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Press release from Marketwire

TeraGo: Record Revenue Drives Record EBITDA Integration of MetroBridge Customer Base and Network On Track

Thursday, August 04, 2011

TeraGo: Record Revenue Drives Record EBITDA Integration of MetroBridge Customer Base and Network On Track07:00 EDT Thursday, August 04, 2011TORONTO, ONTARIO--(Marketwire - Aug. 4, 2011) - TeraGo Inc. (TSX:TGO) (www.terago.ca) today announced financial and operating results for the second quarter ended June 30, 2011.Second Quarter 2011 Financial and Operational HighlightsRecord revenue of $10.8 million in the second quarter of 2011, up 17% over Q2 2010; Record EBITDA of $2.7 million, a 102% increase from Q2 2010; Gross profit margin increased to 78.7% from 75.8% in prior year period; Added 687 net customer locations in Q2 2011, including 585 as a result of the MetroBridge acquisition, compared to 220 in the same period in 2010; Ended the period with 6,158 customer locations in service, an increase of 22% over the 5,049 at the end of Q2 2010; Average revenue per customer location ("ARPU") for Q2 2011 was $612 compared to $609 in the same period in 2010; Average monthly churn rate for the second quarter 2011 was 0.96%, the same as in Q2 2010; Ended Q2 2011 with access to the $7.0 million undrawn portion of the $19.0 million credit facility. Second Quarter 2011 Key DevelopmentsOn April 27, 2011, the Company entered into an asset purchase agreement with MetroBridge Networks International Inc. ("MetroBridge") 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, added 588 business customer locations to TeraGo's customer base at closing. In addition, the transaction significantly improves the addressable serving area in BC with three new distinct markets and 30 more hub sites. The purchase price is expected to be approximately $6.0 million. The deal closed on May 31, 2011 at which time the Company paid $4.2 million with the remaining 30% payable following a final recurring revenue calculation to be completed for the 180 day period following the closing date. On May 6, 2011, TeraGo completed an agreement to establish a $19.0 million credit facility with the Royal Bank of Canada ("RBC"). 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 outstanding long-term debt of $7.5 million with the BDC was repaid using proceeds from the new debt facility. Bryan Boyd, President and CEO, TeraGo Inc. said "Our growth momentum continued in the second quarter and record revenue, combined with strong margins and good cost control, produced record EBITDA. We are very pleased that the integration of MetroBridge's customer base and network is proceeding as planned and produced a contribution to both revenue and EBITDA in just the one month they have been part of TeraGo."Key Financial & Operational Highlights (All financial results are in thousands, except gross profit margin, loss per share and operating metrics)Three months ended June 3020112010(Unaudited)(Unaudited)FinancialRevenue$10,769$9,230Gross profit margin78.7%75.8%EBITDA*$2,721$1,344Income (loss) from operations$121$(1,833)Net loss$(398)$(1,876)Loss per share$(0.04)$(0.17)OperatingChurn rate*0.96%0.96%Customer locations in service6,1585,049ARPU*$612$609Number of employees203199* 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 Q2 2011 MD&A.Second Quarter 2011 Results of OperationsRevenue Total revenue for the three months ended June 30, 2011 increased 17% to $10.8 million compared to $9.2 million for the same period in 2010. The increase largely resulted from the greater number of customer locations in service, including the acquisition of 588 new customer locations from MetroBridge, as well as existing customers upgrading their Internet and data connections. Approximately 98% of first half 2011 revenue was recurring service revenue.Customer locations 854 new customer additions in Q2 2011 (364 in Q2 2010), combined with a continuing low churn rate, resulted in 687 net customer locations added (220 in Q2 2010), a strong performance when combined with the MetroBridge asset purchase. The period ended with 6,158 customer locations in service, 22% growth since June 30, 2010.Churn rate The average monthly churn rate in the second quarter of 2011 remained unchanged at 0.96% compared to Q2 2010. Management continues to strive for lower churn rates by focusing on network quality, customer service, and customer credit worthiness.Gross margin The gross profit margin for the quarter ended June 30, 2011 increased to 78.7% from 75.8% 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&A SG&A (Salaries and related costs – Other, and Other operating items) expenses were flat at $5.9 million in both Q2 2011 and Q2 2010. TeraGo had 31 direct sales personnel at quarter end, up from 29 at the end of the previous quarter. EBITDA Q2 2011 EBITDA increased 102% to a record $2.7 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 loss Net loss was $(0.4) million for Q2 2011 compared to a net loss of $(1.9) million for the same period in 2010.Capital resources At June 30, 2011, the Company had cash, cash equivalents, bank indebtedness and short-term investments of $0.7 million, and access to the $7.0 million undrawn portion of its $19.0 million credit facility.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. ARPU Average monthly revenue per customer location, or ARPU, increased to $612 in the second quarter of 2011, up from $609 for the same period in 2010. The increase was primarily a result of service capacity upgrades by existing customers, a higher proportion of new customers choosing higher capacity services, and lower credits partially offset by lower usage revenue. If MetroBridge was included for the full three months ended June 30, 2011, ARPU would be $2 higher.Shares outstanding As of August 2, 2011, TeraGo had 7,643,240 Common Shares, 3,633,474 Class A Non-Voting Shares and two Class B Shares outstanding.TeraGo's spectrum portfolio TeraGo 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 Thursday, August 4, 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 August 18, 2012 at midnight EDT. To access the replay, call 905-694-9451 or 1-800-408-3053, followed by passcode 8017753. The call will be accessible via webcast at www.terago.ca or at http://www.investorcalendar.com/IC/CEPage.asp?ID=165029. An archived replay of the webcast will be available for one year. TeraGo's unaudited financial statements for the quarter ended June 30, 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 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 Q2 2011 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 6,100 customer locations in 45 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 CEO1.866.837.2461IR@terago.caORScott BrowneTeraGo Networks Inc.Chief Financial Officer1.866.837.2461IR@terago.cawww.terago.ca