01.02.18 TGO Investor Presentation Jan 2017 - Draft · Capturing Market Share Mid-sized enterprises...
Transcript of 01.02.18 TGO Investor Presentation Jan 2017 - Draft · Capturing Market Share Mid-sized enterprises...
Investor PresentationJanuary 2018
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Forward Looking Information
This presentation includes certain forward-looking statements that are made as of the date hereof and are based upon current expectations, whichinvolve risks and uncertainties associated with our business and the economic environment in which the business operates. All such statementsare made pursuant to the “safe harbour” provisions of, and are intended to be forward-looking statements under applicable Canadian securitieslaws. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. For example,the words anticipate, believe, plan, estimate, expect, intend, should, may, could, objective and similar expressions are intended to identify forward-looking statements. This presentation includes, but is not limited to, forward looking statements relating to TeraGo’s growth strategy and growthimperatives, reducing churn and creating up-sell opportunities, investing in sales organization to accelerate growth, capturing market share,reinvesting to drive growth in EBITDA and the Company’s target operating model. By their nature, forward-looking statements require us to makeassumptions and are subject to inherent risks and uncertainties. We caution readers of this document not to place undue reliance on our forward-looking statements as a number of factors could cause actual future results, conditions, actions or events to differ materially from the targets,expectations, estimates or intentions expressed with the forward-looking statements. When relying on forward-looking statements, whether writtenor oral, to make decisions with respect to the Company, investors and others should carefully consider the risks, uncertainties and assumptions,including the risk that there will be delays in new product launches impacting sales, retention and churn reduction efforts decreasing profitmargins, the Company not being able to realize the anticipated benefits from execution of its growth strategy, TeraGo’s “go-to-market” strategymay not materialize, trends in the global cloud and data centre sectors may not be accurately projected, the outcome of the ISED 5G Consultationmay not be favourable to the Company, the partnership with AWS not resulting in a favourable outcome, a lack of capital to take advantage ofcertain opportunities, the Company not being able to achieve the target operating model metrics set out in this presentation and those risks setforth in the “Risk Factors” section in our annual MD&A for the year ended December 31, 2016 available on www.sedar.com and otheruncertainties and potential events. In particular, if any of the risks materialize, the expectations, and the predictions based on them, of theCompany may need to be re-evaluated. Consequently, all of the forward-looking statements in this presentation are expressly qualified by thesecautionary statements and other cautionary statements or factors, contained herein, and there can be no assurance that the actual results ordevelopments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequences for theCompany.
Except as may be required by applicable Canadian securities laws the Company does not intend, and disclaims any obligation to update or reviseany forward-looking statements, whether oral or written as a result of new information, future events or otherwise.
For Non-GAAP Measures referenced in this presentation such as “Adjusted EBITDA”, please refer to the Company’s MD&A for the three monthsended September 30, 2017 and 2016 for additional commentary which should be read in conjunction with this presentation, and includes itsdefinition and a reconciliation of such measure back to a GAAP measure. In addition, the term “ARPU” refers to the Company’s average revenueper customer and “churn” is a measure, expressed as a percentage, of customer cancellations in a particular month. The Company believes thatARPU is a useful supplemental information as it provides an indication of our revenue from an individual customer on a per month basis. TheCompany believes that churn is useful information as it represents the number of customer cancellations per month as a percentage of totalnumber of customers during the month. Readers are cautioned that the Company’s method of calculating “Adjusted EBITDA”, “ARPU” and “churn”may differ from other issuers and, accordingly, may not be comparable to similar measures presented by other issuers.
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TeraGo at a Glance
Leading Canadian Provider of Enterprise Class Managed Cloud and
Connectivity Solutions Tailored to Mid-sized Businesses
200Employees
~3,400Customers
NATIONALWireless and Fibre
Network
38/24 GHzSpectrum covering
~8.5 billion MHz/Pops
5Data Centres
Standard Tier
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TeraGo at a Glance
WHO HOW
WHAT
Managed Cloudand Connectivity
Solutions company
ResilientHybrid Cloud
Solutions
Managed PrivateInterconnection &
Public Internet
Operate DataCentres and AWS
National Wireless &Fibre Network
WHAT
Leading Canadian Provider of Enterprise Class Managed Cloud and
Connectivity Solutions Tailored to Mid-sized Businesses
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TeraGo Infrastructure
Redundant nationwide network integrated with our colocation and cloud facilities.
KelownaVictoria
Montreal
Calgary
Winnipeg
Edmonton
Windsor
Toronto
Vancouver
Barrie
VancouverBurnaby
Delta
Red Deer
Edmonton
SherwoodPark
Nisku
Laval
West Island
Surrey
EastLaval
23 OntarioMarkets
New Westminster
Richmond
Brossard
Montreal
Abbotsford
Ottawa
Longueuil
London
TeraGo Data Centre (5 facilities)
TeraGo 24/7 Operations Centres (2 facilities)
National Redundant Fibre Network (10Gbps)
Network Service Area
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Hybrid IT Framework
Enterprise-classSolutions
Putting the right workloads in the right place, with the right management framework.
