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Press release from Marketwire

TeraGo Achieves Record Revenue and EBITDA in Q3 2010

Friday, November 12, 2010

TeraGo Achieves Record Revenue and EBITDA in Q3 201006:00 EST Friday, November 12, 2010TORONTO, ONTARIO--(Marketwire - Nov. 12, 2010) - TeraGo Inc. (TSX:TGO) (www.terago.ca) today announced financial and operating results for the third quarter ending September 30, 2010.Third Quarter 2010 Financial and Operational HighlightsRecord revenue of $9.7 million in Q3 2010, up 12% vs Q3 2009; Record EBITDA of $1.6 million, a 24% increase from Q3 2009; Gross profit margin increased to 76.2% from 72.5% in prior year period; Installed 300 new customer locations in Q3 2010 vs 218 for the same period in 2009; Average monthly churn rate of 0.85% remained well below 1% benchmark and improved on 1.06% in the prior year period; Continued to make substantial progress in achieving our growth strategy of increasing penetration in existing markets by more than doubling net customer growth (167 net customer locations vs 69 in Q3 of last year) to end Q3 2010 with 5,216 customer locations in service; Ended Q3 2010 with $1.6 million of cash, cash equivalents and short-term investments plus the $2.0 million unused portion of $7.5 million senior term debt facility to fund the Company's continued growth; Subsequent to quarter end, increased senior term credit facilities with the Business Development Bank of Canada from $7.5 million to $10 million ($4.5 million undrawn), and established a $3.5 million operating line of credit with the Royal Bank of Canada; Awarded orders from a third Canadian wireless new entrant, Mobilicity, and an additional order from Public Mobile to provide wireless backhaul services; Launched voice services in southwestern Ontario and Ottawa. Subsequent to quarter end, the Company launched voice services in Montreal, Calgary and Edmonton. Bryan Boyd, President and CEO, TeraGo Inc. said "With record revenue and EBITDA, accelerating customer growth and additional debt financing, we are poised to improve our results even further in Q4 and beyond."Key Financial & Operational Highlights (All financial results are in thousands, except gross margin, loss per share and operating metrics)Three months ended Sept. 30, 201020102009(Unaudited)(Unaudited)FinancialRevenue$9,699$8,646Gross profit margin76.2%72.5%EBITDA*$1,559$1,258Income (loss) from operations$(1,367)$(1,745)Net loss$(1,451)$(1,722)Loss per share$(0.13)$(0.15)OperatingChurn rate*0.85%1.06%Customer locations in service5,2164,669ARPU*$614$611Number of employees203177* See Non-GAAP Measures belowThird Quarter 2010 Results of OperationsRevenue Total revenue for the three months ended September 30, 2010 increased 12% to $9.7 million, up from $8.6 million for the same period in 2009. The increase largely resulted from the higher number of customer locations in service as well as upgrades by existing customers to their Internet and data connections. Approximately 98% of total third quarter 2010 revenue was recurring service revenue.Customer locations300 new customer additions in Q3 2010 (218 in Q3 2009), combined with a low churn rate, resulted in 167 net customer locations added, compared with 69 net additions in the third quarter of 2009. The period ended with 5,216 customer locations in service, 12% growth since September 30, 2009.Churn rate The third quarter 2010 average monthly churn rate was 0.85% compared to 1.06% for the same period in 2009. The higher churn in 2009 was largely due to increased collection and bankruptcy issues and more customer location closures and project terminations. Management continues to strive for lower churn rates by focusing on network quality, customer service, and customer creditworthiness.Gross margin The gross profit margin for the three months ended September 30, 2010 increased to 76% from 73% for the same period in 2009. TeraGo's costs of service are largely fixed and the Company expects that they will continue to be leveraged as the business grows.SG&A SG&A expenses increased 14% in the third quarter of 2010 to $5.9 million from $5.1 million for the same period in 2009. Approximately half of the increase was due to $0.4 million of severance costs resulting from a change in sales leadership that is non-recurring in nature. The remaining increase was largely a result of investments in sales, marketing and new product development in pursuit of our strategic growth objectives. The third quarter 2010 investments, which are designed to