud can offer
a virtualized computing environment whereby customers can access on-demand computing without the need to acquire
and maintain expensive server equipment. TeraGo can also provide offsite cloud storage for key backup and disaster
recovery situations, including utilizing partnerships with software and hardware vendors such as Veeam, Zerto and
Pure Storage. The Company has strategic relationships and partnerships with technology leaders such as IBM, Cisco,
VMware, Microsoft, and others that gives it early access to intelligence, products and solutions to provide enterprise
cloud services.
COLOCATION SERVICES
TeraGo provides data centre colocation services
that protect and connect our customers’ valuable
information assets. Customers can provision their computing equipment within shared partial cabinets or full, private
cabinets, as well as customized caged space designed for their specific needs. TeraGo provides connectivity on
redundant routes in and out of the facilities.
Hosting and colocation revenue is derived from set-up fees for new installations and monthly recurring charges based
on the number of cabinets and/or the quantity of cage space, power requirements, managed services provided and
Internet/data bandwidth requirements. Other services, such as disaster recovery services, are provided under custom
contractual arrangements.
TeraGo also offers a variety of managed hosting solutions, which may require us to manage various aspects of a
customer’s hardware, software or operating systems in public or privately accessible environment. TeraGo offers
disaster recovery services on a custom basis. These facilities can be provisioned at the data centre location and provide
customers with the capability to restore office functionality with direct access to their information located in the data
centre.
Our network can provide these customers Internet and/or secure private interconnections between the data centre
facility and the customer’s office location(s).
Data centre services customers typically include national government agencies, financial services companies, IT
service providers, content and network service providers, and businesses which rely on TeraGo to store and manage
their critical IT equipment and provide the ability to directly connect to the networks that enable our information-driven
economy.
8 Management’s Discussion and Analysis
Quarter and Year Ended December 31, 2020
Data Centre Facilities
TeraGo’s data centres provide IT solutions, including colocation and disaster recovery, to a roster of small and medium-
sized businesses, enterprises, public sector and technology service providers. TeraGo has approximately 60,000
square feet of data centre capacity in the five (5) facilities it operates across Canada:
Mississauga, Ontario
TeraGo operates a 10,000 square foot AT 101 SOC2 Type 2 compliant data centre facility in Mississauga, Ontario that
was previously managed by BlackBerry Limited and built to a tier 3 standard. This facility predominantly serves the
Greater Toronto Area.
Vaughan, Ontario
TeraGo operates a 16,000 square foot AT 101 SOC2 Type 2 compliant data centre facility in Vaughan, Ontario, serving
the Greater Toronto Area.
Kelowna, British Columbia
TeraGo operates its 18,000 square feet AT 101 SOC2 Type 2 compliant data centre in Kelowna named the GigaCenter.
The GigaCenter is built to a tier 3 standard and the location in Kelowna is considered ideal for a data centre as the
region is considered a seismically stable geographic location, has a temperate climate and has a lower probability of
both natural and man-made events that may be a risk.
Vancouver, British Columbia
TeraGo operates two AT 101 SOC2 Type 2 compliant data centre facilities in downtown Vancouver. Its first facility is
approximately 7,000 square feet. The facility has redundant fibre facilities between the data centre and the ‘telco hotel’,
555 West Hastings, in downtown Vancouver. The second facility is 7,000 square feet and is served by TeraGo’s fibre
optic lines. Both facilities are used to service the Greater Vancouver Area.
9 Management’s Discussion and Analysis
Quarter and Year Ended December 31, 2020
SELECTED ANNUAL INFORMATION
The following table displays a summary of our Consolidated Statements of Comprehensive Earnings (Loss) for the
three months ended December 31, 2020 and 2019 and the years ended December 31, 2020, 2019 and 2018 and a
summary of select Balance Sheet data as at December 31, 2020, 2019 and 2018.
(in thousands of dollars, except with respect to
earnings (loss) per share)
Three months ended
December 31
2019
2020
Year ended December 31
2020
2019
2018(1)
Revenue
Cloud and colocation revenue
Connectivity revenue
Total Revenue
Expenses
Cost of services
Salaries and related costs, net
Other operating expenses
Amortization of intangible assets
Depreciation of network assets, property and
equipment
Earnings (loss) from operations
Foreign exchange gain (loss)
Finance costs
Finance income
Earnings (loss) before income taxes
Income taxes
Income tax recovery (expense)
Net earnings (loss) and comprehensive
earnings (loss)
Deficit, beginning of year (1)
Deficit, end of year
Basic earnings (loss) per share
Diluted earnings (loss) per share
Basic weighted average number of shares
outstanding
Diluted weighted average number of shares
outstanding
Selected Balance Sheet Data
Cash and cash equivalents
Accounts receivable
Prepaid expenses and other assets
Network assets, property and equipment
Total Assets
Accounts payable and accrued liabilities
Long-term debt
Other long-term liabilities
Shareholders' equity
$
$
$
$
$
$
$
$
$
$
$
$
$
$
4,382
6,522
10,904
2,723
3,571
2,080
360
3,283
12,017
(1,113)
(2)
(1,115)
9
(2,221)
0
(2,221)
(87,327)
(89,548)
(0.13)
(0.13)
16,750
16,750
2020
5,858
2,500
804
56,649
103,168
5,403
28,144
-
40,866
$
4,706
7,291
11,997
2,704
4,046
2,583
440
3,308
13,081
(1,084)
(28)
(1,090)
82
(2,120)
0
(2,120)
(79,169)
(81,289)
(0.13)
(0.13)
16,623
16,623
17,427
28,021
45,448
9,816
16,254
7,940
1,508
13,301
48,819
(3,371)
(210)
(4,777)
99
(8,259)
18,064
30,373
48,437
9,647
17,511
8,314
1,799
13,488
50,759
(2,322)
(69)
(4,769)
166
(6,994)
19,290
35,005
54,295
13,982
19,132
12,010
2,354
9,401
56,879
(2,584)
(2)
(2,315)
81
(4,820)
-
-
-
$
$
$
$
(8,259)
(81,289)
(89,548)
(0.49)
(0.49)
(6,994)
(74,295)
(81,289)
(0.43)
(0.43)
(4,820)
(69,475)
(74,295)
(0.32)
(0.32)
16,693
16,195
15,123
16,693
16,195
15,123
As at December 31
$
$
$
$
$
$
$
$
$
2019
8,686
2,889
727
59,562
110,677
4,599
28,470
235
48,105
$
$
$
$
$
$
$
$
$
2018(1)
3,918
3,604
996
35,346
84,349
5,781
32,294
1,092
44,643
(1) The Company has applied IFRS 16 on January 1, 2019 using the modified retrospective approach. Under this method, the comparative information as at and for
the year ended December 31, 2018 is not restated. See “Accounting Pronouncements Adopted in 2019” in the Company’s MD&A for the three months and fiscal
years ended December 31, 2019 and 2018.
10 Management’s Discussion and Analysis
Quarter and Year Ended December 31, 2020
RESULTS OF OPERATIONS
Comparison of the three months and year ended December 31, 2020 and 2019
(in thousands of dollars, except with respect to gross profit margin, earnings per share, Backlog MRR, and ARPU)
Financial
Cloud and Colocation Revenue
Connectivity Revenue
Total Revenue
Cost of Services1
Selling, General, & Administrative Costs
Gross profit margin1
Adjusted EBITDA1, 2
Net loss
Basic loss per share
Diluted loss per share
Operating
Backlog MRR1
Connectivity
Cloud & Colocation
Churn Rate1
Connectivity
Cloud & Colocation
ARPU1
Connectivity
Cloud & Colocation
Three months ended
December 31
2019
2020
Year ended
December 31
2019
2020
4,382
6,522
10,904
2,723
5,651
75.0%
3,695
(2,221)
(0.13)
(0.13)
4,706
7,291
11,997
2,704
6,628
77.5%
4,006
(2,120)
(0.13)
(0.13)
17,427
28,021
45,448
9,816
24,194
78.4%
15,920
(8,259)
(0.49)
(0.49)
18,064
30,373
48,437
9,647
25,825
80.1%
17,477
(6,994)
(0.43)
(0.43)
129,676
56,437
92,096
18,615
129,676
56,437
92,096
18,615
1.4%
1.0%
1,025
3,582
1.4%
0.9%
1,019
3,393
1.5%
1.0%
1,032
3,386
1.4%
1.3%
1,022
3,262
$
$
$
$
$
$
$
$
$
$
$
$
$
Refer to “Definitions – Key Performance Indicators, IFRS, Additional GAAP and Non-GAAP Measures” for a
description of the components of relevant line items below.
Revenue
Total revenue decreased 9.2% to $10.9 million for the three months ended December 31, 2020 compared to $12.0
million for the same period in 2019. Revenue decreased 6.2% to $45.4 million for the year ended December 31, 2020
compared to $48.4 million for the same period in 2019.
Connectivity Revenue
For the three months ended December 31, 2020, connectivity revenue decreased 11.0% to $6.5 million compared to
$7.3 million for the same period in 2019. The decrease was attributable to churn exceeding customer provisioning.
For the year ended December 31, 2020, connectivity revenue decreased 7.9% to $28.0 compared to $30.4 million for
the same period in 2019. The decrease was driven by the factors described above.
Cloud and Colocation Revenue
For the three months ended December 31, 2020, cloud and colocation revenue decreased 6.4% to $4.4 million
compared to $4.7 million for the same period in 2019. The decline was due to one-time revenue recognized for an early
termination in the prior year period. Normalizing for this one-time revenue in the prior year period, cloud and colocation
revenue would have grown 0.6% for the three months ended December 31, 2020.
1 See "Definitions – Key Performance Indicators, IFRS, Additional GAAP and Non-GAAP Measures”
2 See “Adjusted EBITDA” for a reconciliation of net loss to Adjusted EBITDA
11
Management’s Discussion and Analysis
Quarter and Year Ended December 31, 2020
For the year ended December 31, 2020, cloud and colocation revenue decreased 3.9% to $17.4 million compared to
$18.1 million for the same period in 2019. The decrease was driven by the factor described above.