By 2020, 90% oforganizations willadopt HybridInfrastructureManagementcapabilities –Gartner (April 2017)
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Millimetre Wave Spectrum for 5G
UNITEDSTATES
CANADA
TeraGo’s 38/24 GHz Spectrum covers ~8.5 billion MHz/Pops in Canada
ISED 24/38 GHzSpectrum Auction:
TeraGo acquires 70licenses
ISED issuesconsultation on
28/37-40 GHzspectrum use for 5G
ISED consultationcomments received
FCC allocates~11GHz of
spectrum above24 GHz for 5G
AT&T bidsUS$1.6b forStraight Path
Communications28/39 GHz
spectrum at avaluation of
US$0.0075 perMHz Pop
May 2017 Nov 2017
Dish acquires28 GHz
spectrum inasset swap with
Echostar
Verizoncompletes XO
Communicationsacquisition with
an option toacquire 28/39GHz spectrum
AT&T acquiresFiberTower 24/39
GHz spectrumassets
Jul 2016 Jan 2017 Apr 2017Feb 2017
FCC adds 24GHzband to flexible usespectrum allocated
for 5G services
Verizon to acquireStraight Path
Communicationsfor US$3.1b, or a
valuation of
US$0.0145 perMHz Pop
Nov 1999 Jun 2017 Nov 2017Sep 2010
TeraGo purchases a setof 24 GHz band spectrumlicenses for service areas
in Canada’s six largestcities from Mobilexchange
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A SHARPENEDFOCUS FOR GROWTH
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Clear Market Opportunity
$290
$1,118$616
$943
2017 2020
Cloud Colocation
Canadian Cloud andColocation Market(US$ Millions)
$906
$2,061
Source: Structure Research (2017)
32%
15%
57%
CAGR
Canada is hometo approximately
6,000organizations withrevenues between
$50 and $500million
These organizationscollectively employclose to 2 million
Canadians, and produce
almost 32% of
Canada’sGDP
Yet, this segment is
UNDERSERVED
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Capturing Market Share
Mid-sizedenterprises
Smallenterprises
Mid-sizedenterprises
Smallenterprises
2018-2020
• 1/3 of applications moving to the Cloudin the next 3 years
• 85% of new applications will be cloudnative
• Cloud spending in the mid-market is3x to 4x higher than the small businesssegment
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BUILDING THEGROWTH ENGINE
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Our Growth Imperatives
To be recognized by the mid-market as the one partner who understands
their specific needs, and delivers the right offerings with the right support.
Stabilize the Connectivity Business
Leverage Assets to Unlock Hidden Value
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2
3
Growth from Cloud and Colocation
• Improve the Customer Experience
• Up-sell our existing customer base
• Enhance our Offer and Simplify our Portfolio
• Invest in Enhanced Go-to-market Effectiveness
• Drive Operating Leverage through higher Data Centre Utilization
• Maximize Value from Spectrum Assets
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Stabilize the Connectivity Business
Exceptional customerSUPPORT
• New customer lifecyclemanagement framework
• Scheduled touchpoints• Proactive account
management
Reduce Churn and Create Up-sell Opportunities in Our Customer Base
Focus on processesand systems to driveorganizationalEFFICIENCY andeffectiveness
Drive LOYALTYthrough bundledofferings to increasemultiproductcustomers
Q4/16 Q1/17 Q2/17 Q3/17
Churn Rate %
Q4/16 Q1/17 Q2/17 Q3/17
ARPU %ChangeQoQ
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Growth from Cloud and Colocation:Enhance our Offer and Simplify our Portfolio
STREAMLINED and relaunchedour entire portfolio
• Reduced SKUs by 60% and launchednew packages for popular Cloud andColocation configurations
• Launched Connectivity and Cloudservices bundles to deliver enhancedvalue
• Joined AWS Partner Network andestablished our AWS Practice.
