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Press release from Marketwire

TeraGo Posts Record Year

19% Revenue Growth, 82% EBITDA Growth, Continuing Strong Margins and Positive Annual Net Earnings

Tuesday, February 28, 2012

TeraGo Posts Record Year07:00 EST Tuesday, February 28, 2012TORONTO, ONTARIO--(Marketwire - Feb. 28, 2012) - TeraGo Inc. (TSX:TGO) (www.terago.ca) today announced financial and operating results for the year ended December 31, 2011.2011 Financial and Operational HighlightsRecord annual revenue of $44.9 million in 2011, up 19% over 2010; Q4 2011 revenue of $12.0 million was also a record, up 21% over Q4 2010; Record annual EBITDA of $12.2 million, an 82% increase from 2010; Q4 2011 EBITDA increased 53% over the same period in 2010 to a record $3.8 million; Gross profit margin strengthened to 78.4% from 75.9% in the prior year; Positive annual and quarterly net earnings of $0.2 million and $0.8 million, respectively, compared to net losses of $(5.8) million and $(1.1) million in the comparable periods in 2010; The company's first annual positive earnings per share of $0.02 compared to a loss per share of $(0.52) in 2010; Added 915 net customer locations in 2011, compared to 620 in 2010; Ended the year with 6,278 customer locations in service, an increase of 17% over the same period in 2010; Average revenue per customer location ("ARPU") for the three months and year ended 2011 was $622 and $618, respectively, compared to $607 and $610, respectively, in 2010; Average monthly unit churn rate for 2011, excluding cancelled low value DSL resale and other former MetroBridge customer locations, was 1.01%, compared to 0.99% in 2010. Including these customers, the average monthly unit churn rate in 2011 was 1.08%; and Ended 2011 with $4.3 million of cash, cash equivalents and short-term investments and access to the $5.0 million undrawn portion of the Company's $19.0 million credit facilities.2011 Key DevelopmentsThe Company acquired substantially all the customers, related network infrastructure, real estate leases, and other assets of MetroBridge Networks International Inc. for $5.7 million. 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 as at the May 31, 2011 closing date. TeraGo established credit facilities totalling $19.0 million with the Royal Bank of Canada. The new facilities essentially refinanced, at interest rates below 5%, a previous facility with the Business Development Bank of Canada, added incremental financing for the MetroBridge asset purchase, and makes funds available for general working capital purposes and continued growth. The Company provided Ethernet-based wireless backhaul services to Public Mobile Inc. in the Greater Toronto and Montreal markets in addition to providing similar services to Wind Mobile and Mobilicity in certain segments of their cellular networks. TeraGo also upgraded more than 250 cellular backhaul sites in the second half of the year. TeraGo launched voice services in Greater Vancouver and Winnipeg. TeraGoVoice™ is now available in major markets in Quebec, Ontario, Manitoba, Alberta and British Columbia. TeraGo expanded its market footprint by adding Oshawa, Ontario, complementing existing network coverage in the Durham region.Bryan Boyd, President and CEO, TeraGo Inc. said "2011 was a year of accomplishment on many fronts. Our record revenue was a result of both organic growth and the successful integration of the MetroBridge customer base. EBITDA grew 82% as a result of the operating leverage of our business model and strong gross margin. With improved productivity, positive cash flow and a healthy financial position, we are in an ideal position to continue to effectively execute our proven growth strategy."Key Financial & Operational Highlights (All financial results are in thousands, except gross profit margin, earnings (loss) per share and operating metrics)Three months Ended December 31Year Ended December 312011201020112010(Unaudited)(Unaudited)(Audited)(Audited)FinancialRevenue$11,966$9.911$44,923$37,768Gross profit margin78.3%77.9%78.4%75.9%EBITDA*$3,833$2,506$12,234$6,716Earnings (loss) from operations$999$(902)$1,388$(5,617)Net earnings (loss)$811$(1,059)$214$(5,831)Net earnings (loss) per share$0.07$(0.09)$0.02$(0.52)OperatingChurn rate*1.18%1.13%1.08%0.99%Customer locations in service6,2785,3636,2785,363ARPU*$622$607$618$610Number of employees194206194206* 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 2011 MD&A.2011 Results of OperationsRevenueTotal revenue for the year ended December 31, 2011 increased 18.9% to $44.9 million compared to $37.8 million for the same period in 2010. Fourth quarter 2011 revenue was a record at $12.0 million, up 20.7% from $9.9 million for the same period in 2010. The full year and quarterly increases largely resulted from the greater number of customer locations in service, including the acquisition in the second quarter of 2011 of 588 new customer locations from MetroBridge, as well as existing customers upgrading their Internet and data connections. Approximately 98% of total 2011 revenue was recurring service revenue.Customer locations 1,691 new customer additions in 2011 (1,229 in 2010), combined with a low churn rate, resulted in 915 net customer locations added, an increase of 47.6% compared with 620 net additions in 2010. The year ended with 6,278 customer