Cost of Services
For the three months ended December 31, 2020, cost of services was flat at $2.7 million compared to cost of services
of $2.7 million in the same period in 2019.
For the year ended December 31, 2020, cost of services increased 2.1% to $9.8 million compared to $9.6 million in the
same period in 2019. The increase was driven by an increase in the cost of connectivity services.
Salaries and related costs and other operating expenses (“SG&A”)
For the three months ended December 31, 2020, SG&A decreased 13.6% to $5.7 million compared to $6.6 million for
the same period in 2019. The decrease was driven by lower salaries, severance charges and travel expenses.
For the year ended December 31, 2020, SG&A decreased 6.2% to $24.2 million compared to $25.8 million for the same
period in 2019. The decrease was primarily due to Government grants of $1.3 million received due to COVID-19.
Net loss
Net loss increased 4.8% to $2.2 million for the three months ended December 31, 2020 compared to a net loss of $2.1
million for the same period in 2019. The higher net loss was driven by lower revenue.
Net loss was $8.3 million for the year ended December 31, 2020 compared to a net loss of $7.0 million for the same
period in 2019. The higher net loss was driven by the factor described above.
Adjusted EBITDA 1, 2
Adjusted EBITDA decreased 7.5% to $3.7 million for the three months ended December 31, 2020 compared to $4.0
million for the same period in 2019. The decrease was driven primarily by the decrease in revenue.
For the year ended December 31, 2020, Adjusted EBITDA decreased 9.1% to $15.9 million compared to $17.5 million
for the same period in 2019. The decrease was driven by the factor described above.
The table below reconciles net loss to Adjusted EBITDA1 for the three months and year ended December 31, 2020 and
2019.
(in thousands of dollars)
Net earnings (loss) for the period
Foreign exchange loss (gain)
Finance costs
Finance income
Earnings (loss) from operations
Add:
$
Three months ended
December 31
Year ended
December 31
2020
(2,221)
2
1,115
(9)
(1,113)
2019
(2,120)
$
28
1,090
(82)
(1,084)
2020
(8,259)
210
4,777
(99)
2019
(6,994)
69
4,769
(166)
(3,371)
(2,322)
Depreciation of network assets, property and equipment and
amortization of intangible assets
Loss on disposal of network assets
Impairment of Assets and Related Charges
Stock-based Compensation Expense (Recovery)
Restructuring, acquisition-related, integration costs and other
3,643
3,748
14,809
15,287
77
654
276
158
93
625
341
283
198
1,139
1,515
1,630
296
808
1,984
1,424
Adjusted EBITDA4
$
3,695
4,006 $
15,920
17,477
1 See "Definitions – Key Performance Indicators, IFRS, Additional GAAP and Non-GAAP Measures”
2 Adjusted EBITDA is a Non-GAAP measure. See "Definitions – Key Performance Indicator, IFRS, Additional GAAP and Non-GAAP Measures.
TSX: TGO
Page 9
12 Management’s Discussion and Analysis
Quarter and Year Ended December 31, 2020
Backlog MRR 4
Connectivity backlog MRR was $129,676 as at December 31, 2020, compared to $92,096 as at December 31, 2019.
The increase in backlog MRR is driven primarily by higher sales volume from both the direct sales team and the
channel team compared to the prior year period.
Cloud and colocation backlog MRR was $56,437 as at December 31, 2020 compared to $18,615 as at December 31,
2019. The increase in backlog MRR is driven higher sales volume compared to the prior year.
ARPU 4
For the three months ended December 31, 2020 connectivity ARPU was $1,025 compared to $1,019 for the same
period in 2019. The ARPU increased slightly as the Company continues to focus on acquiring and retaining mid-
market business customers. For the year ended December 31, 2020 connectivity ARPU was $1,032 compared to
$1,022 for the same period in 2019. The increase was driven by the factors described above.
For the three months ended December 31, 2020 cloud and colocation ARPU was $3,582 compared to $3,393 for the
same period in 2019. The increase is due to customer upgrades and cross-selling activities as well as the churn of
lower ARPU customers. For the year ended December 31, 2020 cloud & colocation ARPU was $3,386 compared to
$3,262 for the same period in 2019. The increase was driven by the factors described above.
Churn1
For the three months ended December 31, 2020, connectivity churn was 1.4% compared to 1.4% for the same period
in 2019. The Company’s customer retention initiatives have stabilized churn. For the year ended December 31, 2020
connectivity churn was 1.5% compared to 1.4% for the same period in 2019. The increase is due to elevated churn
experienced in the second quarter of 2020 that was associated with the onset of the COVID-19 pandemic.
For the three months ended December 31, 2020, cloud and colocation churn was 1.0% compared to 0.9% for the
same period in 2019. Churn in the three months ended December 31, 2020 remained at a consistent level due to
ongoing customer retention initiatives. For the year ended December 31, 2020 cloud and colocation churn was 1.0%
compared to 1.3% for the same period in 2019. The decrease was driven by ongoing customer retention initiatives.
Finance costs
For the three months ended December 31, 2020, finance costs were flat at $1.1 million compared to $1.1 million for
the same period in 2019.
For the year ended December 31, 2020 finance costs were flat at $4.8 million compared to $4.8 million for the same
period in 2019.
Depreciation and amortization
For the year ended December 31, 2020 depreciation of network assets, property and equipment and amortization of
intangibles decreased 3.3% to $14.8 million compared to $15.3 million for the same period in 2019. The decrease was
due to impaired and fully depreciated assets.
1 See "Definitions – Key Performance Indicators, IFRS, Additional GAAP and Non-GAAP Measures”
13 Management’s Discussion and Analysis
Quarter and Year Ended December 31, 2020
Summary of Quarterly Results
All financial results are in thousands, with the exception of Earnings per Share, Gross Profit Margin, Backlog MRR,
Churn Rate, and ARPU
Financial
Revenue
Gross Profit Margin %1
Adjusted EBITDA4
Net income/(loss)
Basic income/(loss) per share
Diluted income/(loss) per share
Basic weighted average number of
shares outstanding
Diluted weighted average number
of shares outstanding
Operating
Backlog MRR4
Connectivity
Cloud & Colocation
Churn Rate 4
Connectivity
Cloud & Colocation
ARPU4
Connectivity
Cloud & Colocation
Q4-20
Q3-20
Q2-20
Q1-20
Q4-19
Q3-19
Q2-19
Q1-19
$
$
$
$
$
10,904
75.0%
3,695
(2,221)
(0.13)
(0.13)
16,750
11,279
77.8%
3,775
(3,179)
(0.19)
(0.19)
16,715
11,648
80.0%
4,828
(656)
(0.04)
(0.04)
16,670
11,617
80.6%
3,622
(2,203)
(0.13)
(0.13)
16,635
11,997
77.5%
4,006
(2,120)
(0.13)
(0.13)
16,623
11,814
80.3%
4,358
(915)
(0.06)
(0.06)
16,579
12,229
80.7%
4,523
(2,771)
(0.18)
(0.18)
15,790
12,397
81.8%
4,590
(1,188)
(0.08)
(0.08)
15,775
16,750
16,715
16,670
16,635
16,623
16,579
15,790
15,775
$
$
129,676
56,437
113,231
31,935
86,903
18,864
89,296
18,225
92,096
18,615
47,672
37,237
57,081
17,049
71,624
37,094
1.4%
1.0%
1,025
3,582
1.4%
0.9%
1,028
3,468
1.7%
1.1%
1,041
3,255
1.5%
1.0%
1,033
3,240
1.4%
0.9%
1,019
3,393
1.3%
1.3%
1,014
3,248
1.6%
1.7%
1,023
3,185
1.5%
1.1%
1,033
3,221
$
$
Seasonality
The Company’s net customer growth, with respect to its connectivity business, is typically impacted adversely by
weather conditions as the majority of new customer locations require the installation of rooftop equipment. Typically,
harsher weather in the first quarter of the year results in a reduction of productive installation days. In addition, certain
customers using our cloud services may have higher usage during certain times of the year based on the seasonality
of their respective businesses.
The Company’s cash flow and earnings are typically impacted in the first quarter of the year due to several annual
agreements requiring payments in the first quarter including annual rate increases in long-term contracts and the restart
on January 1st of payroll taxes and other levies related to employee compensation.
1 See "Definitions – Key Performance Indicators, IFRS, Additional GAAP and Non-GAAP Measures”
14 Management’s Discussion and Analysis
Quarter and Year Ended December 31, 2020
LIQUIDITY AND CAPITAL RESOURCES
TeraGo has historically financed its growth and operations through cash generated by operations, the issuance of
equity securities and long-term debt.
The table below is a summary of cash inflows and outflows by activity.
(in thousands of dollars)
Statement of Cash Flows Summary
Cash inflows and (outflows) by activity:
Operating activities
Investing activities
Financing activities
Net cash inflows (outflows)
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Three months ended
December 31
Year ended
December 31
2020
2019
2020
2019
$
$
2,275
(1,680)
(2,351)
(1,756)
7,614
5,858
4,015 $
(1,350)
(3,077)
(412)
9,098
8,686 $
13,332
(7,584)
(8,576)
(2,828)
8,686
5,858
15,378
(6,356)
(4,254)
4,768
3,918
8,686
Operating Activities
For the three months ended December 31, 2020, cash generated from operating activities was $2.3 million compared
to cash from operations of $4.0 million for the same period in 2019. The decrease was primarily due to higher severance
payments in the three months ended December 31, 2020. For the year ended December 31, 2020, cash generated
from operating activities was $13.3 million compared to cash from operations of $15.4 million for the same period in
2019. The decrease was due to lower income from operations, higher severance payments and an unfavourable
movement in working capital due to the timing of cash receipts and payments.
Investing Activities
For the three months ended December 31, 2020, cash used in investing activities was $1.7 million compared to cash
used of $1.4 million for the same period in 2019. For the year ended December 31, 2020, cash used in investing
activities was $7.6 million compared to cash used of $6.4 million for the same period in 2019. The increase was driven
by increased capital expenditures due to higher customer provisioning.
