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Press release from Marketwire

TeraGo Continues Momentum into Q1 2013

Enhanced Business Plan and Incremental Financing Announced After Quarter End

Wednesday, May 08, 2013

TeraGo Continues Momentum into Q1 2013

07:00 EDT Wednesday, May 08, 2013

TORONTO, ONTARIO--(Marketwired - May 8, 2013) - TeraGo Inc. (TSX:TGO) (www.terago.ca) today announced financial and operating results for first quarter ended March 31, 2013.

First Quarter 2013 Financial and Operational Highlights

  • Q1 2013 revenue was a record $12.6million, up 5% over $12.0 million in Q1 2012;
  • EBITDA was $4.3 million for Q1 2013, 29% more than $3.4 million in Q1 2012;
  • Gross profit margin for Q1 2013 was 78.0%, compared to 77.2% for the same period in 2012;
  • Q1 2013 net earnings were $1.3 million compared to $0.2 million in Q1 2012, an increase of 532%;
  • Basic and diluted earnings per share were $0.12 and $0.11, respectively, for the first quarter of 2013, compared to $0.02 and $0.02, respectively, for the same period in 2012;
  • Ended the quarter with 6,581 customer locations in service, an increase of 4% over March 31, 2012, resulting from 6 net customer locations in Q1 2013, compared to 73 in the same period in 2012;
  • Added 230 new customer locations in Q1 2013, compared to 266 for the same period in 2012;
  • Average revenue per customer location ("ARPU") for Q1 2013 was $624 compared to $619 for the same period in 2012;
  • Average monthly unit churn rate in Q1 2013 was 1.12% compared to 1.01% for the same period in 2012; and
  • Ended the quarter with $3.2 million of cash, cash equivalents and short-term investments and access to the $3.0 million undrawn portion of the Company's credit facilities.

Events Subsequent to March 31, 2013

  • The Company announced that the strategic review initiated by its Board of Directors has been completed and has resulted in an enhanced business plan for the Company. The enhanced business plan includes construction and operation of complementary fibre-optic networks to drive further growth and the pursuit of strategic acquisitions.
  • In April 2013, TeraGo announced it had secured additional funding to support its enhanced business plan. The Company entered into an agreement with Royal Bank of Canada that provides additional senior term debt of $27.0 million on terms substantially consistent with the existing term debt. The $42.0 million total debt package consists of $12.0 million of existing drawn facilities which have been extended in term, an existing and undrawn $3.0 million operating line of credit, and $27.0 million in new senior term debt.
  • TeraGo improved its Branham Top 250 ranking among Canada's top technology companies for the sixth consecutive year, rising to 84th place. For the first time the Company also ranked as one of the Top 10 Canadian Wireless Solutions Companies.
  • The Company announced the appointments of Michael Martin, Richard Brekka and Jim Sanger to its Board of Directors.
  • TeraGo also announced that Scott Browne, Chief Financial Officer, has decided to leave the Company effective May 8, 2013 to pursue other career interests. Bosco Chan has been appointed interim CFO while the search for a full-time replacement is underway.

Bryan Boyd, President and CEO, TeraGo Inc. said, "We continue to grow, achieving further strong performances in revenue, EBITDA,earnings and other measures in the first quarter of 2013. We are confident this momentum, combined with our new enhanced strategic plan announced in April, will allow us to accelerate our growth, continue to deliver outstanding results and create value for our shareholders."

Mr. Boyd added, "On behalf of the Board, senior management and our employees, I want to take this opportunity to thank Scott Browne for his valuable contribution to the growth of the Company over the past four years and to wish him every success in the future."

Key Financial & Operational Highlights

(All financial results are in thousands, except gross profit margin, earnings per share and operating metrics)

Three months ended March 31
2013 2012
(Unaudited) (Unaudited)
Financial
Revenue $ 12,570 $ 12,005
Gross profit margin 78.0 % 77.2 %
EBITDA* $ 4,333 $ 3,352
Earnings from operations $ 1,539 $ 396
Net earnings $ 1,340 $ 212
Basic earnings per share $ 0.12 $ 0.02
Diluted earnings per share $ 0.11 $ 0.02
Operating
Churn rate* 1.12 % 1.01 %
Customer locations in service 6,581 6,351
ARPU* $ 624 $ 619
Number of employees 187 200
* See Non-GAAP Measures below

The table below reconciles net earnings to EBITDA for the three months ended March 31, 2013 and 2012.

