The Globe and Mail

Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Globe Investor

News Sources

Take control of your investments with the latest investing news and analysis

Press release from Marketwire

TeraGo Posts 78% Increase in EBITDA

Driven by Record Revenue and Improving Gross Margins

Thursday, May 12, 2011

TeraGo Posts 78% Increase in EBITDA06:00 EDT Thursday, May 12, 2011TORONTO, ONTARIO--(Marketwire - May 12, 2011) - TeraGo Inc. (TSX:TGO) (www.terago.ca) today announced financial and operating results for the first quarter ended March 31, 2011.First Quarter 2011 Financial and Operational HighlightsRecord revenue of $10.3 million in the first quarter of 2011 up 15.7% over Q1 2010 and exceeding the $10.0 million threshold for the first time; EBITDA of $2.2 million, a 78% increase from Q1 2010; Gross profit margin increased to 78.3% from 73.6% in prior year period; Continued to increase penetration in existing markets with 108 net customer locations added in Q1 2011 (86 in Q1 2010) to end the period with 5,471 customer locations in service, an increase of 13.3% over 4,829 at the end of Q1 2010; Average revenue per customer location ("ARPU") for Q1 2011 was $618 compared to $611 in the same period in 2010; Average monthly churn rate for the first quarter 2011 was 1.02% compared to 1.03% for Q1 2010; Ended Q1 2011 with $2.2 million of cash, cash equivalents and short-term investments plus access to $2.5 million of the $10 million senior term-debt facility and to the $3.5 million operating line of credit. First Quarter 2011 Key DevelopmentsThe Company assisted Mobilicity in launching its cellular network in Calgary by providing Ethernet-based wireless backhaul services for a portion of its network rollout; The Company was awarded additional orders from Public Mobile to provide wireless backhaul services in the Greater Toronto and Montreal markets; TeraGo improved its ranking among the top 250 Canadian technology companies by Branham 300 for the fourth consecutive year. Key Developments Subsequent to March 31, 2011On April 27, 2011, the Company entered into an asset purchase agreement with MetroBridge Networks International Inc. to acquire substantially all of MetroBridge's customers, related network infrastructure, real estate leases, and other assets. MetroBridge's broadband fixed wireless network, which covers the Lower Mainland of British Columbia and Vancouver, will add approximately 600 business customer locations to TeraGo's network. MetroBridge reported total revenue of $4.7 million and ARPU of $603 for the year ended December 31, 2010. The purchase price is expected to be approximately $6 million and the deal is expected to close on May 31, 2011. On May 6, 2011, TeraGo completed an agreement to establish a $19 million credit facility with the Royal Bank of Canada. The new facility essentially refinances, at a lower interest rate, an existing facility with the Business Development Bank of Canada (BDC), adds incremental financing for the MetroBridge asset purchase, and makes available funds for general working capital purposes and continued growth. The BDC debt of $7.5 million will be repaid using proceeds from this new debt facility. Bryan Boyd, President and CEO, TeraGo Inc. said, "We're pleased with our continuing momentum, as record revenue combined with strong margins and cost management helped achieve significant growth in first quarter EBITDA. Now with the expected contribution of MetroBridge's positive EBITDA, improved financing terms and our proven growth strategy, we believe we are strongly positioned for the remainder of 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 March 3120112010(Unaudited)(Unaudited)FinancialRevenue$10,330$8,928Gross profit margin78.3%73.6%EBITDA*$2,239$1,256Income (loss) from operations$(125)$(1,467)Net loss$(330)$(1,441)Loss per share$(0.03)$(0.13)OperatingChurn rate*1.02%1.03%Customer locations in service5,4714,829ARPU*$618$611Number of employees194186* See Non-IFRS Measures belowNoteEffective January 1, 2011, TeraGo's financial statements and Management Discussion & Analysis follow International Financial Reporting Standards (IFRS). An explanation of how the transition from Canadian GAAP to IFRS has affected the Company's financial position, financial performance and cash flows is set out in the company's Q1 2011 MD&A.First Quarter 2011 Results of OperationsRevenueTotal revenue for the three months ended March 31, 2011 increased 15.7% to $10.3 million compared to $8.9 million for the same period in 2010. The