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Press release from Marketwire

TeraGo Reports Record Revenue and EBITDA in Q2

Foreign ownership limits removed

Wednesday, August 01, 2012

TeraGo Reports Record Revenue and EBITDA in Q207:00 EDT Wednesday, August 01, 2012TORONTO, ONTARIO--(Marketwire - Aug. 1, 2012) - TeraGo Inc. (TSX:TGO) (www.terago.ca) today announced financial and operating results for the second quarter ended June 30, 2012.Second Quarter 2012 Financial and Operational HighlightsRecord revenue of $12.3 million in the second quarter of 2012, up 14% from $10.8 million in Q2 2011; Record EBITDA of $3.9 million, a 42% increase from $2.7 million in Q2 2011; Net earnings of $0.7 million compared to a net loss of $(0.4) million in Q2 2011; Earnings per share of $0.06 compared to a loss per share of $(0.04) in the second quarter of 2011; Continuing strong gross profit margin of 77.8% compared to 78.7% in prior year period; Added 336 new customer locations in the quarter vs. 266 in Q2 2011 (excluding the MetroBridge acquisition) and 266 in Q1 2012, to end the period with 6,434 customer locations in service; Average monthly churn rate for the second quarter 2012 was 1.30% compared to 0.96% for Q2 2011. Excluding the impact of the cancellation of one non-core customer with 41 low value locations, the average monthly churn rate for Q2 2012 was 1.09%, consistent with recent experience; Added 83 net customer locations in Q2 2012, compared to 687 (including 585 from the MetroBridge acquisition) in the second quarter of 2011; Average revenue per customer location ("ARPU") for Q2 2012 was $624 compared to $612 in the same period in 2011; and TeraGo ended Q2 2012 with $1.7 million of cash, cash equivalents and short-term investments and access to the $4.0 million undrawn portion of the Company's $20.0 million credit facilities. Second Quarter 2012 Key DevelopmentsThe amendment of the Telecommunications Act (Canada) removed foreign ownership restrictions on telecommunications companies with less than 10% market share. The change applies to TeraGo which now has access to a much broader range of prospective investors. With this change, subsequent to the end of the second quarter TeraGo completed the automatic conversion of approximately 3.6 million issued and outstanding Class A Non-Voting Shares into Common shares on a one-for-one basis, in accordance with the Company's share articles. 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 to be set at the time of draw which must be before September 30, 2012. Bryan Boyd, President and CEO, TeraGo Inc. said, "We're pleased with our performance in the second quarter, with record revenue and EBITDA, and strong results in virtually all metrics."Key Financial & Operational Highlights(All financial results are in thousands, except gross profit margin, loss per share and operating metrics)Three months ended June 3020122011(Unaudited)(Unaudited)FinancialRevenue$12,256$10,769Gross profit margin77.8%78.7%EBITDA*$3,854$2,721Earnings from operations$929$121Net earnings (loss)$687$(398)Net earnings (loss) per share$0.06$(0.04)OperatingChurn rate*1.30%0.96%Customer locations in service6,4346,158ARPU*$624$612Number of employees189203* See Non-GAAP Measures belowSecond Quarter 2012 Results of OperationsRevenueTotal revenue for the three months ended June 30, 2012 increased 14% to $12.3 million compared to $10.8 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 half 2012 revenue was recurring service revenue.Customer locations336 new customer additions in Q2 2012 (854 in Q2 2011, including 588 from the MetroBridge acquisition) resulted in 83 net customer locations added (687 in Q2 2011, including 585 from the MetroBridge acquisition). The period ended with 6,434 customer locations in service, 4% growth since June 30, 2011.Churn rateThe average monthly churn rate in the second quarter of 2012 was 1.30% compared to 0.96% in Q2 2011. The increase was primarily due to the cancellation of one non-core customer with 41 low value locations. Excluding these 41 locations, the average monthly churn rate for Q2 2012 was 1.09%, consistent with recent experience. 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 June 30, 2012 remained strong at 77.8% compared to 78.7% 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 an increase in spectrum costs.SG&ASecond quarter SG&A (Salaries and related costs - Other, and Other operating items) expenses decreased to $6.0 million compared to $6.3 million in Q2 2011. The decrease was primarily as a result of lower stock-based compensation, equipment write downs and certain other expenses partially offset by increased sales expenses and related training costs. TeraGo had 31 sales personnel at quarter end, the same as a year earlier.EBITDAQ2 2012 EBITDA increased 42% to a record $3.9 million compared with $2.7 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 second quarter were $0.7 million, compared to a net loss of $(0.4) million in Q2 2011. Quarterly net earnings per share were $0.06 compared to a net loss of $(0.04) for the comparable period in 2011.Capital resourcesAt June 30, 2012, the Company had cash, cash equivalents and short-term investments of $1.7 million and access to the $4.0 million undrawn portion of its $20.0 million credit facilities.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 $1.0 million facility has a fixed rate of interest to be set at the time of draw which must be before September 30, 2012.The Company entered into an equipment loan with a financing company for $0.5 million in July 2012 that is secured by the equipment. The debt facility is repayable in monthly installments of $12 thousand and bears interest at a fixed rate of 5.91% for 4 years.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 $624 in the second quarter of 2012 from $612 for the same period in 2011. The increase was primarily a result of service capacity upgrades by existing customers, a higher proportion of new customers choosing higher capacity services or voice services, and contact termination fees partially offset by lower usage revenue.Shares outstandingAs of July 30, 2012, TeraGo had 11,319,470 Common 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 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 Wednesday, August 1, 2012, at 9.00 a.m. EDT to discuss these results. To access the conference call, please dial 416-340-2216 or 1-866-226-1792. A replay of the conference call will be available until August 15, 2012 at midnight EDT. To access the replay, call 905-694-9451 or 1-800-408-3053, followed by passcode 9161094. The call will be accessible via webcast at www.terago.ca or at http://www.investorcalendar.com/IC/CEPage.asp?ID=169008. An archived replay of the webcast will be available for one year.TeraGo's unaudited financial statements for the period ended June 30, 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 'safeharbour' 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 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 6,400 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