Financing Activities
For the three months ended December 31, 2020 cash used in financing activities was $2.4 million compared to cash
used from financing activities of $3.1 million for the same period in 2019. The decrease was due to lower principal
payments on the Company’s long-term debt, as well as government grants received in the three months ended
December 31, 2020. For the year ended December 31, 2020, cash used in financing activities was $8.6 million
compared to cash used of $4.3 million for the same period in 2019. The increase was due to the Company’s equity
offering in the prior year period, partially offset by proceeds from long-term debt and government grants received in the
year ended December 31, 2020.
Capital Resources
As at December 31, 2020, the Company had cash and cash equivalents of $5.9 million and access to a revolving facility
and acquisition funding capital as described below, subject to the terms and conditions of the credit facilities.
The Company anticipates incurring additional capital expenditures for the purchase and installation of network,
colocation and cloud assets and customer premise equipment as dictated by business needs.
15 Management’s Discussion and Analysis
Quarter and Year Ended December 31, 2020
Management believes the Company’s current cash, anticipated cash from operations, access to the undrawn portion
of debt facilities and its access to additional financing in the form of debt or equity will be sufficient to meet its working
capital and capital expenditure requirements for at least the twelve-month period following December 31, 2020. In light
of the current COVID-19 pandemic and the impacts it has had on businesses globally, including that of the Company
(see “Risk Factors)”, the Company continues to monitor its cash position closely and has taken certain mitigation efforts
to conserve its cash, implement cost saving measures and avail itself of available Government support programs.
Term Debt Facility
In June 2020, the Company entered into an amended and restated credit agreement with a syndicate led by Royal
Bank of Canada (“RBC”) to replace the Company’s existing credit facilities which reduced the credit facility to $35.0
million (from $75.0 million) and extended the term from June 14, 2021 to June 30, 2022. Effective June 30, 2020,
National Bank of Canada ceased to be an administrative agent and a lender to the Company and assigned its right
and obligations to RBC, in its capacity as administrative agent.
The total $35.0 million facility that matures June 30, 2022 is made up of the following:
$5.0 million revolving facility which bears interest at prime plus a margin percent. As of December 31, 2020,
$nil was drawn and outstanding on the revolving facility. Letters of credit issued under the facility totaled
$0.6 million as of December 31, 2020 (December 31, 2019 - $0.7 million).
$30.0 million term facility which bears interest at prime or Banker's Acceptance (at the Company's option)
plus a margin percent and is repayable in quarterly principal installments of $0.75 million. This facility was
fully drawn upon signing the amended and restated credit agreement.
At December 31, 2020, $28.4 million of the term facility principal balance outstanding was in a banker’s acceptance
bearing interest at prime plus a margin percent and the remaining $0.1 million was in a prime rate loan. The effective
interest on the Company’s long-term debt on December 31, 2020 was 4.21%.
During the year ended December 31, 2020, the Company incurred $0.3 million in finance costs to amend and extend
the credit facility. Financing fees incurred as part of the Company’s debt origination and modifications have been
recorded as a reduction in the carrying amount of the debt and deferred and amortized using the effective interest
method over the remaining term of the facility.
The amended and restated RBC facility is subject to certain financial and non-financial covenants which were
substantially carried over from the previous credit agreement and the Company is in compliance with at December 31,
2020. Under this facility, the Company is subject to a cash flow sweep that could accelerate a certain amount of principal
repayment based on a calculation outlined by the credit agreement not later than 120 days after the end of each fiscal
year.
Equity Offering
On July 3, 2019, the Company completed an equity offering to issue and sell 805,000 common shares for gross
proceeds of $8.9 million (the “Offering”). Proceeds net of actual commissions, legal, accounting, and listing fees was
$8.1 million. The Offering was carried out pursuant to an underwriting agreement dated June 17, 2019, with a syndicate
of underwriters led by TD Securities Inc., and included Canaccord Genuity Corp., Cormark Securities Inc., and
Desjardins Securities Inc.
The net proceeds were used in full to fund technical and customer trials related to 5G technology and for general
corporate purposes.
Intended Use of Net Proceeds
a) Fund technical and customer trials related to 5G technology
b) General corporate purposes
Use of Net Proceeds
as at December 31, 2020
$1.0 million
$7.1 million
16 Management’s Discussion and Analysis
Quarter and Year Ended December 31, 2020
Contractual Obligations
The Company is committed to leases for premises, office equipment, network real estate access, automobiles,
telecommunication facilities and radio spectrum licences. Annual minimum payments over the next five years and
thereafter are as follows (in thousands):
Network assets, property, and equipment $
Other Purchase Obligations
Long-term debt
Lease liabilities
Total
2021
565
4,224
3,000
7,236
15,025
2022
-
2,815
25,500
6,769
35,084
2023
-
2,011
-
5,553
7,564
2024
-
1,086
-
4,330
5,416
2025
-
461
-
3,660
4,121
Thereafter
-
-
-
10,335
10,335
Total
565
10,597
28,500
37,883
77,545
Off-balance Sheet Arrangements
As of December 31, 2020, the Company had no off-balance sheet arrangements.
Share Capital
TeraGo’s authorized share capital consists of an unlimited number of Common Shares, an unlimited number of Class
A Non-Voting Shares and two Class B Shares. A detailed description of the rights, privileges, restrictions and conditions
attached to the authorized shares is included in the Company’s 2020 Annual Information Form, a copy of which can be
found on SEDAR at www.sedar.com.
As of February 17, 2021, there were 16,762 thousand Common Shares issued and outstanding. In addition, as of
February 17, 2021 there were 389 thousand Common Shares issuable upon exercise of TeraGo stock options, 110
thousand Common Shares issuable upon vesting of restricted share units, and 28 thousand Common Shares issuable
upon vesting of performance share units.
Financial Instruments
The Company initially measures financial instruments at fair value. Transaction costs that are directly attributable to the
issuance of financial assets or liabilities are accounted for as part of the carrying value at inception (except for
transaction costs related to financial instruments recorded as Fair Value through Profit and Loss (FVTPL) financial
assets which are expensed as incurred), and are recognized over the term of the assets or liabilities using the effective
interest method.
Subsequent measurement and treatment of any gain or loss is recorded as follows:
(i)
(ii)
(iii)
Financial assets and financial liabilities at FVTPL are measured at fair value at the balance sheet
date with any gain or loss recognized immediately in net loss. Interest and dividends earned from
financial assets are also included in net loss for the period.
Loans and receivables are measured at amortized cost using the effective interest method. Any gains
or losses are recognized in net loss for the period.
Other financial liabilities are measured at amortized cost using the effective interest method. Any
gains or losses are recognized in net loss for the period.
Impairment of Financial Assets
The Company’s financial assets measured at amortized cost consist of assets discussed in Note 18 of the financial
statements.
Under IFRS 9, loss allowances are measured on either of the following bases:
12-month ECLs: these are expected credit losses (“ECLs”) that result from possible default events within the
12 months after the reporting date; and
lifetime ECLs: these are ECLs that result from all possible default events over the expected life of a financial
instrument.
17 Management’s Discussion and Analysis
Quarter and Year Ended December 31, 2020
The Company measures loss allowances for trade receivables and any contract assets at an amount equal to lifetime
ECLs. When determining whether the credit risk of a financial asset has increased significantly since initial recognition
and when estimating ECLs, the Company considers reasonable and supportable information that is relevant and
available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based
on the Company’s historical experience and informed credit assessment and including forward-looking information.
Loss allowances on financial assets measured at amortized cost are deducted from the gross carrying amount of the
asset and the related impairment loss is recorded separately on the statement of comprehensive loss. The Company
subsequently writes off financial assets where it is not economical to pursue recovery and when all reasonable legal
avenues of pursuit for material assets have been exhausted.
The following is a summary of the Company’s significant categories of financial instruments as at December 31,
2020:
Financial Instrument
Classification and measurement method
Financial Assets
Cash and cash equivalents
Accounts Receivable
Financial liabilities
Accounts payable
Accrued Liabilities
Long-term debt
Derivatives¹
Interest rate swap
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
FVTPL
¹Derivatives can be in an asset or liability position at a point in time historically or in the future
Other financial liabilities
The Company recognizes debt securities issues and subordinated liabilities on the date that they originated. All other
financial liabilities are recognized initially on the date that the Company becomes a party to the contractual provisions.
The Company has the following non-derivative financial liabilities: current and long-term debt, accounts payable and
accrued liabilities, and current portion and long-term portion of other long term liabilities.
Such liabilities are recognized initially at fair value less any directly attributable transaction costs. Subsequent to initial
recognition these financial liabilities are measured at amortized cost using the effective interest method.
Interest on loans and borrowings is expensed as incurred unless capitalized for qualifying assets in accordance with
IAS 23, Borrowing Costs. Loans and borrowings are classified as a current liability unless the Company has an
unconditional right to defer settlement for at least 12 months after the end of the year.
Derivative instruments
The Company is not engaged in any derivative contracts as at December 31, 2020.
Financial Instrument Risks
Fair value of financial instruments
The Company has determined the estimated fair values of its financial instruments based on appropriate valuation
methodologies. Where quoted market values are not readily available, the Company may use considerable judgment
to develop estimates of fair value. Accordingly, any estimated values are not necessarily indicative of the amounts the
Company could realize in a current market exchange and could be materially affected by the use of different
assumptions or methodologies. The Company classifies its fair value measurements within a fair value hierarchy, which
18 Management’s Discussion and Analysis
Quarter and Year Ended December 31, 2020
reflects the significance of the inputs used in making the measurements as defined in IFRS 9 – Financial Instruments
– Disclosures.
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 - Inputs other than quoted prices included in Level 1, that are observable for the asset or liability, either directly
or indirectly; and
Level 3 - Unobservable inputs for the asset or liability which are supported by little or no market activity
The fair values of cash and cash equivalents, short-term investments and restricted cash, which are primarily money
market and fixed income securities, are based on quoted market values. The fair values of short-term financial assets
and liabilities, including accounts receivable, accounts payable and accrued liabilities, as presented in the consolidated
statements of financial position, approximate their carrying amounts due to their short-term maturities. The fair value of
long-term debt approximates its carrying value because management believes the interest rates approximate the
market interest rate for similar debt with similar security. The fair value of our interest rate swap contract is based on
broker quotes and therefore, these contracts are measured using Level 2 inputs. Similar contracts are traded in an
active market and the quotes reflect the actual transactions in similar instruments.
