TeraGo Inc.
TSX : TGO

TeraGo Inc.

November 06, 2009 06:00 ET

TeraGo Announces Fifth Consecutive Quarter of EBITDA Improvement in the Third Quarter of 2009

Accelerated Customer Additions and Significant Reduction in Churn

TORONTO, ONTARIO--(Marketwire - Nov. 6, 2009) - TeraGo Inc. (TSX:TGO) (www.terago.ca) today announced financial and operating results for the third quarter ended September 30, 2009.

Financial and Operational Highlights

- Total revenue for the quarter was $8.6 million, an increase of 10% over the third quarter of 2008.

- EBITDA(i) was $1.3 million in Q3 2009, an improvement of $1.3 million compared to $(62) thousand a year earlier. EBITDA improved sequentially for the fifth consecutive quarter, resulting once again in a reduction in cash usage compared to the previous quarter.

- ARPU(i) for the third quarter of 2009 was $611 compared to $599 in Q3 2008, an increase of 2%.

- Added 218 gross customer locations, a 10% sequential improvement over the prior quarter.

- Average monthly churn rate for the three months ended September 30, 2009 declined to 1.06%, despite ongoing economic challenges, compared to 1.35% for the second quarter of 2009 and 1.17% for the three months ended September 30, 2008.

- Ended the quarter with 4,669 customer locations in service, an increase of 7% compared to 4,382 customer locations in service as at September 30, 2008.

- Business plan remains fully funded with $8.1 million of cash, cash equivalents and short term investments as at September 30, 2009, a decrease of $0.8 million from June 30, 2009 compared to a decrease of $4.8 million for the same period in 2008.

- Subsequent to the quarter, TeraGo was selected by a Canadian wireless new entrant to provide Ethernet-based wireless backhaul services for a portion of its planned wireless network deployment.

- Subsequent to September 30, 2009, TeraGo was named as one of the top 500 fastest growing technology companies in North America in the 2009 Deloitte Technology Fast 500 listing, posting a 212 percent growth in revenue over the five year period from 2004-2008.

"We continued to execute effectively in the third quarter delivering improvements in churn, accelerated customer growth, solid EBITDA, and more recently a sizable wireless backhaul contract," said Bryan Boyd, President and CEO, TeraGo Inc. "While economic conditions remain challenging we demonstrated our ability to win and retain customers in the current environment."

Key Financial & Operational Highlights

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



Three months ended September 30
2009 2008
--------------------------------
(Unaudited) (Unaudited)
Financial
Revenue $8,646 $7,863
Gross profit margin 72.5% 74.1%
EBITDA(i) $1,258 $(62)
Income (loss) from operations $(1,745) $(2,697)
Net loss $(1,722) $(2,557)
Loss per share $(0.15) $(0.23)

Operating
Churn rate(i) 1.06% 1.17%
Customer locations in service 4,669 4,382
ARPU(i) $611 $599
Number of employees 177 183

(i) See Non-GAAP Measures below


Third Quarter 2009 Results of Operations

TeraGo's total revenue for the three-month period ended September 30, 2009 was $8.6 million, an increase of $0.8 million or 10% compared with $7.9 million of revenue in Q3 2008. The increase in revenue was primarily the result of a greater number of customer locations in service, as well as existing customers upgrading their Internet and data connections and adding additional service locations. Service revenue, which is primarily recurring in nature, comprised 98% of total revenue in the third quarter, while installation and one-time revenue represented 2%.

Total customer locations in service reached 4,669 at September 30, 2009, an increase of 287 net new locations or 7% compared to 4,382 customer locations in service one year earlier. Gross customer locations added during the third quarter of 2009 totalled 218, despite the challenging economic environment, compared to 320 for the same period last year. Approximately 70% of new customers signed contracts with terms of three years or more in Q3 2009, compared to 75% in Q3 2008.

