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Press release from Marketwire

CORRECTION: TeraGo's Q1 EBITDA Up 50%

Positive Momentum Entering 2012

Thursday, May 10, 2012

CORRECTION: TeraGo's Q1 EBITDA Up 50%11:43 EDT Thursday, May 10, 2012TORONTO, ONTARIO--(Marketwire - May 10, 2012) -This document corrects and replaces the release that was sent on May 10th, 2012 at 7:00 AM ET. In the Key Financial & Operational Highlights table the headings for 2012 and 2011 were switched. The complete and corrected release follows:TeraGo Inc. (TSX:TGO) (www.terago.ca) today announced financial and operating results for the first quarter ended March 31, 2012.First Quarter 2012 Financial and Operational HighlightsRevenue of $12.0 million in the first quarter of 2012, up 16% from $10.3 million in Q1 2011; EBITDA of $3.4 million, a 50% increase from Q1 2011; Positive quarterly net earnings of $0.2 million compared to a net loss of $(0.3) million in Q1 2011; Positive quarterly earnings per share of $0.02 compared to a loss per share of $(0.03) in the first quarter of 2011; Gross profit margin remained strong at 77.2% compared to 78.3% in prior year period; Added 73 net customer locations in Q1 2012, compared to 45 in Q4 2011, and 108 in the first quarter of 2011; Ended the period with 6,351 customer locations in service, an increase of 16% over 5,471 at the end of Q1 2011; Average revenue per customer location ("ARPU") for Q1 2012 was $619 compared to $618 in the same period in 2011; Average monthly churn rate for the first quarter 2012 was 1.01% compared to 1.02% for Q1 2011; and Ended Q1 2012 with $1.5 million of cash, cash equivalents and short-term investments and access to $3.0 million undrawn portion of the Company's $19.0 million credit facilities. First Quarter 2012 Key DevelopmentsTeraGo completed the MetroBridge asset purchase for $5.7 million in January 2012 by making the final payment of $1.5 million. Integration with TeraGo has been completed as expected. In March 2012, Industry Canada announced its intention to amend the Telecommunications Act (Canada) to exempt telecommunications companies with less than 10 percent of total Canadian telecommunications market revenue from foreign investment restrictions under that Act. If these proposed amendments become effective, the foreign ownership restrictions currently in place for smaller telecommunications companies, including TeraGo, would be lifted. The Company expanded its wireless network to offer an expanded line-up of internet access, voice, and private network services to its Burlington, Ontario area customers. Following a competitive process, TeraGo selected KPMG, LLP as its auditors for the year ended December 31, 2012. Events Subsequent to March 31, 2012TeraGo expanded its market footprint with the addition of the main business area of Milton, Canada's fastest growing municipality. In May 2012, the Company obtained an additional $1.0 million term debt facility with RBC on similar terms as the existing facilities, bringing its total credit facilities to $20.0 million. The new facility has a fixed rate of interest, must be drawn before September 30, 2012 and at a rate of interest set at the time of any draw. TeraGo improved its ranking among Canada's top technology companies for the fifth consecutive year, rising to 94th on the Branham300 List for 2012. Bryan Boyd, President and CEO, TeraGo Inc. said "We're pleased to see momentum in our revenue, EBITDA and earnings performance. The first quarter has given us a strong foundation for further growth in the remainder of 2012 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 3120122011(Unaudited)(Unaudited)FinancialRevenue$12,005$10,330Gross profit margin77.2%78.3%EBITDA*$3,352$2,239Earnings (loss) from operations$396$(125)Net earnings (loss)$212$(330)Net earnings (loss) per share$0.02$(0.03)OperatingChurn rate*1.01%1.02%Customer locations in service6,3515,471ARPU*$619$618Number of employees200194* See Non-GAAP Measures belowFirst Quarter 2012 Results of OperationsRevenueTotal revenue for the three months ended March 31, 2012 increased 16.2% to $12.0 million compared to $10.3 million for the same period in 2011. 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 2012 revenue was recurring service revenue.Customer locations266 new customer additions (including 2 from the cellular backhaul segment) in Q1 2012 (276 in Q1 2011, including 35 from the cellular backhaul segment) resulted in 73 net customer locations added (108 in Q1 2011). The period ended with 6,351 customer locations in service, 16% growth since March 31, 2011. The Company also completed more than 145 cellular backhaul site upgrades in the first quarter of 2012 (vs no upgrades in Q1 2011), which will drive revenue in future periods.Weather conditions typically negatively impact net customer growth in the first quarter. The majority of new customer locations require the installation of rooftop equipment and winter weather reduces the number of productive installation days.Churn rateThe average monthly churn rate in the first quarter of 2012 declined slightly to 1.01% compared to 1.02% in Q1 2011. 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, 2012 remained strong at 77.2% compared to 78.3% for the same period in 2011. This slight decrease is primarily due to an increase in telecommunication and other support costs as a result of the MetroBridge acquisition, annual increases in property access costs and higher maintenance costs.SG&AFirst quarter SG&A (Salaries and related costs - Other, and Other operating items) expenses of $6.4 million were the same as for Q1 2011. This was largely a result of lower bad debt and certain other expenses offsetting an investment in additional sales and marketing capacity and associated recruiting costs. TeraGo had 37 sales personnel at quarter end, up from 29 a year earlier. EBITDAQ1 2012 EBITDA increased 49.7% to $3.4 million compared with $2.2 million for the same period in 2011. The increase is in line with management's expectations as TeraGo continued to increase revenue while focusing on cost management.Net earnings (loss)Net earnings for the first quarter were $0.2 million, compared to a net loss of $(0.3) million in Q1 2011. Quarterly net earnings per share were $0.02 compared to a net loss of $(0.03) for the comparable period in 2011.Earnings, as well as cash flow and EBITDA, are typically impacted in the first quarter due to annual spectrum payments, annual rate increases in long-term contracts, and the January 1 resumption of payroll taxes and other levies related to employee compensation.There were two additional and significant uses of cash in the first quarter of 2012 - the final $1.516 million payment for the MetroBridge acquisition and the payment of $1.845 million for the Company's outstanding Restricted Share Units that vested in the quarter and extinguishes a liability that has been accruing over a three-year period. As a result, cash outflows in the first quarter were significantly higher than normal.Capital resourcesAt March 31, 2012, the Company had cash, cash equivalents and short-term investments of $1.5 million and access to the $3.0 million undrawn portion of its $19.0 million credit facilities.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 slightly to $619 in the first quarter of 2012 from $618 for the same period in 2011. The increase was primarily a result of service capacity upgrades by existing customers and a higher proportion of new customers choosing higher capacity services or voice services, partially offset by lower usage revenue.Shares outstandingAs of May 4, 2012, TeraGo had 7,673,768 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 10, 2012, at 8.30 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 24, 2012 at midnight EDT. To access the replay, call 905-694-9451 or 1-800-408-3053, followed by passcode 5066519. The call will be accessible via webcast at www.terago.ca or at http://www.investorcalendar.com/IC/CEPage.asp?ID=168303. An archived replay of the webcast will be available for one year. TeraGo's unaudited financial statements for the period ended March 31, 2012, 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 MeasuresThe 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 to management, the Board and Investors 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 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 Q1 2012 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 6,300 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