improve sales performance in the future, were a continuation of those initiated in the first quarter of 2010. TeraGo had 35 direct sales personnel at quarter end, up from 30 a year earlier. EBITDA TeraGo posted record Q3 2010 EBITDA of $1.6 million (vs $1.3 million in Q3 2009) even with the expenses related to non-recurring activities noted above. The recent growth investments have already proven their worth with accelerating new customer additions, the expansion of cellular backhaul services and the introduction of new voice services. Net loss Net loss was $(1.5) million in Q3 2010 compared to a net loss of $(1.7) million for the same period in 2009.Capital resources The Company had cash, cash equivalents and short-term investments of $1.6 million and access to the $2 million unused portion of a $7.5 million senior term-debt facility at September 30, 2010. The senior debt facilities were increased to $10 million subsequent to quarter end; $4.5 million of which is still unused. In addition, the Company established a $3.5 million operating line of credit with a major bank after the third quarter ended.Management believes that the Company's current cash and short-term investments, anticipated cash flow from operations, and access to the unused debt facilities will be sufficient to meet working capital and capital expenditure requirements for the foreseeable future. ARPU Average monthly revenue per customer location, or ARPU, increased to $614 in the third quarter of 2010, up from $611 for the same period in 2009. The increase was primarily a result customers upgrading their internet and data services over time. Nine month ARPU of $611 was flat compared to the same period in 2009. Shares outstanding As of November 10, 2010, TeraGo had 7,604,284 Common Shares, 3,633,474 Class A Non-Voting Shares and two Class B Shares outstanding.TeraGo completes spectrum purchase During the third quarter of 2010, the Company completed its previously announced purchase of six 24 GHz licences for a gross purchase price of $5 million (subject to certain prior payments). The purchased 24 GHz spectrum includes 240 MHz in each of Toronto, Montreal and Ottawa, as well as 80 MHz in each of Calgary, Vancouver and Edmonton. TeraGo now owns 76 spectrum licences in the 24 GHz and 38 GHz bands, covering Canadian markets with a population base of nearly 23 million and plans to use this additional spectrum to provide Ethernet-based broadband links for businesses, government and cellular backhaul, as part of the Company's growth strategy.Continued growth in wireless backhaul services Late in the third quarter, TeraGo was awarded a contract to provide wireless backhaul services to Mobilicity, a third Canadian new wireless entrant, and received an additional order from Public Mobile Inc. TeraGo now has Ethernet-based wireless backhaul service orders from three providers. These contracts produce recurring revenue and the company believes they will contribute to its top line in a meaningful way over the longer term.Conference Call and Webcast Management will host a conference call on Friday, November 12, 2010, at 9:00 a.m. EDT to discuss these results. To access the conference call, please dial 416-340-8018 or 1-800-223-7781. A replay of the conference call will be available until November 19, 2010 at midnight EDT. To access the replay, call 416-695-5800 or 1-800-408-3053, followed by passcode 6115814. The call will also be accessible via webcast at www.terago.ca or at http://www.investorcalendar.com/IC/CEPage.asp?ID=162221. An archived replay of the webcast will be available for one year. TeraGo's unaudited financial statements for the three and nine months ended September 30, 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 Measures The 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 Q3 2010 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. provides small and medium sized businesses with carrier-grade wireless broadband, data and voice communications services. The national network service provider owns and manages its wireless IP network servicing more than 5,200 customer locations in 43 major markets across Canada including Toronto, Montreal, Ottawa, Calgary, Edmonton, Vancouver and Winnipeg. TeraGo Networks is a Competitive Local Exchange Carrier (CLEC) and 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: Bryan BoydTeraGo Networks Inc.President and CEO(905) 707-0788bryan.boyd@terago.caORScott BrowneTeraGo Networks Inc.Chief Financial Officer(905) 707-0788scott.browne@terago.cawww.terago.ca