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Press release from Marketwire

TeraGo Records Highest Annual and Quarterly Revenue and EBITDA in Ten Year Company History

Strong Net Customer Additions in 2010

Friday, February 25, 2011

TeraGo Records Highest Annual and Quarterly Revenue and EBITDA in Ten Year Company History06:00 EST Friday, February 25, 2011TORONTO, ONTARIO--(Marketwire - Feb. 25, 2011) - TeraGo Inc. (TSX:TGO) (www.terago.ca) today announced financial and operating results for the year ended December 31, 2010. 2010 Financial and Operational HighlightsRecord annual EBITDA in 2010 of $6.5 million up 31% over 2009; and record quarterly EBITDA in Q4 2010 of $2.4 million vs $1.5 million for the same period in 2009; Total 2010 revenue up 8.6% to $37.8 million; Record quarterly revenue of $9.9 million in Q4 2010 up 11.9% over Q4 2009; TeraGo's focus on network enhancements and cost management allowed gross profit margin to increase to 75.9% for 2010 compared to 73.9% in 2009, and to 77.9% in Q4 2010 vs 75.0% a year earlier; Growth strategy of increasing penetration in existing markets continues to pay off with 1,229 new customer locations added in 2010 (925 in 2009) and 620 net customer locations added in 2010 (221 in 2009) ending the year with 5,363 customer locations in service, 13% more than at year end 2009; Average monthly churn rate below 1% threshold for full year 2010 at 0.99% compared to 1.26% in 2009; Ended 2010 with $2.2 million of cash, cash equivalents and short-term investments plus access to $3.5 million of its senior term-debt facility and to its $3.5 million operating line of credit; Established commercial relationships and assisted all three independent Canadian wireless new entrants, Public Mobile, Mobilicity and Wind Mobile, with their network rollouts. The company continues to support these partners as they expand their networks; The Company launched TeraGo Voice services in the Greater Toronto Area, southwestern Ontario, Ottawa, Montreal, Calgary and Edmonton, and subsequent to year end in Vancouver; Purchased licenses for 24GHz spectrum covering six of Canada's largest markets to facilitate future growth; Completed agreements for term debt facilities totalling $10.0 million and a $3.5 million operating line of credit to fund future growth and to acquire spectrum; TeraGo was named one of Greater Toronto's Top Employers for 2011 by Mediacorp Canada for its leading employment practices and ranked among Canada's top technology companies on the Branham300 list for the third consecutive year; Implemented Quality of Service ("QoS") capabilities in all major markets to support local voice access service and other potential future applications. QOS also provides networking efficiencies which benefit the Company's Internet and Data business segment. Bryan Boyd, President and CEO, TeraGo Inc. said "One of our main objectives for 2010 was to efficiently convert our revenue growth into accelerated EBITDA performance. With record revenue and our strong cost management efforts we were able to accomplish this and set an EBITDA record. Our strategy is working well as demonstrated by the strong results in all our key financial and operational metrics. We have the strategic, operational and financial strength to extend this momentum through 2011 and beyond." Key Financial & Operational Highlights (All financial results are in thousands, except gross profit margin, loss per share and operating metrics)Three Months Ended December 31Year Ended December 312010200920102009(Unaudited)(Unaudited)(Audited)(Audited)FinancialAs recastAs recastRevenue$9,911$8,860$37,768$34,772Gross profit margin77.9%75.0%75.9%73.9%EBITDA*$2,429$1,521$6,476$4,957Income (loss) from operations$(919)$(1,589)$(5,621)$(5,976)Net loss$(1,091)$(1,568)$(5,875)$(5,799)Loss per share$(0.10)$(0.14)$(0.52)$(0.52)OperatingChurn rate*1.13%1.18%0.99%1.26%Customer locations in service5,3634,7435,3634,743ARPU*$607$616$610$612Number of employees206186206186* See Non-GAAP Measures below2010 Results of OperationsRevenue Total revenue for the year ended December 31, 2010 increased 9% to $37.8 million compared to $34.8 million for the same period in 2009. Fourth quarter 2010 revenue was also a record at $9.9 million, up 12% from $8.9 million for the same period in 2009. The full year and quarterly increases largely resulted from the greater number of customer locations in service as well as existing customers upgrading their Internet and data connections. Approximately 98% of total 2010 revenue was recurring service revenue.Customer