locations in service, 17% growth over the 5,363 customer locations in service at December 31, 2010. The upgrading of over 250 cellular backhaul sites in the second half of 2011 will drive increased ARPU in this segment in 2012.Churn rate The average monthly churn rate in 2011 was 1.08% compared to 0.99% in 2010. The fourth quarter 2011 average monthly churn rate was 1.18%, compared to 1.13% for the same period in 2010.The increases in both the full year and fourth quarter of 2011 were primarily due to the churn from customers acquired as part of the MetroBridge acquisition, including the cancellation of low value DSL resale customer locations acquired as part of the MetroBridge customer base. Excluding former MetroBridge customer locations, the average monthly unit churn rate for the full year and fourth quarter were 1.01% and 1.11%, consistent with recent experience. Management continues to strive for lower churn rates by focusing on network quality, customer service, and customer creditworthiness.Gross profit margin The gross profit margin for the year ended December 31, 2011 increased to 78.4% from 75.9% for 2010. Fourth quarter gross profit margin grew to 78.3% from 77.9% in Q4 2010. The increases were primarily due to savings from 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 increased 4.6% in 2011 to $23.3 million from $22.3 million for 2010. The increase in 2011 was largely a result of increased marketing capacity building on investments made in 2010 in pursuit of our strategic growth objectives, increased travel costs and professional fees related to the MetroBridge acquisition and, to a lesser extent, additional operations personnel. TeraGo had 33 direct sales personnel at year end, compared to 34 a year earlier. EBITDA TeraGo posted record EBITDA in 2011 of $12.2 million, 82.2% more than the $6.7 million EBITDA achieved in 2010. Fourth quarter EBITDA of $3.8 million was also a record, up from $2.5 million for the same period in 2010. Both the full year and fourth quarter 2011 EBITDA performance are in line with management's expectations and are a result of the Company's successful revenue growth efforts combined with a focus on cost management. Net earnings (loss) TeraGo achieved positive net earnings for the full year for the first time in the Company's history. Net earnings were $0.2 million, compared to a net loss of $(5.8) million in 2010. Q4 2011 net earnings were $0.8 million compared to a net loss of $(1.1) million for the same period in 2010. Net earnings per share were $0.02 and $0.07 for the full year and fourth quarter of 2011 respectively, compared to net losses of $(0.52) and $(0.09) for the comparable periods in 2010.Capital resources At year end 2011, the Company had cash, cash equivalents and short-term investments of $4.3 million and access to the $5.0 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 $618 in 2011, compared with $610 in 2010. Fourth quarter 2011 ARPU increased to $622 compared to $607 for the same period in 2010. The increase was primarily a result of service capacity upgrades by existing customers including cellular backhaul customers, a higher proportion of new customers choosing higher capacity services or voice services, early termination fees, and lower credits partially offset by lower usage revenue.Shares outstanding As of February 27, 2012, TeraGo had 7,662,148 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 Tuesday, February 28, 2012, at 9:00 a.m. EST 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 March 13, 2012 at midnight EST. To access the replay, call 905-694-9451 or 1-800-408-3053, followed by passcode 3684373. The call will be accessible via webcast at www.terago.ca or at http://www.investorcalendar.com/IC/CEPage.asp?ID=167092. An archived replay of the webcast will be available for one year. TeraGo's audited financial statements for the year ended December 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 Measures The term "EBITDA" refers to earnings before deducting interest, taxes, depreciation and amortization. EBITDA is a term commonly used to evaluate operating results. We believe that EBITDA is useful additional 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 depreciation and amortization. We also exclude foreign exchange gain or loss, finance costs, finance income, gain or loss on disposal of network assets, property and equipment and stock-based compensation from our calculation of EBITDA. Investors are cautioned that EBITDA should not be construed as an alternative to operating earnings or net earnings determined in accordance with IFRS 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 IFRS and, accordingly, investors are cautioned that ARPU should not be construed as an alternative to revenue determined in accordance with IFRS 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. The Company calculates churn 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 IFRS and, accordingly, investors are cautioned in using it. TeraGo's 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 issuersForward-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 2011 MD&A and 2011 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 6,200 customer locations in 46 major markets across Canada including Toronto, Montreal, 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.cawww.terago.ca