Average monthly revenue per customer location, or ARPU, was $611 in the third quarter of 2009, an increase of 2% from $599 in Q3 2008. The increase in ARPU was driven primarily by existing customers upgrading the capacity of their services and an increase in the number of new customers requiring higher capacity services.

The average monthly churn rate was 1.06% for the third quarter of 2009, compared to 1.17% for Q3 2008, and 1.35% in the second quarter of 2009. While management is encouraged by the decrease in churn in the current quarter, there remains a risk of churn increasing in future periods. Management will continue to focus on network quality and customer service in addition to monitoring customer credit worthiness and churn levels closely in light of the current economic environment.

Gross profit was $6.3 million in the third quarter of 2009, representing 72.5% of revenues, compared to $5.8 million or 74.1% of revenue in Q3 2008. The variance in gross profit margin was primarily the result of ongoing network expansion, upgrade and maintenance activities in existing markets, and by an increase in the size of the Company's customer support team. TeraGo's costs of service are largely fixed and the Company expects that these fixed costs will be leveraged as the business scales.

Sales, general and administrative expenses were $5.1 million in Q3 2009, a decrease of 13% compared to $5.9 million a year earlier. The decrease was primarily a result of the continued benefit of the cost cutting initiatives that were carried out in the fourth quarter of 2008 as well as a continued focus on cost management. The Company made selective investments in sales and marketing personnel during the quarter in anticipation of an improvement in general economic conditions. As of September 30, 2009, the number of direct sales personnel was 30 compared to 27 as of June 30, 2009 and 40 as of September 30, 2008. The Company has resumed recruitment and filled three sales positions during the quarter.

EBITDA was $1.3 million in the third quarter of 2009, an increase of $1.3 million compared to $(0.1) million in Q3 2008. On a sequential basis, EBITDA in Q3 2009 was up moderately from $1.2 million in the second quarter of 2009. Ongoing EBITDA improvement is in line with management's expectation as the Company focuses on prudent cost management while continuing to grow revenue.

Net loss was $(1.7) million or $(0.15) per share in Q3 2009 compared to a net loss of $(2.6) million or $(0.23) per share a year earlier.

As of September 30, 2009, TeraGo had cash and cash equivalents and short-term investments of $8.1 million, compared to $8.9 million at June 30, 2009. The Company had no debt outstanding as of September 30, 2009. As a result of the actions taken by management to accelerate EBITDA improvement and preserve capital, the decrease in cash and cash equivalents and short-term investments in the third quarter of 2009 was $0.8 million compared to $4.8 million for the same period in 2008 and $1.0 million in the second quarter of 2009. Management believes that the Company's current cash and short-term investments and its anticipated cash flow from operations will be sufficient to meet working capital and capital expenditure requirements for the foreseeable future.

As of September 30, 2009, TeraGo had 7,515,656 Common Shares, 3,633,474 Class A Non-Voting Shares and two Class B Shares outstanding.

Conference Call and Webcast

Management will host a conference call on Friday, November 6, 2009, at 9:00 a.m. EST to discuss these results. To access the conference call, please dial 416-915-5761 or 1-877-974-0469. A replay of the conference call will be available until Friday, November 13, 2009 at midnight EST. To access the replay, call 416-640-1917 or 1-877-289-8525, followed by passcode 4177964#. The call will also be accessible via webcast at www.terago.ca or at www.newswire.ca. An archived replay of the webcast will be available for one year.

TeraGo's unaudited interim financial statements for the three and nine month periods ended September 30, 2009, and the notes thereto, and its Management Discussion and Analysis for the same periods, have been filed on SEDAR at www.sedar.com.

Non-GAAP 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 2008 Annual MD&A and 2008 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. has been providing businesses in Canada with carrier-grade wireless broadband and data communications services since 2001. The national broadband service provider owns and manages its wireless IP network in 42 major markets across Canada, serving more than 4,600 customer locations. TeraGo Networks is a wholly owned subsidiary of TeraGo Inc. (TSX:TGO). More information about TeraGo is available at www.terago.ca.

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