locations 1,229 new customer additions in 2010 (925 in 2009), combined with a low churn rate, resulted in 620 net customer locations added, an increase of 180% compared with 221 net additions in 2009. The year ended with 5,363 customer locations in service, 13% growth over the 4,743 in service at December 31, 2009. Churn rate The average monthly churn rate in 2010 was 0.99% compared to 1.26% in 2009. The higher churn in 2009 was largely due to increased collection and bankruptcy issues as well as 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 year ended December 31, 2010 increased to 76% from 74% for 2009. Fourth quarter gross profit margin was 78% compared with 75% in Q4 2009. The increase was primarily a result of lower maintenance costs resulting from the Company's focus on network enhancements, and reduced spectrum lease payments as the Company now owns the spectrum it formerly leased. 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 6% in 2010 to $22.6 million from $21.4 million for 2009. The increase in 2010 was largely a result of investments in sales, marketing and new product development in pursuit of our strategic growth objectives. These investments are expected to provide further benefits in the future. TeraGo had 34 direct sales people at year end, up from 32 a year earlier. EBITDA TeraGo posted record EBITDA in 2010 of $6.5 million (vs $5 million in 2009) while making strategic investments to drive future growth. The Company also achieved record quarterly EBITDA for the second consecutive three-month period in the fourth quarter of 2010. Q4 2010 EBITDA increased to $2.4 million compared to $1.5 million for the same period in 2009. Both the full year and fourth quarter 2010 EBITDA performance are a result of the Company's successful revenue growth efforts combined with a focus on cost management. The Company's growth investments over the year proved 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 $(5.9) million in 2010 compared to a net loss of $(5.8) million in 2009 mainly due to an increase in depreciation of $1.5 million partially offset by improved operating results.Capital resources At year end 2010, the Company had cash, cash equivalents and short-term investments of $2.2 million and access to $3.5 million unused portion of a $10.0 million senior term-debt facility.In the fourth quarter of 2010, the senior debt facility was increased to $10 million. The Company also established a $3.5 million operating line of credit with a major bank during the fourth quarter. To date, the Company has not drawn against this facility.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 its working capital and capital expenditure requirements for the foreseeable future. ARPU Average monthly revenue per customer location, or ARPU, was essentially flat year-over-year at $610 in 2010, compared with $612 in 2009. The slight decrease in ARPU was partially due to lower usage revenue as certain customers are electing to purchase longer term contracted fixed bandwidth packages in exchange for short term variable usage. Q4 2010 ARPU decreased to $607 from $616 in the same period a year earlier, largely because of a benefit resulting from an early contract termination and payment by one customer last year. Without this benefit, quarterly ARPU would have been essentially unchanged.Shares outstanding As of February 22, 2011, TeraGo had 7,624,494 Common Shares, 3,633,474 Class A Non-Voting Shares and two Class B Shares outstanding.TeraGo's spectrum portfolio During 2010, the Company purchased 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.Conference Call and Webcast Management will host a conference call on Friday, February 25, 2011, 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 February 25, 2012 at midnight EDT. To access the replay, call 905-694-9451 or 1-800-408-3053, followed by passcode 7805600. The call will be accessible via webcast at www.terago.ca or at http://www.investorcalendar.com/IC/CEPage.asp?ID=163225. An archived replay of the webcast will be available for one year. TeraGo's audited financial statements for the year ended December 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 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 Statements This 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 2010 MD&A and 2010 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 5,300 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 Inc.President and CEO(905) 707-0788bryan.boyd@terago.caORScott BrowneTeraGo Inc.Chief Financial Officer(905) 707-0788scott.browne@terago.ca