Credit risk
The Company’s cash and cash equivalents and restricted cash subject the Company to credit risk. The Company
maintains cash and investment balances at large Canadian financial institutions. The Company’s maximum exposure
to credit risk is limited to the amount of cash and cash equivalents.
The Company, in the normal course of business, is exposed to credit risk from its customers and the accounts
receivable are subject to normal industry risks. The Company attempts to manage these risks by dealing with credit
worthy customers. If available, the Company reviews credit bureau ratings, bank accounts and industry references for
all new customers. Customers that do not have this information available are typically placed on a pre-authorized
payment plan for service or provide deposits to the Company. This risk is minimized as the Company has a diverse
customer base located across various provinces in Canada.
As at December 31, 2020 and 2019, the Company had no material past due trade accounts receivable.
Interest rate risk
The Company is subject to interest rate risk on its cash and cash equivalents and long-term debt. The Company is
exposed to interest rate risk on its operating line of credit and term loan since the interest rates applicable are variable
and are, therefore, exposed to cash flow risks resulting from interest rate fluctuations. As at December 31, 2020, the
revolving facility balance was $nil. The drawn term facility as at December 31, 2020 was $28.5 million, $28.4 million of
which was held in a Bankers Acceptance. The interest rate on the Banker’s Acceptance at December 31, 2020 was
4.21%. The remaining $0.1 million drawn under this facility bears interest at prime rate plus a margin. The Company
assesses its interest rate risk as low, as a 1% change in interest rate would have increased (decreased) quarterly
interest by $71 thousand.
Liquidity risk
Management believes the Company’s current cash, anticipated cash from operations, access to the undrawn portion
of debt facilities and its access to additional financing in the form of debt or equity will be sufficient to meet its working
capital and capital expenditure requirements for at least the twelve-month period following December 31, 2020. The
Company continues to manage liquidity by ensuring trade turnover is consistent with the objectives of the organization
as well as through cost management strategies. As at December 31, 2020, the Company had cash and cash
equivalents of $5.9 million. As described in “Liquidity and Capital Resources” above, the Company also has access
to $4.4 million undrawn portion of its $35 million credit facilities after consideration of outstanding letters of credit and
current drawings, subject to certain financial and non-financial covenants.
SIGNIFICANT ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates
and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income
and expenses. Actual results may differ from these estimates. Estimates and assumptions are reviewed on an ongoing
19 Management’s Discussion and Analysis
Quarter and Year Ended December 31, 2020
basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any
future periods affected.
Key areas of estimation and information about critical judgments in applying accounting policies that have the most
significant effect on amounts recognized in the consolidated financial statements are:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
Estimates of useful lives of network assets, property and equipment and intangible assets:
Management's judgment involves consideration of intended use, industry trends and other factors in
determining the expected useful lives of depreciable assets, to determine depreciation methods, the
asset's residual value and whether an asset is a qualifying asset for the purposes of capitalizing
borrowing costs.
Capitalization of costs:
Judgments and estimates are used in assessing the direct labour and other costs capitalized to
network assets, property and equipment.
Cash generating units:
Judgment is required to assess the Company’s determination of cash generating units for the
purpose of impairment testing.
Impairment of non-financial assets:
The process to calculate the recoverable amount of our cash generating unit requires use of valuation
methods such as the discounted cash flow method which uses significant assumptions including
expected future revenue, operating margins, capital investment, discount rate and terminal growth
rate.
Valuation Allowance on Trade Receivables:
In developing the estimates for an allowance against existing receivables, the Company considers
general and industry economic and market conditions as well as credit information available for the
customer and the aging of the account. The Company applies the IFRS 9 model to record valuation
allowances on Trade Receivables. See Note 3(c) in the Financial Statements for more detail.
Stock-based compensation:
Estimating fair value for stock-based payments requires determining the most appropriate valuation
model for a grant, which is dependent on the terms and conditions of the grant. In valuing stock
options, the Company uses the Black-Scholes option pricing model. Several assumptions are used
in the underlying calculation of fair values of the Company's stock options using the Black-Scholes
option pricing model including the expected life of the option, risk-free interest rate and volatility of
the underlying stock.
Income taxes:
A deferred tax asset is recognized for unused losses, tax credits and deductible temporary
differences to the extent that it is probable that future taxable income will be available against which
they can be utilized. Significant estimates are required in evaluating the recoverability of deferred tax
assets. The Company’s assessment is based on existing tax laws, estimates of future profitability
and tax planning strategies.
Provisions:
Judgment is required to assess the likelihood of an outflow of the economic benefits to settle
contingencies, such as litigations or decommissioning and restoration obligations, which may require
a liability to be recognized. Significant judgments include assessing estimates of future cash flows,
selection of discount rates and the probability of the occurrence of future events.
Revenue from contracts with customers:
The enforceable term of contracts requires estimating average contract terms based on available
historical data. Significant judgements are also made in determining whether the promises to
deliver certain services are considered distinct and represent separate performance obligations. In
addition, evaluating whether costs incurred to obtain a contract are incremental and expected to
be recoverable requires judgment based on conditions of each individual contract.
20 Management’s Discussion and Analysis
Quarter and Year Ended December 31, 2020
(x)
Leases:
Judgment is required to determine the lease term for some lease contracts in which it is a lessee
that includes renewal options. The assessment of whether the Company is reasonably certain to
exercise such options will impact the lease term. The rate at which these leases will be renewed
requires estimation as most are negotiated at the time of renewal. In addition, as most of the
Company’s leases do not have embedded financing rates, judgment is required to arrive at
discount rates that reflect the risk associated with each individual lease. The impact of these
assumptions significantly impacts the amount of lease liabilities and right-of-use assets recognized.
RISK FACTORS
TeraGo is exposed to a number of risks and uncertainties that are common to other companies engaged in the same
or similar businesses. The following is a summary of the material risks that could significantly affect the financial
condition, operating results or business of TeraGo.
Revenues and Operating Results Can Fluctuate
Our revenue in past periods may not be indicative of future performance from quarter to quarter or year to year. In
addition, our operating results may not follow any past trends. The factors affecting our revenue and results, many of
which are outside of our control, include:
competitive conditions in the industry, including strategic initiatives by us or our competitors, new services,
service announcements and changes in pricing policy by us or our competitors;
market acceptance of our services;
timing and contractual terms of orders for our services, which may delay the recognition of revenue;
the discretionary nature of purchase and budget cycles of our customers and changes in their budgets for,
and timing of, services orders;
strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures,
strategic investments or changes in business strategy;
general weakening of the economy resulting in a decrease in the overall demand for telecommunications, data
centre, cloud or IT services or otherwise affecting the capital investment levels of medium-sized and enterprise
businesses;
timing of the development of new service offerings;
no assurance that the Company’s current and future competitors will not be able to develop data centre or
cloud services or other infrastructure expertise comparable or superior to those developed by the Company
or to adapt more quickly than the Company to new technologies, evolving industry standards or customer
requirements; and
seasonal factors which may cause certain cloud service customers to increase or decrease their usage based
services.
5G Fixed Wireless Business launch is unsuccessful
The Company’s proposed 5G fixed wireless business (the “5G Fixed Wireless Business”) is subject to many risks.
The Company is still in the process of testing and trialing equipment that would be vital to offering any 5G fixed wireless
service to its customers and there are currently no assurances that such trials will be successful, nor will there be
assurances that there is suitable equipment available from vendors. As of the date hereof, the general availability of
5G equipment has been delayed in the market as reported by various partners and vendors the Company has been
working with.
In addition, the opportunities and business case for the 5G Fixed Wireless Business has not yet been fully developed
nor fully explored, and therefore no assumptions or assurances can be made that TeraGo will develop or provide 5G-
services on a commercial basis. Moreover, the Company has not fully determined the capital needs, and whether such
capital is available to provide 5G-related services, or whether equipment suppliers like Nokia Inc. and its competitors
could be relied on to supply such equipment in a manner that would support a 5G-related opportunity.
The Company has not historically serviced residential customers, having focused all of its services to business
customers. As a result, should the Company launch the 5G Fixed Wireless Business to residential customers as well,
it will need to adapt its sales and marketing strategy, systems, support and focus to also include this new segment of
21 Management’s Discussion and Analysis
Quarter and Year Ended December 31, 2020
customers. The lack of experience servicing this segment of the market may cause delays or significantly increase the
cost to the Company of offering 5G services.
5G services are not widely available at the moment and the demand for such services is estimated only. While
indications are that there will be a high demand, it remains to be seen whether such demand will translate to the 5G
fixed wireless services that the Company is planning to offer and whether the Company can capture certain market
share in this new business. Assuming the technical and customer trials the Company plans on conducting are
successful, the launch and growth of the 5G Fixed Wireless Business will necessitate additional skilled employees and
human resources which the Company does not yet have. The recruitment and hiring of such people is expected to be
competitive as a result of short supply, which will in turn affect the progress and success of the launch of the 5G Fixed
Wireless Business.
Future ISED Consultations and decisions resulting in unfavourable outcome for 24 GHz and 38 GHz spectrum
bands
While the decision issued on June 5, 2019 by ISED for the Consultation on Releasing Millimetre Wave Spectrum to
Support 5G was generally favourable from the perspective of the Company for its 38 GHz spectrum licences, the
decision also contemplates that there will be a future consultation on the 38 GHz band to establish the licensing
framework for the new 38 GHz flexible use licences. In addition, ISED also noted that when new flexible use licences
are issued, existing licensees will be issued such licences under a new spectrum band plan which will necessitate the
assignment to the Company of new frequency blocks. These new flexible licences are also expected to cover smaller
licensing areas than the existing Tier 3 licence areas of current licences. As such, the full extent of the rules and terms
and conditions surrounding the Company’s 38 GHz spectrum licences when converted over to flexible use have not
yet been established. The new rules, as well as terms and conditions of these licences could have a negative impact
on the Company’s operations and may cause either disruption of services, or will require additional costs to ensure the
Company maintains its existing deployments to service customers.