Revamped our Offering with New and Enhanced Solutions that Meetthe Specific Needs of Our Customers
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Growth from Cloud and Colocation :Invest in Enhanced Go-to-Market Effectiveness
Sales and MarketingInvestments to ACCELERATEgrowth
• New CRM-driven demand andsales-generation programs
• Increased sales force by 25%• New agency• Revamped lead generation• Launched new website
Investing in our Sales Organization to Accelerate Growth andTarget the Right Customers
Q4/16 Q1/17 Q2/17 Q3/17
Cloud & Colocation Bookings
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Leverage Assets to Unlock Hidden Value
• Significant cross-sell and up-sell opportunities in ourcustomer base
• Connectivity services thatincrease return on assets
• Data centres with capacityand the room to scalewithout new CAPEX
Strategically use our 38/24 GHzspectrum bandwidth to enhancecompetitiveness and maximize
shareholder value
Focus on Value Creation
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TeraGo: Q3/17 Strategy Update
• Stabilize the Connectivitybusiness
Focused on reducing rate ofchurn
Two large customer renewalsin Q3’17
• Invest to accelerate growthin Cloud and Colocation
Signed our largest multi-year,multi-million dollar colocationservices agreement
• Increase data centreutilization
• Cross-sell and up-sell toour large existing customerbase
• Leverage wireless networkand spectrum
• Focus on managing costsin Connectivity to providemargin and predictablecash flow to fund growthinitiatives in Cloud andColocation
REVENUE GROWTH PROFITABILITY LEVERAGE PLATFORM
RECORD SALESBOOKINGS FOR CLOUD
AND COLOCATION
ADJUSTED EBITDAGROWTH FROM
Q2 TO Q3
SUBMITTEDCOMMENTS TO ISED
ON 5G SPECTRUMCONSULTATION
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FINANCIALHIGHLIGHTS
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Growth Investment Backed byStrong Financial Position
Profitablebusiness andpositive FCFgeneration
1 2 3Growth to driveoperating leverageand ROIC
Strong BalanceSheet withFinancialFlexibility toExecute GrowthPlan
$57.3 million TTMRevenue
25.8% TTM AdjustedEBITDA margin
$8.0 TTM Capex or14.3% of Revenue
Current sales bookingssupport increased datacentre utilization to~40% in 2018
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Revenue Streams Shifting to Cloud
$3.4$13.2
$18.3 $19.0
$47.8
$44.6$40.8 $38.3
51.2
57.7 59.1 57.3
2014 2015 2016 TTM
Connectivity
Cloud and Colocation
All $ figures in CAD millions
33%
67%
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EBITDA: Reinvesting to Drive Growth
$16.2$18.4 $18.9
$14.8
31.6% 31.9% 32.1%
25.8%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
$0.0
$5.0
$10.0
$15.0
$20.0
$25.0
2014 2015 2016 TTM
Adjusted EBITDA Adjusted EBITDA Margin
All $ figures in CAD millions
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Strong Balance Sheet
All $ figures in CAD millions as at September 30st, 2017(1) Excludes $655k of letters of credit issued in favour of certain third parties.
Cash and cash equivalents $7.1
Unused operating line of credit(1) $10.0
Available acquisition facility $25.0
Total cash and access to credit(1) $42.1
Long-term debt $37.2
Operating Leverage 2.55x
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Target Operating Model
Connectivity Revenue (0-5%) Y/Y
Cloud and Colocation Revenue 10-15% Y/Y
Adjusted EBITDA Margin 30-35%
Operating Leverage 2-3x
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Experienced Leadership TeamStrong Track Record
Christine GauthierVice President, Sales
Ron PerrottaVice President,
Marketing & Strategy
Antonio (Tony) CicirettoPresident & CEO
• Christine joined in September 2017 and has led and repeatedly builtsales teams for rapidly scaling businesses in technology organizations.Previously she served as Country Managing Director at Check PointSoftware, and has held senior roles at HP and Cisco Systems.
• Ron has 30 years experience building businesses, strong teams andshareholder value in consumer goods and technology. Prior rolesinclude SVP Marketing at Rogers, VP marketing & Strategy at Cogecoand marketing roles at Johnson & Johnson, Tropicana and Pfizer.
• President and CEO of Cogeco Peer 1 and Cogeco Data Services forover six years, where he was responsible for leading their marketgrowth and development. Previously held executive leadership roles atRogers and Bell over a 20 year period.
Duncan McGregorVice President, Engineering &
Operations
• Duncan is a seasoned executive with 20 years of global experience inthe technology sector. Prior to joining TeraGo, Duncan served as theGlobal Vice President of Engineering Operations for Cogeco Peer 1,and held various senior roles at OpenText Corporation.
David CharronChief Financial Officer
• David has more than 20 years of financial leadership and experience inthe IT services industry. Prior to joining TeraGo, David was CFO andCorporate Secretary at Redknee Solutions Inc. He has also held seniorfinance positions at Nortel Networks and Descartes Systems Group.
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Summary
Enterprise-Class Cloud, Colocation, and Connectivity
A Clear Growth Opportunity
A Focused Plan for Profitable Growth
Financial Strength to Fund Our Growth Strategy
Experienced Management Team Committed to Value Creation
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Shareholder Base
Others54%
Second Alpha23%
Columbia PacificAdvisors
8%
PenderFund14%
PenderFund14%
SecondAlpha23%
Others55%
ColumbiaPacific
Advisors8%
Based on publicly available information as at September 30st, 2017.
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Capital Markets Snapshot
Stock symbol TSX: TGO
Shares outstanding 14.3 million
Price at Jan 2, 2018 $4.35
52-week low / high $3.60 / $5.16
Enterprise Value (“EV”) $92.3 million
EV / Adjusted TTM EBITDA 6.2x
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