increase 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 first quarter 2011 revenue was recurring service revenue.Customer locations276 new customer additions in Q1 2011 (236 in Q1 2010), combined with a continuing low churn rate, resulted in 108 net customer locations added (86 in Q1 2010), a strong performance in an historically seasonally impacted quarter. The period ended with 5,471 customer locations in service, 13.3% growth since March 31, 2010.Churn rateThe average monthly churn rate in the first quarter of 2011 declined slightly to 1.02% compared to 1.03% in Q1 2010. Management continues to strive for lower churn rates by focusing on network quality, customer service, and customer creditworthiness.Gross marginThe gross profit margin for the quarter ended March 31, 2011 increased to 78% from 74% for the same period in 2010. The increase was primarily a result of lower telecommunications and 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.SG&ASG&A (Salaries and related costs – Other, and Other operating items) expenses increased 10% in Q1 2011 to $5.8 million from $5.3 million for the first quarter of 2010. The increase was largely a result of increased marketing capacity building on investments made in 2010 in pursuit of our strategic growth objectives, additional operations personnel and to a lesser extent professional fees and information systems costs. TeraGo had 29 direct sales personnel at quarter end, the same as a year earlier.EBITDAQ1 2011 EBITDA increased 78% to $2.2 million compared with $1.3 million for the same period in 2010. The increase is in line with management's expectations as TeraGo continued to increase revenue while focusing on cost management.Net lossNet loss was $(0.3) million for Q1 2011 compared to a net loss of $(1.4) million for the same period in 2010.Capital resourcesAt March 31, 2011, the Company had cash, cash equivalents and short-term investments of $2.2 million, access to the $2.5 million unused portion of a $10.0 million senior term-debt facility and access to its $3.5 million revolving line of credit.Subsequent to quarter end TeraGo established a $19 million credit facility agreement with RBC. The agreement includes three new senior term debt facilities totaling $16.0 million and a $3.0 million operating line of credit that replaces the existing $3.5 million line of credit with RBC on similar terms. The additional $16.0 million in senior term debt will be available to TeraGo in 3 facilities:$7.5 million which will be used to immediately repay the drawn portion of TeraGo's senior term credit facility with BDC; $5.5 million to finance the MetroBridge purchase; and $3.0 million available for general working capital purposes to fund continued growth. Management believes the Company's current cash, short-term investments, 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 the foreseeable future. ARPUAverage monthly revenue per customer location, or ARPU, increased to $618 in the first quarter of 2011, up from $611 for the same period in 2010. The increase was primarily a result of service capacity upgrades by existing customers and a higher proportion of new customers choosing higher capacity services.Shares outstandingAs of May 6, 2011, TeraGo had 7,634,310 Common Shares, 3,633,474 Class A Non-Voting Shares and two Class B Shares outstanding.TeraGo's spectrum portfolioTeraGo 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 WebcastManagement will host a conference call on Thursday, May 12, 2011, at 9:00 a.m. EDT to discuss these results. To access the conference call, please dial 416-695-6616 or 1-800-355-4959. A replay of the conference call will be available until May 12, 2012 at midnight EDT. To access the replay, call 905-694-9451 or 1-800-408-3053, followed by passcode 7467341. The call will be accessible via webcast at www.terago.ca or at http://www.investorcalendar.com/IC/CEPage.asp?ID=164302. An archived replay of the webcast will be available for one year.TeraGo's audited financial statements for the quarter ended March 31, 2011, and the notes thereto, and its Management Discussion and Analysis for the same period, have been filed on SEDAR at www.sedar.com.Non-IFRS 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 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 NetworksTeraGo 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 5,400 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 CEO1.866.837.2461IR@terago.caORScott BrowneTeraGo Inc.Chief Financial Officer1.866.837.2461IR@terago.ca