ISED has identified and designated the 38 GHz band as a Priority 1 band for future use to support the deployment of
5G. The 24 GHz band has not yet been subject to similar consultations like the 38 GHz band. ISED, through its release
of the Spectrum Outlook 2018 - 2022 decision document did confirm that the 24 GHz band, among several others has
been designated as Priority 2 for future release for commercial mobile use. A definitive timeline for the release of
spectrum bands designated as Priority 2 and Priority 3 has not yet been confirmed by ISED. There can be no
assurances that the 24 GHz band licences that the Company holds will be identified in the future for potential 5G use.
If the 24 GHz licences that the Company holds are determined by ISED to not qualify for 5G use, or do qualify but with
stringent conditions and terms of use, or a large percentage of the spectrum will be “clawed back”, it will have a negative
effect on the value of these licences, severely inhibit the Company’s 5G Fixed Wireless Business plan, and therefore
impact negatively on the value of the Common Shares.
COVID-19 Pandemic and Public Health Emergency
The global COVID-19 pandemic has evolved rapidly in the past year and may have a material adverse effect on the
operations and financial results of the Company. The Company is currently operating under its Pandemic Response
Plan which involves certain mitigation measures to reduce the spread of COVID-19, employees working from home
where possible, alternative work arrangements, the elimination of in-person meetings, and mandating face coverings
in certain of its facilities. As of the date of this MD&A, the initial impacts of COVID-19 on the Company include lower
sales volume and therefore lower revenues than otherwise would be generated as businesses have generally reduced
or suspended their IT and telecommunications spend. The Company has seen a limited number of requests by
customers to defer monthly payments for services, or have services suspended during the COVID-19 pandemic. If
sales volumes continue to materially decline due to COVID-19, or there is an increase in the number and/or dollar
amounts of customers who have defaulted on their obligations to pay under their service contracts, the Company will
experience a material adverse effect on its business, results of operations and financial condition.
In addition, economic conditions globally in light of COVID-19 are beyond our control. A sustained downturn in the
economy may cause customers to delay or cancel projects, reduce their overall capital or operating budgets or reduce
or cancel orders for our services, which could have a material adverse effect on our business. While a disruption in the
Company’s supply chain for radio equipment has not yet been experienced, a significant disruption in this supply chain
due to COVID-19 will cause unintended backlog, provisioning delays and reduce the Company’s ability to offer services
and generate new revenue.
22 Management’s Discussion and Analysis
Quarter and Year Ended December 31, 2020
The full extent to which the COVID-19 pandemic may impact our business and our financial results will depend on
future developments, which are highly uncertain and cannot be predicted at this time. Many factors that will determine
the extent of COVID-19’s impact include the duration of the outbreak in Canada and the U.S. (and to a lesser extent
globally), its disruptions in supply chains and global trade, the effectiveness of vaccines and the speed at which they
are distributed and administered to the broader population, the time to recovery in the global economy and consumer
confidence. Management continues to monitor the developments of COVID-19 and has taken steps to mitigate initial
impacts caused by it.
Insufficient Capital
The continued growth and operation of our business may require additional funding for working capital, debt service,
the enhancement and upgrade of our network, the build-out of infrastructure to expand the coverage area of our
services, possible acquisitions and possible bids to acquire spectrum licences. We may be unable to secure such
funding when needed in adequate amounts or on acceptable terms, if at all.
To execute our business strategy, we may issue additional equity securities in public or private offerings, potentially at
a price lower than the market price at the time of such issuance. Similarly, we may seek debt financing and we may be
forced to incur significant interest expense. If we cannot secure sufficient funding, we may be forced to forego strategic
opportunities or delay, scale back or eliminate network deployments, operations, acquisitions, spectrum acquisitions
and other investments.
Reliance on Credit Facilities and Restrictive Debt Covenants
The Company relies on its Credit Facilities to operate its business, including for the maintenance of a certain level of
liquidity and to carry out its strategy. There can be no assurance that the Company will continue to have access to
appropriate Credit Facilities on reasonable terms and conditions, if at all beyond the maturity date of June 30, 2022 for
the existing Credit Facilities. An inability to draw down upon the Credit Facilities could have a material adverse effect
on the Company’s business, liquidity, financial condition and results of operations.
Covenants in our Credit Facilities with our lenders impose operating and financial restrictions on us. A breach of any of
these covenants could result in a default under our Credit Facilities. These restrictions may limit our ability to obtain
additional financing, withstand downturns in our business and take advantage of business opportunities. Moreover, we
may be required to seek additional debt financing on terms that include more restrictive covenants, may require
repayment on an accelerated schedule or may impose other obligations that limit our ability to grow our business,
acquire needed assets, or take other actions we might otherwise consider appropriate or desirable.
Transition of the Company to a Multi-Product IT Services Company
In the past, the core business of the Company was to provide internet access services. The Company has in recent
years transitioned to a multi-product IT services company focused on the management of its customer’s data flow and
has begun to invest in and conduct technical trials related to 5G technologies. If TeraGo is unable to execute on its
business strategy and to grow the business, either as a result of the risks identified in this section or for any other
reason, the business, prospects, financial condition and results of operations will be materially and adversely affected.
Reliance on Certain Third Parties
We rely on third-party suppliers, in some cases sole suppliers or limited groups of suppliers, to provide us with
components necessary for the operation and upgrading of our network and infrastructure, as well as to develop our 5G
Fixed Wireless Business Plan. If we are unable to obtain sufficient allocations of components, our 5G initiatives and/or
network expansion will be delayed, we may lose customers and our profitability will be affected. Reliance on suppliers
also reduces our control over costs, delivery schedules, reliability and quality of components. Any inability to obtain
timely deliveries of quality components, or any other circumstances that would require us to seek alternative suppliers,
could adversely affect our ability to expand and maintain our network or infrastructure.
In addition, the Company relies on third party partners, agents and resellers to carry out its business. If these third
parties do not honour their contractual commitments or cease to do business, it may have a significant impact on our
business. Replacements for such third parties may require a lengthy period of time in order to establish a commercially
comparable relationship.
The Company has recently aligned with several partners both as part of its channel program, as well as its technology
program. The benefits of such partnerships have not yet been proven and an early termination of the partnerships or
any unanticipated setbacks may have a material impact on the Company’s business and strategic plan.
23 Management’s Discussion and Analysis
Quarter and Year Ended December 31, 2020
Regulatory Environment
We are subject to the laws of Canada and to regulations set by regulatory authorities of the Canadian government,
primarily the CRTC and ISED. Regulatory authorities may adopt new laws, policies or regulations, or change their
interpretation of existing laws, policies or regulations, that could cause our existing authorizations to be changed or
cancelled, require us to incur additional costs, or otherwise adversely affect our operations, revenue or cost of capital.
Any currently held regulatory approvals or licences may be subject to rescission and non-renewal. Additional approvals
or licences may be necessary that we may not be able to obtain on a timely basis or on terms that are not unduly
burdensome. Further, if we fail to obtain or maintain particular approvals on acceptable terms, such failure could delay
or prevent us from continuing to offer some or all of our current or new services, or offer new services, and adversely
affect our results of operations, business prospects and financial condition. Even if we were able to obtain the necessary
approvals, the licences or other approvals we obtain may impose significant operational restrictions. The acquisition,
lease, maintenance and use of spectrum are extensively regulated in Canada.
These regulations and their application are subject to continual change as new legislation, regulations or amendments
to existing regulations are adopted from time to time by governmental or regulatory authorities, including as a result of
judicial interpretations of such laws and regulations. Current regulations directly affect the breadth of services we are
able to offer and may impact the rates, terms and conditions of our services.
The breach of the conditions of a licence or applicable law, even if inadvertent, can result in the revocation, suspension,
cancellation or reduction in the term of a licence or the imposition of fines. In addition, regulatory authorities may grant
new licences to third parties, resulting in greater competition in markets where we already have rights to licenced
spectrum. In order to promote competition, licences may also require that third parties be granted access to our
bandwidth, frequency capacity, facilities or services. We may not be able to obtain or retain any required licence, and
we may not be able to renew our licences on favourable terms, or at all.
Our internet access services may become subject to greater regulation in the future. If we become subject to
proceedings before the CRTC or ISED with respect to our compliance with the relevant legislation and regulations
relating to restrictions on foreign ownership and control, we could be materially adversely affected, even if it were
ultimately successful in such a proceeding. There can be no assurance that a future CRTC or ISED determination or
events beyond our control will not result in our ceasing to comply with the relevant legislation or regulations. If this
occurs, our ability to operate as a Canadian carrier under the Telecommunications Act or to hold, renew or secure
licences under the Radiocommunication Act could be jeopardized and our business, operating results and financial
condition could be materially adversely affected.
Obtaining and Maintaining Licenced Spectrum in Certain Markets
To offer our internet services using licenced spectrum in Canada, we depend on our ability to acquire and maintain
sufficient rights to use spectrum through ownership, long-term leases, or developmental licences in each of the markets
in which we operate or intend to operate. Obtaining the necessary amount of licenced spectrum can be a long and
difficult process that can be costly and require a disproportionate amount of our resources. We may not be able to
acquire, lease or maintain the spectrum necessary to execute our business strategy. In addition, we may spend
significant resources to acquire spectrum licences, even if the amount of spectrum actually acquired in certain markets
is not adequate to deploy our network on a commercial basis in all such markets.
Using licenced spectrum, whether owned, leased, or developmental, poses additional risks to us, including:
inability to satisfy build-out or service deployment or research and development requirements upon which our
spectrum licences or leases are, or may be, conditioned;
adverse changes to regulations or licence conditions governing our spectrum rights;
inability to use the spectrum we have acquired or leased due to interference from licenced or licence-exempt
operators in our band or in adjacent bands;
refusal by ISED to recognize our acquisition or lease of spectrum licences from others or our investments in
other licence holders;
inability to offer new services (including 5G) or to expand existing services to take advantage of new
capabilities of our network resulting from advancements in technology due to regulations governing our
spectrum rights;
inability to control leased spectrum due to contractual disputes with, or the bankruptcy or other reorganization
of, the licence holders;
24 Management’s Discussion and Analysis
Quarter and Year Ended December 31, 2020
failure of ISED to renew our spectrum licences as they expire and our failure to obtain extensions or renewals
of spectrum leases before they expire;
imposition by ISED of new or amended conditions of licence, or licence fees, upon the renewal of our spectrum
licences or in other circumstances;
potentially significant increases in spectrum prices, because of increased competition for the limited supply of
licenced spectrum in Canada; and
invalidation of our authorization to use all or a significant portion of our spectrum, resulting in, among other
things, impairment charges related to assets recorded for such spectrum.
