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Press release from Marketwire

TeraGo Announces Record Revenue in First Quarter of 2010

Thursday, May 13, 2010

TeraGo Announces Record Revenue in First Quarter of 201006:00 EDT Thursday, May 13, 2010TORONTO, ONTARIO--(Marketwire - May 13, 2010) - TeraGo Inc. (TSX:TGO) (www.terago.ca) today announced financial and operating results for the first quarter ended March 31, 2010.First Quarter 2010 Financial and Operational Highlights -- Total revenue was $8.9 million in Q1 2010, an increase of 4% over the first quarter of 2009. -- EBITDA was $1.2 million compared to $0.9 million a year earlier, an increase of 29%. -- Gross profit margin of 74% was consistent with the first quarter of 2009. -- Added 86 net customer locations in the first quarter, ending the period with 4,829 customer locations in service. This compares to 68 net additions in Q1 2009 and 74 in Q4 2009. -- The average monthly churn rate was 1.03% compared to 1.43% in the first quarter of 2009 and 1.18% in the fourth quarter of 2009. -- Average revenue per customer location ("ARPU") was $611 compared to $609 in Q1 2009. -- Ended the quarter with $5.8 million of cash, cash equivalents and short term investments. -- TeraGo was awarded a second contract to provide Ethernet-based wireless backhaul services to a Canadian wireless new entrant for a portion of its planned wireless network deployment. -- In March, the Company announced a plan to introduce additional services, starting with local voice access service. During the quarter, the Company completed infrastructure upgrades and undertook product development and regulatory activities to facilitate the launch of the new service. -- The recent selective investments made in sales and marketing began to yield results in the first quarter. The total value of new sales booked in the first quarter of 2010 represents a 20% increase compared to the first quarter of 2009 and the highest level of quarterly new sales since the second quarter of 2008 when the economic downturn began. "We are excited about our growth prospects in 2010," said Bryan Boyd, President and CEO, TeraGo Inc. "Our investments towards future growth have already resulted in a 20% increase in new sales activity during the first quarter and we are looking forward to launching a competitive voice service to Canadian businesses."Key Financial & Operational Highlights(All financial results are in thousands, except gross margin, loss per share and operating metrics) Three months ended March 31 2010 2009 ---------------------------------------- (Unaudited) (Unaudited) Financial Revenue $ 8,928 $ 8,621 Gross profit margin % 73.6% 73.5% EBITDA(i) $ 1,203 $ 932 Income (loss) from operations $(1,458) $(1,633) Net loss $(1,450) $(1,556) Loss per share $ (0.13) $ (0.14) Operating Churn rate(i) 1.03% 1.43% Customer locations in service 4,829 4,590 ARPU(i) $ 611 $ 609 Number of employees 186 168 (i) See Non-GAAP Measures below First Quarter 2010 Results of OperationsTeraGo's total revenue was $8.9 million for the three months ended March 31, 2010, an increase of 4% compared with $8.6 million of revenue in the first quarter of 2009. The increase in revenue is primarily the result of a greater number of customer locations in service, and existing customers upgrading their Internet and data connections and/or adding additional service locations. Service revenues, which are primarily recurring in nature, comprised 98% of total revenues in the quarter, while installation revenue represented 2%.Net customer locations added during the first quarter of 2010 totaled 86, the third consecutive quarter of sequential improvement. The total value of new orders booked represented a 20% increase compared to the first quarter of 2009, and represented the highest level of quarterly new orders booked since the second quarter of 2008 when the economic downturn began. Total customer locations in service reached 4,829 at March 31, 2010, an increase of 239 net new locations or 5% compared to 4,522 customer locations in service one year earlier.Average monthly revenue per customer location, or ARPU, was $611 in Q1 2010, compared to $609 in the comparable period of 2009. The increase in ARPU was driven primarily by existing customers upgrading the capacity of their services in addition to an increase in the number of new customers requiring higher capacity services, partially offset by lower usage revenue.The average monthly churn rate for the first quarter of 2010 was 1.03%, compared to 1.43% in Q1 2009 and 1.18% in Q4 2009. Management will continue to focus on network quality and customer service in addition to monitoring customer creditworthiness and churn levels.Gross profit was $6.6 million in the first quarter, representing 73.6% of revenue, compared to $6.3 million or 73.5% of revenue a year earlier. TeraGo's costs of service are largely fixed and the Company expects that these fixed costs will be leveraged as revenue grows.Sales, general and administrative expenses were $5.4 million in the first quarter of 2010, consistent with the previous year. The Company's ongoing focus on cost management, primarily of administrative expenses, was offset by selective investments in sales and marketing and new product development to drive future growth. These investments have contributed to increased sales activity in the first quarter and are expected to provide further benefits in subsequent quarters. The Company ended the quarter with 29 direct sales personnel compared to 30 a year earlier. It is the Company's intention to grow its sales force during the year.EBITDA was $1.2 million in Q1 2010 compared to $0.9 million in Q1 2009 and $1.5 million in Q4 2009. EBITDA was consistent with management's expectation as the Company continued to grow revenue and focused on prudent cost management while making selective investments towards future growth. The selective investments will continue in the second quarter and are expected to further accelerate the pace of new customer additions and to facilitate the introduction