Three months ended March 31
2013 2012
(unaudited) (unaudited)
Net earnings for the period $ 1,340 $ 212
Foreign exchange (gain) 19 (13 )
Finance costs 188 204
Finance income (8 ) (7 )
Earnings from operations 1,539 396
Add:
Depreciation of networks assets, property and equipment and amortization of intangible assets 2,846 2,511
Loss (gain) on disposal of network assets (39 ) 91
Stock-based compensation expense (recovery) (13 ) 354
EBITDA 4,333 3,352

First Quarter 2013 Results of Operations

Revenue

Total revenue for the first quarter of 2013 increased 5% to a record $12.6 million, compared to $12.0 million for the same period in 2012. Theincrease 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 Q1 2013 revenue was recurring service revenue.

Customer locations

TeraGo added 230 new customer additions in Q1 2013 (266in Q1 2012), which resulted in 6 net customer locations added, compared with 73 net additions in 2012. The quarter ended with 6,581 customer locations in service, 3.6% growth over the 6,351 customer locations in service at March 31, 2012.

Churn rate

The average monthly churn rate in Q1 2013 was 1.12% compared to 1.01% in Q1 2012.Management continues to strive for lower churn rates by focusing on network quality, customer service, and customer creditworthiness.

ARPU

Average monthly revenue per customer location, or ARPU, increased to $624 in the first quarter of 2013, compared with $619 for the same period in 2012.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, early termination fees, and lower credits partially offset by lower usage revenue.

Gross margin

The gross profit margin for the first quarter of 2013 remained strong at 78.0% compared to 77.2% for the same period in 2012. The slight increase is primarily due to savings recognized from telecommunication and maintenance costs partially offset by annual increases in property access costs and spectrum costs.

SG&A

SG&A (Salaries and related costs - Other, and Other operating items) expenses decreased to $5.4 million in Q1 2013 from $6.4 million in Q1 2012. The decrease was largely a result of lower stock-based compensation, lower recruiting and professional fees, and lower sales and marketing organization costs as the company refocused its sales efforts in line with its new business plan.TeraGo had 28sales personnel at quarter end, compared to 37 a year earlier.

EBITDA

First quarter 2013 EBITDA increased to $4.3 million compared to $3.4 million in Q1 2012, an improvement of 29%. The increase in EBITDA is in line with management's expectations as TeraGo continues to increase revenue while focusing on cost management. Consistent with prior years, EBITDA for the first quarter declined slightly from year end 2012 due to the seasonal nature of certain expenses.

Net earnings

TeraGo achieved net earnings for the first quarter of 2013 of $1.3 million compared to $0.2 million for the same period in 2012. Basic and diluted earnings per share were $0.12 and $0.11, respectively for the first quarter of 2013, compared to $0.02 and $0.02, respectively, for the same period in 2012.

Capital resources

At March 31, 2013, the Company had cash, cash equivalents and short-term investments of $3.2 million and access to the $3.0 million undrawn portion of its credit facilities.

Subsequent to quarter end, in April 2013, the Company entered into an agreement with RBC that provides additional credit facilities of $27 million. TeraGo's total debt facilities with RBC now stand at $42 million, on terms substantially consistent with the existing term debt, and consist of $12 million of existing drawn facilities which have been extended in term, an existing $3 million operating line of credit which is undrawn, and $27 million in new term debt facilities that will be available to support investment in the Company's enhanced business plan.

The $27.0 million in senior term debt is available to the Company in 3 facilities:

  • $8.0 million, to finance new broadband network capital expenditure investments and related expenses including future upgrades;
  • $6.0 million, to finance new broadband network capital expenditures and related expenses for municipalities, utilities, schools, hospitals or other business/enterprise customers; and
  • $13.0 million, to finance strategic acquisitions.

TeraGo has the option of choosing fixed or floating interest rates. These facilities are principally secured by a general security agreement over the Company's assets.

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.

Shares outstanding

As of May 4, 2013, TeraGo had 11,417,776 Common 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 24 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 Webcast

Management will host a conference call on Wednesday, May 8, 2013, at 9.00 a.m. EDT to discuss these results. To access the conference call, please dial 416-695-6616 or 1-800-766-6630. A replay of the conference call will be available until May 22, 2013 at midnight EDT. To access the replay, call 905-694-9451 or 1-800-408-3053, followed by passcode 8214949. The call will be accessible via webcast at www.terago.ca or http://www.investorcalendar.com/IC/CEPage.asp?ID=170829. An archived replay of the webcast will be available for one year.

TeraGo's unaudited financial statements for the three months ended March 31, 2013, 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 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 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 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 Q1 2013 MD&A and 2012Annual 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 businesses across Canada with carrier-grade broadband, data and voice communications services. The national network service provider owns and manages its IP network servicing 6,581 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:

Contact Information:
TeraGo Networks Inc.
Bryan Boyd
President and CEO
1-877-982-3688
IR@terago.ca
www.terago.ca

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