While the 38 GHz spectrum band has been identified by ISED as one of the bands contemplated for future use to
support the deployment of 5G through a Consultation, a similar Consultation has not been issued for the 24 GHz band.
The Company’s 24 GHz licences have a set expiry date in 2025. There are no guarantees that such licences will be
renewed beyond 2025 or won’t be subject to any potential claw back by ISED. If the 24 GHz licences that the Company
holds are determined by ISED to not qualify for 5G use, or does qualify but with stringent conditions and terms of use,
it may have a negative effect on the value of these licences and therefore impact negatively on the value of the
Company and its common shares.
We expect ISED to make additional spectrum available from time to time. Additionally, other companies hold spectrum
rights that could be made available for lease or sale. The availability of additional spectrum in the marketplace could
change the market value of spectrum rights generally and, as a result, may adversely affect the value of our spectrum
assets.
We also use radio equipment under individual radio licences issued by ISED, and subject to annual renewal. We may
not be able to obtain the licences we require thereby jeopardizing our ability to reliably deliver our internet services.
ISED may decline to renew our licences, or may impose higher fees upon renewal, or impose other conditions that
adversely affect us. ISED may decide to reassign the spectrum in the bands we use to other purposes, and may require
that we discontinue our use of radio equipment in such bands.
Licence-exempt Spectrum
We presently utilize licence-exempt spectrum in connection with a majority of our internet customers. Licence-exempt
or “free” spectrum is available to multiple simultaneous users and may suffer bandwidth limitations, interference and
slowdowns if the number of users exceeds traffic capacity. The availability of licence-exempt spectrum is not unlimited
and others do not need to obtain permits or licences to utilize the same licence-exempt spectrum that we currently or
may in the future utilize, threatening our ability to reliably deliver or expand our services. Moreover, the prevalence of
licence-exempt spectrum creates low barriers to entry in our business, creating the potential for heightened competition.
Integration and Anticipated Benefits Pursuant to Past Acquisitions
The overall success of acquisitions will depend, in part, on the Company’s ability to realize the anticipated benefits and
synergies from combining and integrating the acquired businesses into TeraGo’s existing business. Integration of
acquisitions require significant management attention and expansion of TeraGo’s staff in operations, marketing, sales
and general and administrative functions. The Company may have difficulties in the integration of the acquired
company’s departments, systems, including accounting, human resource and other administrative systems,
technologies, books and records, and procedures, as well as in maintaining uniform standards, controls, including
internal control over financial reporting required by Canadian securities laws and related procedures and policies. If we
cannot integrate the acquisitions successfully, it could have a material adverse impact on our business, financial
condition and results of operations.
As part of the Company’s business strategy, TeraGo may also continue to acquire additional companies, assets or
technologies principally related to, or complementary to, our current operations. Any such acquisitions will be
accompanied by certain risks including but not limited to exposure to unknown liabilities of acquired companies, higher
than anticipated acquisition costs and expenses, the difficulty and expense of integrating operations, systems, and
personnel of acquired companies, disruption of the Company’s ongoing business, inability to retain key customers,
distributors, vendors and other business partners of the acquired company, diversion of management’s time and
attention; and possible dilution to shareholders.
Price Sensitive Market
The competitive market in which the Company conducts its business could require the Company to reduce its prices.
If competitors offer discounts on certain products or services in an effort to recapture or gain market share or to sell
other products, the Company may be required to lower prices or offer other favourable terms to compete successfully.
25 Management’s Discussion and Analysis
Quarter and Year Ended December 31, 2020
Any such changes would likely reduce the Company’s margins and could adversely affect operating results. Some of
the Company’s competitors may bundle services that compete with the Company for promotional purposes or as a
long-term pricing strategy or provide guarantees of prices and product implementations. These practices could, over
time, limit the prices that the Company can charge for its products. If the Company cannot offset price reductions with
a corresponding increase in volume, bundling of services or with lower spending, then the reduced revenues resulting
from lower prices would adversely affect the Company’s margins and operating results.
Market Demand for Available Capacity
The Company currently has available capacity in its data centres. There can be no assurance that the existing or future
market demand will be sufficient to fill this capacity. Should the demand for the Company’s cloud and data centre
services decline or fail to increase, this may negatively affect the Company’s ability to capitalize on its high operating
leverage and may adversely affect the Company’s future financial performance.
Reductions in the amount or cancellations of customers’ orders would adversely affect our business, results of
operations and financial condition.
Cyber Security Risk
Our network security, data centre security and the authentication of our customer credentials are designed to protect
unauthorized access to data on our network and to our data centre premises. Because techniques used to obtain
unauthorized access to or to sabotage networks (including DDoS attacks) change frequently and may not be recognized
until launched against a target, we may be unable to anticipate or implement adequate preventive measures against
unauthorized access or sabotage. Consequently, unauthorized parties may overcome our network security and obtain
access to confidential, customer or employee data on our network, including on a device connected to our network. In
addition, because we own and operate our network, unauthorized access or sabotage of our network could result in
damage to our network and to the computers or other devices used by our customer. An actual or perceived breach of
network security or data centre security could harm public perception of the effectiveness of our security measures,
adversely affect our ability to attract and retain customers, expose us to significant liability and adversely affect our
business and revenue prospects.
The Company aims to mitigate and manage certain cyber security risks by employing specific policies and procedures,
carrying out IT security-related audits, establishing internal controls relevant to mitigating security risks, performing
certain “penetration” tests either internally or with help of third party consultants, obtaining IT security-related
compliance certificates, designating a security officer that oversees the IT security of the Company, designating a
privacy officer that is accountable for the Company’s compliance with applicable privacy laws, using DDoS mitigation,
tools and services, utilizing back-up and disaster recovery services and maintaining specific cyber liability insurance
coverage to insure against cyber security incidents. The Audit Committee of Company has been tasked to periodically
review the various measures management and the Company has undertaken to manage its cyber security risks.
Excessive Customer Churn
The successful implementation of our business strategy depends upon controlling customer churn. Customer churn is
a measure of customers who stop using our services. Customer churn could increase as a result of:
billing errors and/or reduction in the quality of our customer service;
interruptions to the delivery of services to customers;
the availability of competing technology and other emerging technologies, some of which may, from time to
time, be less expensive or technologically superior to those offered by us; and
competitive conditions in the industry, including strategic initiatives by us or our competitors, new services,
service announcements and changes in pricing policy by us or our competitors.
An increase in customer churn can lead to slower customer growth, increased costs and a reduction in revenue. Given
the current economic environment, there is risk that churn levels could increase in the future.
Key Competitors are More Established and Have More Resources
The market for internet access, data connectivity, cloud and data centre services is highly competitive and we compete
with several other companies within each of our markets. Many of our competitors are better established or have greater
financial and spectrum resources than we have. Our competitors include:
26 Management’s Discussion and Analysis
Quarter and Year Ended December 31, 2020
ILECs and CLECs providing DSL and fibre-optic enabled services over their existing wide, metropolitan and
local area networks and who have started to provide cloud and colocation services;
Utelcos offering or planning to offer internet and data connectivity over fibre optic networks;
Large cloud service providers and IT companies;
Colocation and disaster recovery service providers;
wireless Internet service providers using licenced or licence-exempt spectrum;
cable operators offering high-speed Internet connectivity services and voice communications;
satellite and fixed wireless service providers offering or developing broadband Internet connectivity and VoIP;
and
resellers providing wireless Internet or other wireless services using infrastructure developed and operated by
others.
Many of our competitors are well established with larger and better developed networks and support systems, longer
standing relationships with customers and suppliers, greater name recognition and greater financial, technical and
marketing resources than we have. Our competitors may subsidize competing services with revenue from other sources
and, thus, may offer their products and services at prices lower than ours. We may not be able to reduce our prices
which may make it more difficult to attract and retain customers.
We expect other existing and prospective competitors to adopt technologies and/or business plans similar to ours, or
seek other means to develop services competitive with ours, particularly if our services prove to be attractive in our
target markets.
Acquisitions and Other Strategic Transactions
We may from time to time make strategic acquisitions of other assets and businesses. Any such transactions can be
risky, may require a disproportionate amount of our management and financial resources and may create unforeseen
operating difficulties or expenditures, including:
difficulties in integrating acquired businesses and assets into our business while maintaining uniform
standards, controls, policies and procedures;
obligations imposed on us by counterparties in such transactions that limit our ability to obtain additional
financing, our ability to compete in geographic areas or specific lines of business or other aspects of our
operational flexibility;
increasing cost and complexity of assuring the implementation and maintenance of adequate internal control
and disclosure controls and procedures;
difficulties in consolidating and preparing our financial statements due to poor accounting records, weak
financial controls and, in some cases, procedures at acquired entities not based on IFRS, particularly those
entities in which we lack control; and
inability to predict or anticipate market developments and capital commitments relating to the acquired
company, business or assets.
If we do not successfully address these risks or any other problems encountered in connection with an acquisition, the
acquisition could have a material adverse effect on our business, results of operations and financial condition. In
addition, if we proceed with an acquisition, our available cash may be used to complete the transaction, diminishing
our liquidity and capital resources, or additional equity may be issued which could cause significant dilution to existing
shareholders.
Changes to Technologies and Standards
The industries TeraGo operates is characterized by rapidly changing technology, evolving industry standards and
increasingly sophisticated customer requirements. The introduction of new or alternative technology and the
emergence of new industry standards may render our existing network, equipment and/or infrastructure obsolete and
our services unmarketable and may exert price pressures on existing services. It is critical to our success that we be
able to anticipate changes in technology or in industry standards and ensure that we can leverage such new
technologies and standards in a timely and cost-effective manner to remain competitive from a service and cost
perspective. Rapid changes in business demands may also affect the Company’s internal processes where certain
software tools, processes, and standards may become inefficient or obsolete. The Company may fail to keep pace with
changes in these technologies and practices which may result in operational breakdowns and/or financial losses.