of new voice services.Net loss was $(1.5) million or $(0.13) per share in the first quarter of 2010, compared to a net loss of $(1.6) million or $(0.14) per share a year earlier.As of March 31, 2010, TeraGo had cash and cash equivalents and short-term investments of $5.8 million compared to $8.2 million at December 31, 2009. The Company had less than $0.4 million of long-term debt outstanding as of March 31, 2010. Management believes that the Company's current cash and short-term investments, anticipated cash flow from operations, and its access to additional capital in the form of debt or equity will be sufficient to meet working capital and capital expenditure requirements for the foreseeable future.As of May 12, 2010, TeraGo had 7,545,985 Common Shares, 3,633,474 Class A Non-voting Shares and two Class B Shares outstanding.Conference Call and WebcastManagement will host a conference call on Thursday, May 13, 2010, at 9:00 a.m. EDT to discuss these results. To access the conference call, please dial 416-340-8018 or 1-866-223-7781. A replay of the conference call will be available until May 20, 2010 at midnight EDT. To access the replay, call 416-695-5800 or 1-800-408-3053, followed by passcode 5056625. The call will also be accessible via webcast at www.terago.ca or at http://www.investorcalendar.com/IC/CEPage.asp?ID=157923. An archived replay of the webcast will be available for one year.TeraGo's unaudited financial statements for the three months ended March 31, 2010, and the notes thereto, and its Management Discussion and Analysis for the same period, have been filed on SEDAR at www.sedar.com.Non-GAAP MeasuresThe term "EBITDA" refers to income before deducting interest, taxes, and amortization. EBITDA is a term commonly used to evaluate operating results. We believe that EBITDA is useful supplemental information as it provides an indication of the operational results generated by our business activities prior to taking into consideration how those activities are financed and taxed and also prior to taking into consideration asset amortization. We also exclude foreign exchange gain or loss, accretion expense, gain or loss in network asset disposals and stock-based compensation expense from our calculation of EBITDA. EBITDA is not a recognized measure under GAAP and, accordingly, investors are cautioned that EBITDA should not be construed as an alternative to operating income or net income determined in accordance with GAAP as an indicator of our financial performance or as a measure of our liquidity and cash flows. EBITDA does not take into 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. Our method of calculating EBITDA may differ from other issuers and, accordingly, EBITDA may not be comparable to similar measures presented by other issuers.The term "ARPU" refers to our average revenue per customer location. We believe that ARPU is useful supplemental information as it provides an indication of our revenue from an individual customer location on a per month basis. ARPU is not a recognized measure under GAAP and, accordingly, investors are cautioned that ARPU should not be construed as an alternative to revenue determined in accordance with GAAP as an indicator of our financial performance. We calculate ARPU by dividing our service revenue by the average number of customer locations in service during the period and we express ARPU as a rate per month. Our method of calculating ARPU may differ from other issuers and, accordingly, ARPU may not be comparable to similar measures presented by other issuers.The term "churn" or "churn rate" is a measure, expressed as a percentage, of customer locations terminated in a particular month. Churn represents the number of customer locations disconnected per month as a percentage of total number of customer locations in service during the month. We calculate it by dividing the number of customer locations disconnected during a period by the total number of customer locations in service during the period. Churn and churn rate are not recognized measures under GAAP and, accordingly, investors are cautioned in using it. Our 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.Forward-Looking StatementsThis news release includes certain forward-looking statements that are made as of the date hereof and that are based upon current expectations, which involve risks and uncertainties associated with our business and the economic environment in which the business operates. All such statements are made pursuant to the 'safe harbour' provisions of, and are intended to be forward-looking statements under, applicable Canadian securities laws. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. For example, the words anticipate, believe, plan, estimate, expect, intend, should, may, could, objective and similar expressions are intended to identify forward-looking statements. By their nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties. We caution readers of this news release not to place undue reliance on our forward-looking statements as a number of factors could cause actual 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, investors and others should carefully consider the risks set forth in the 2009 Annual MD&A and 2009 Annual Information Form that can be found on SEDAR at www.sedar.com and other uncertainties and potential events. 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.About TeraGo Networks TeraGo Networks Inc. has been providing businesses in Canada with carrier-grade wireless broadband and data communications services since 2001. The national broadband service provider owns and manages its wireless IP network in 43 major markets across Canada, serving more than 4,800 customer locations. TeraGo Networks is a wholly owned subsidiary of TeraGo Inc. (TSX:TGO). More information about TeraGo is available at www.terago.ca.FOR FURTHER INFORMATION PLEASE CONTACT: TeraGo Inc. Bryan Boyd President and CEO (905) 707-0788 bryan.boyd@terago.ca or The Equicom Group Jeff Codispodi (416) 815-0700 ext 261 jcodispodi@equicomgroup.com