27 Management’s Discussion and Analysis
Quarter and Year Ended December 31, 2020
Investments in Development of New Technologies, Products and Services
The Company has and will continue to make significant investments in the development and introduction of new
products and services that make use of the Company’s network, infrastructure and equipment. There is no assurance
that the Company will be successful in implementing and marketing these new products and services (including 5G) in
a reasonable time, or that they will gain market acceptance. Development could be delayed for reasons beyond our
control. Alternatively, we may fail to anticipate or satisfy the demand for certain products or services, or may not be
able to offer or market these new products or services successfully to customers. The failure to attract customers to
new products or services, cross-sell service to our existing customer base or failure to keep pace with changing
consumer preferences for products or services would slow revenue growth and could have a materially adverse effect
on our business, results of operations and financial condition.
Expanding, Upgrading and Maintaining Network and Infrastructure
We expect to allocate significant resources in expanding, maintaining and improving our network. Additionally, as the
number of our customer locations increases, as the usage habits of our customers change and as we increase our
service offerings, we may need to upgrade our network to maintain or improve the quality of our services. If we do not
successfully implement upgrades to our network, the quality of our services may decline and our churn rate may
increase.
We may experience quality deficiencies, cost overruns and delays with the expansion, maintenance and upgrade of
our network and existing infrastructure including the portions of those projects not within our control. Expansion of our
network or infrastructure may require permits and approvals from governmental bodies and third parties. Failure to
receive approvals in a timely fashion can delay expansion of our network. In addition, we are typically required to obtain
rights from land, building and tower owners to install the antennas and other equipment that provide our internet access
service to our customers. We may not be able to obtain, on terms acceptable to us or at all, the rights necessary to
expand our network or existing infrastructure.
We also may face challenges in managing and operating our network and existing infrastructure. These challenges
include ensuring the availability of customer equipment that is compatible with our network and managing sales,
advertising, customer support, and billing and collection functions of our business while providing reliable network
service that meets our customers’ expectations. Our failure in any of these areas could adversely affect customer
satisfaction, increase churn, increase our costs, decrease our revenue and otherwise have a material adverse effect
on our business, prospects, financial condition and results of operations.
Foreign Exchange
While the majority of the Company’s revenues are earned in Canadian dollars, a portion of its costs, including for certain
capital expenditures and SG&A are paid in U.S. dollars. As a result, the Company is exposed to currency exchange
rate risks. A change in the currency exchange rate may increase or decrease the amount of Canadian dollars required
to be paid by the Company for its U.S. expenditures. The Company does not currently have any foreign exchange
contracts to manage the foreign exchange risk. As a result, there can be no assurance that currency fluctuations will
not have a material adverse effect on the Company.
Physical Inventory
The nature of our business requires the Company to procure, deploy, track, and maintain large volumes of specialized
network and datacentre equipment purchased in Canada and abroad. Equipment is frequently moved between
provinces in Canada as part of provisioning. As a result, the Company is subject to inventory risk due to delays in
inventory movement as well as process breakdowns in provisioning and deploying inventory to a customer site, network
site, or datacentre facility. These delays may result in unintended backlog and inventory losses. The Company relies
heavily on the ability of our vendors to supply us in a timely manner as well as the diligence of the Company’s internal
process owners to ensure provisioning and inventory management is effective.
Interest Rates
As the Company currently borrows funds through its credit facility with variable interest rates, the Company is exposed
to rising interest rates. A significant rise in interest rates may materially increase the cost of either its revolving or non-
revolving credit facilities. The Company does not currently have any interest rate swap contracts to manage the interest
rate risk. As a result, there can be no assurance that interest rate fluctuations will not have a material adverse effect on
the Company.
28 Management’s Discussion and Analysis
Quarter and Year Ended December 31, 2020
Interruption or Failure of Information Technology and Communications Systems
We have experienced service interruptions in some markets in the past and may experience service interruptions or
system failures in the future. Our services depend on the continuing operation of our cloud and data centre, information
technology and communications systems. Any service interruption adversely affects our ability to operate our business
and could result in an immediate loss of revenue. If we experience frequent or persistent system, power or network
failures, our reputation and brand could be permanently harmed. We may make significant capital expenditures to
increase the reliability and security of our systems, but these capital expenditures may not achieve the results we
expect.
Our systems and data centres are vulnerable to damage or interruption from earthquakes, terrorist attacks, floods, fires,
power loss, telecommunications failures, computer viruses, computer denial of service attacks or other attempts to
harm our systems, and similar events. Some of our systems are not fully redundant and our disaster recovery planning
may not be adequate. The occurrence of a natural disaster or unanticipated problems at our network centres or data
centres could result in lengthy interruptions in our service and adversely affect our operating results. The Company
could also be required to make significant expenditures if the Company’s systems were damaged or destroyed, or pay
damages if the delivery of the Company’s services to its customers were delayed or stopped by any of these
occurrences.
Retention and Motivation of Personnel
We depend on the services of key technical, sales, marketing and management personnel. The loss of any of these
key persons could have a material adverse effect on our business, results of operations and financial condition. Our
success is also highly dependent on our continuing ability to identify, hire, train, motivate and retain highly qualified
technical, sales, marketing and management personnel.
Competition for such personnel can be intense and we cannot provide assurance that we will be able to attract or retain
highly qualified technical, sales, marketing and management personnel in the future. Our inability to attract and retain
the necessary technical, sales, marketing and management personnel may adversely affect our future growth and
profitability. It may be necessary for us to increase the level of compensation paid to existing or new employees to a
degree that our operating expenses could be materially increased.
If we cannot hire, train and retain motivated and well-qualified individuals, we may face difficulties in attracting, recruiting
and retaining various sales and support personnel in the markets we serve, which may lead to difficulties in growing
our subscriber base.
Leased Data Centre Facilities
The Company’s data centres are located in leased premises and there can be no assurance that the Company will
remain in compliance with the Company’s leases, that the landlord will continue to support the operation of the
Company’s data centre and that the leases will not be terminated despite negotiation for long term lease periods and
renewal provisions. Termination of a lease could have a material adverse effect on the Company’s business, results of
operations and financial condition.
Electrical Power and Outages
The Company’s data centres are susceptible to regional variations in the cost of power, electrical power outages,
planned or unplanned power outages and limitations on availability of adequate power resources. Power outages can
harm, and in the past, have harmed the Company’s customers and its business, including the loss of customers' data
and extended service interruptions. While the Company attempts to limit exposure to system downtime by using backup
generators and power supplies, the Company cannot limit the Company’s exposure entirely even with these protections
in place. With respect to any increase in energy costs, the Company may not always be able to pass these increased
costs on to the Company’s customers which could have a material adverse effect on the Company’s business, results
of operations and financial condition.
Litigation Risk and Intellectual Property Claims
Competitors or other persons may independently develop, patent technologies or copyright software that are
substantially equivalent or superior to those we currently use or plan to use or that are necessary to permit us to deploy
and operate our network, data centres or provide cloud services. Some of these patents, copyrights or rights may grant
very broad protection to the owners. We cannot determine with certainty whether any existing third party intellectual
property or the issuance of any third party intellectual property would require us to alter technology or software we use,
obtain licences or cease certain activities. Defending against infringement claims, even meritless ones, would be time
consuming, distracting and costly.
29 Management’s Discussion and Analysis
Quarter and Year Ended December 31, 2020
If we are found to be infringing the proprietary rights of a third party, we could be enjoined from using such third party’s
rights, may be required to pay substantial royalties and damages, and may no longer be able to use the intellectual
property subject to such rights on acceptable terms or at all. Failure to obtain licences to intellectual property held by
third parties on reasonable terms, or at all, could delay or prevent us from providing services to customers and could
cause us to expend significant resources to acquire technology which includes non-infringing intellectual property.
If we have to negotiate with third parties to establish licence arrangements, or to renew existing licences, it may not be
successful and we may not be able to obtain or renew a licence on satisfactory terms or at all. If required licences
cannot be obtained, or if existing licences are not renewed, litigation could result.
Operating Losses
We have incurred a net loss in the past several fiscal years. We cannot anticipate with certainty what our earnings, if
any, will be in any future period. However, we could incur further net losses as we continue to expand our network into
new and existing markets and pursue our business strategy in 5G and providing cloud and data centre services.
Accordingly, our results of operations may fluctuate significantly, which may adversely affect the value of an investment
in our Common Shares. We may also invest significantly in our business before we expect cash flow from operations
to be adequate to cover our anticipated expenses.
Economic and Geopolitical Risk
The market for our services depends on economic and geopolitical conditions affecting the broader market. Economic
conditions globally are beyond our control. In addition, acts of terrorism and the outbreak of hostilities and armed
conflicts between countries can create geopolitical uncertainties that may affect the global economy. Downturns in the
economy, pandemics, or geopolitical uncertainties may cause customers to delay or cancel projects, reduce their
overall capital or operating budgets or reduce or cancel orders for our services, which could have a material adverse
effect on our business, results of operations and financial condition.
Regulation of Internet
Regulation of the Internet and the content transmitted through that medium is a topic that receives considerable political
discussion from time to time, from both a “pro-regulation” and an “anti-regulation” perspective, including discussions on
whether all internet traffic should be delivered equally. It is unclear as to what impact decisions made on either side of
this issue by various political and governing bodies could have on us and our business or on the ability of our customers
to utilize our internet services.
INTERNAL CONTROL OVER FINANCIAL REPORTING AND DISCLOSURE CONTROLS AND
PROCEDURES
Our Interim-President and Chief Executive Officer and Chief Financial Officer, designed or caused to be designed under
his supervision, TeraGo’s disclosure controls and procedures and internal control over financial reporting.
The Company has adopted a work-from-home program as of March 16, 2020. As substantially all of the Company’s
day-to-day activities can be fully performed by personnel working remotely, the Company is able to remain fully
operational during this period, and continues to pursue revenue opportunities, execute on its product development
roadmap and generate revenue from both new and existing customers. The Company has complied with applicable
federal, provincial and other local regulations related to the pandemic. The Company will continue to monitor closely
developments in this regard, with the health and safety of the Company’s employees and management as the primary
concern. Due to the fluidity of the COVID-19 pandemic and the uncertainty of its magnitude, outcome and duration, the
Company is unable to definitively quantify its potential impact.
TeraGo’s disclosure controls and procedures are designed to provide reasonable assurance that material information
relating to TeraGo is made known to management by others, particularly during the period in which the interim filings
are being prepared and that information required to be disclosed by TeraGo in its annual filings, interim filings or other
reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the
time periods specified in securities legislation. TeraGo’s disclosure controls and procedures includes controls and
procedures designed to ensure that information required to be disclosed by TeraGo in its annual filings, interim filings
or other reports filed or submitted under securities legislation is accumulated and communicated to management, as
appropriate to allow timely decisions regarding required disclosure.
30 Management’s Discussion and Analysis
Quarter and Year Ended December 31, 2020
TeraGo’s internal control over financial reporting are designed to provide reasonable assurance regarding reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. TeraGo’s
internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of
records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of TeraGo;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with GAAP, and that receipts and expenditures of TeraGo are being made only in accordance
with authorizations of management and directors of TeraGo; and (iii) are designed to provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or disposition of TeraGo’s assets that could
have a material effect on TeraGo’s financial statements. There have been no changes to the Company’s internal
controls over financial reporting in the period that have materially affected or are reasonably likely to materially affect,
the Company’s internal controls over financial reporting.
The control framework used to design TeraGo’s internal control over financial reporting is based on the Internal Control
– Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO
2013).
Due to its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
change.
EXECUTIVE MANAGEMENT CHANGES
Effective on August 4, 2020, Tony Ciciretto, President & CEO was no longer with the Company.
Effective on August 4, 2020, David Charron was appointed as Interim-Chief Executive Officer in addition to his
role as Chief Financial Officer.
Effective on August 24, 2020, Geoff Kereluik, Vice President, Sales was no longer with the Company.
Effective on September 25, 2020, Blake Wetzel was appointed as Chief Operating Officer in addition to his role as
Chief Revenue Officer.
Effective on October 1, 2020, Candice Levy was appointed as Vice President, People & Culture, having previously
served as Director, Human Resources.
31 Management’s Discussion and Analysis
Quarter and Year Ended December 31, 2020
DEFINITIONS – KEY PERFORMANCE INDICATORS, IFRS, ADDITIONAL GAAP AND NON-GAAP
MEASURES
IFRS Measures
Cost of services
Cost of services consists of expenses related to delivering service to customers and servicing the operations of our
networks. These expenses include costs for the lease of intercity facilities to connect our cities, internet transit and
peering costs paid to other carriers, network real estate lease expense, spectrum lease expenses and lease and utility
expenses for the data centres and salaries and related costs of staff directly associated with the cost of services.
Gross profit margin %
Gross profit margin % consists of gross profit margin divided by revenue where gross profit margin is revenue less cost
of services.
Other operating expenses
Other operating expenses includes sales commission expense, advertising and marketing expenses, travel expenses,
administrative expenses including insurance and professional fees, communication expenses, maintenance expenses
and rent expenses for office facilities.
Foreign exchange gain (loss)
Foreign exchange gain (loss) relates to the translation of monetary assets and liabilities into Canadian dollars using
the exchange rate in effect at that date. The resulting foreign exchange gains and losses are included in net income in
the period.
Finance costs
Finance costs consist of interest charged on our short- and long-term debt, amortization of deferred financing costs
including expenses associated with closing our long-term debt facility and accretion expense on the Company’s
decommissioning and restoration obligations. The deferred financing costs are amortized using the effective interest
method over the term of the loan.
Finance income
Finance income consists of interest earned on our cash and cash equivalent and short-term investment balances.
Additional GAAP Measures
Earnings (loss) from operations
Earnings (loss) from operations exclude foreign exchange gain (loss), income taxes, finance costs and finance income.
We include earnings (loss) from operations as an additional GAAP measure in our consolidated statement of earnings.
We consider earnings (loss) from operations to be representative of the activities that would normally be regarded as
operating for the Company. We believe this measure provides relevant information that can be used to assess the
consolidated performance of the Company and therefore, provides meaningful information to investors.
Non-GAAP Measures
Adjusted EBITDA
The term “EBITDA” refers to earnings before deducting interest, taxes, depreciation and amortization. The Company
believes that Adjusted EBITDA is useful additional information to management, the Board and investors as it provides
an indication of the operational results generated by its business activities prior to taking into consideration how those
activities are financed and taxed and also prior to taking into consideration asset depreciation and amortization and it
excludes items that could affect the comparability of our operational results and could potentially alter the trends
analysis in business performance. Excluding these items does not necessarily imply they are non-recurring, infrequent
or unusual. Adjusted EBITDA is also used by some investors and analysts for the purpose of valuing a company. The
Company calculates Adjusted EBITDA as earnings before deducting interest, taxes, depreciation and amortization,
foreign exchange gain or loss, finance costs, finance income, gain or loss on disposal of network assets, property and
equipment, impairment of property, plant, & equipment and intangible assets, stock-based compensation and
restructuring, acquisition-related and integration costs. Investors are cautioned that Adjusted EBITDA should not be
construed as an alternative to operating earnings or net earnings determined in accordance with IFRS as an indicator
of our financial performance or as a measure of our liquidity and cash flows. Adjusted EBITDA does not take into
32 Management’s Discussion and Analysis
Quarter and Year Ended December 31, 2020
account the impact of working capital changes, capital expenditures, debt principal reductions and other sources and
uses of cash, which are disclosed in the consolidated statements of cash flows.
Adjusted EBITDA does not have any standardized meaning under GAAP. TeraGo’s method of calculating Adjusted
EBITDA may differ from other issuers and, accordingly, Adjusted EBITDA may not be comparable to similar measures
presented by other issuers. See “Results of Operations – Adjusted EBITDA” for reconciliation of net loss to Adjusted
EBITDA.
Key Performance Indicators
Backlog MRR
The term “Backlog MRR” is a measure of contracted monthly recurring revenue (MRR) from customers that have not
yet been provisioned. The Company believes backlog MRR is useful additional information as it provides an indication
of future revenue. Backlog MRR is not a recognized measure under IFRS and may not translate into future revenue,
and accordingly, investors are cautioned in using it. The Company calculates backlog MRR by summing the MRR of
new customer contracts and upgrades that are signed but not yet provisioned, as at the end of the period. TeraGo’s
method of calculating backlog MRR may differ from other issuers and, accordingly, backlog MRR may not be
comparable to similar measures presented by other issuers.
ARPU
The term “ARPU” refers to the Company’s average revenue per customer per month in the period. The Company
believes that ARPU is useful supplemental information as it provides an indication of our revenue from an individual
customer on a per month basis. ARPU is not a recognized measure under IFRS and, accordingly, investors are
cautioned that ARPU should not be construed as an alternative to revenue determined in accordance with IFRS as an
indicator of our financial performance. The Company calculates ARPU by dividing our total revenue before revenue
from early terminations by the number of customers in service during the period and we express ARPU as a rate per
month. TeraGo’s method of calculating ARPU has changed from the Company’s past disclosures to exclude revenue
from early termination fees, where ARPU was previously calculated as revenue divided by the number of customers in
service during the period. TeraGo’s method may differ from other issuers, and accordingly, ARPU may not be
comparable to similar measures presented by other issuers.
Churn
The term “churn” or “churn rate” is a measure, expressed as a percentage, of customer cancellations in a particular
month. The Company calculates churn by dividing the number of customer cancellations during a month by the total
number of customers at the end of the month before cancellations. The information is presented as the average monthly
churn rate during the period. The Company believes that the churn rate is useful supplemental information as it provides
an indication of future revenue decline and is a measure of how well the business is able to renew and keep existing
customers on their existing service offerings. Churn and churn rate are not recognized measures under IFRS and,
accordingly, investors are cautioned in using it. TeraGo’s method of calculating churn and churn rate may differ from
other issuers and, accordingly, churn may not be comparable to similar measures presented by other issuers.
33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 CORPORATE HEAD OFFICE
55 Commerce Valley Drive West
Suite 800
Thornhill, Ontario L3T 7V9
1.866.TeraGo.1 (837-2461)
EXCHANGE LISTING
Toronto Stock Exchange
STOCK SYMBOL
TGO
INVESTOR RELATIONS CONTACT
Matt Glover, Gateway Investor Relations
Telephone: 949-574-3860
TGO@gatewayir.com
WEBSITE
www.terago.ca
YEAR END
December 31
AUDITORS
KPMG LLP
Vaughan, Ontario, Canada
TRANSFER AGENT
Computershare Investor Services Inc.
Toronto, Ontario, Canada
CORPORATE INFORMATION
DIRECTORS
Kenneth Campbell
Chair, TeraGo Inc.
Senior Advisor, Performance Management Partners
Matthew Gerber
Chief Executive Officer, TeraGo Inc.
Michael Martin
Vice President of Technology, Metercor Inc.
Richard Brekka
Managing Partner, Second Alpha Partners, LLC
Gary Sherlock
Chief Executive Officer, commercebuild Holdings Inc.
Laurel Buckner
Managing Director, WestRiver Group
SENIOR LEADERSHIP TEAM
Matthew Gerber
Chief Executive Officer
David Charron
Chief Financial Officer
Blake Wetzel
Chief Operations Officer and Chief Revenue Officer
Duncan McGregor
Vice President, Engineering & Operations
Mark Lau
Vice President, Legal, General Counsel &
Corporate Secretary
Candice Levy
Vice President, People & Culture
Certain trademarks used in this annual report, such as “TeraGo”, “TeraGo Networks” and www.terago.ca, are
trademarks owned by TeraGo or its subsidiaries. Other trademarks or service marks appearing in this annual
report are trademarks or service marks of the person who owns them.
69 Moving IT Forward