TeraGo Inc.
TSX : TGO

TeraGo Inc.

March 02, 2010 12:46 ET

TeraGo Announces Record EBITDA of $5 million in Fiscal 2009

Company achieves 12% annual revenue growth

TORONTO, ONTARIO--(Marketwire - March 2, 2010) - TeraGo Inc. (TSX:TGO) (www.terago.ca) today announced financial and operating results for the year ended December 31, 2009.

Financial and Operational Highlights

  • EBITDA for 2009 was $5.0 million compared to $(0.4) million in 2008.
  • EBITDA for the three months ended December 31, 2009 was $1.5 million compared to $0.6 million for the same period in 2008.
  • Total revenue for the year ended December 31, 2009 was $34.8 million, an increase of 12% over 2008.
  • Maintained strong gross profit margin at 74% in 2009.
  • Ended the year with $8.2 million of cash, cash equivalents and short term investments as at December 31, 2009, compared to $8.1 million at September 30, 2009 and $16.9 million at the end of fiscal 2008.
  • Average monthly churn rate for 2009 of 1.26% compared to 1.00% in 2008.
  • Added 221 net customer locations in 2009, ending the year with 4,743 customer locations in service, an increase of 5% over 2008. Approximately 77% of customer contracts signed in 2009 were for 3 years or more.
  • Average revenue per customer location ("ARPU") for the year was $612 compared to $604 in 2008, an increase of 1%.
  • Subsequent to year-end, TeraGo was awarded a second contract to provide Ethernet-based wireless backhaul services to a Canadian wireless new entrant for a portion of its planned wireless network deployment.

"In 2009 we executed effectively on our top priorities of increasing EBITDA, preserving cash, and growing revenue, despite the challenging economic environment," said Bryan Boyd, President and CEO, TeraGo Inc. "In the second half of the year we accelerated new customer additions, won a contract to provide wireless backhaul services to a new wireless entrant, and began to make selective investments in sales and marketing. As a result we are well positioned in 2010 to maintain our momentum and to continue to invest in wireless broadband services that are valued by our customers."

Key Financial & Operational Highlights
(All financial results are in thousands, except gross margin, loss per share and operating metrics)

  Three Months Ended December 31   Year Ended December 31
  2009 2008   2009 2008
  (Unaudited) (Unaudited)   (Audited) (Audited)
Financial          
Revenue $8,860 $8,342   $34,772 $30,979
Gross profit margin % 75.0% 73.6%   73.9% 74.4%
EBITDA* $1,521 $597   $4,957 $(406)
Loss from operations $(1,692) $(2,386)   $(6,413) $(10,588)
Net loss $(1,671) $(4,807)   $(6,236) $(12,352)
Loss per share $(0.15) $(0.43)   $(0.56) $(1.11)
           
Operating          
Churn rate* 1.18% 1.12%   1.26% 1.00%
Customer locations in service 4,743 4,522   4,743 4,522
ARPU* $616 $610   $612 $604
Number of employees 186 173   186 173
           
* See Non-GAAP Measures below        

Fiscal 2009 Results of Operations

TeraGo's total revenue was $34.8 million for the year ended December 31, 2009, an increase of $3.8 million or 12% compared with $31.0 million of revenue in 2008. The increase in revenue is primarily the result of a greater number of customer locations in service, and existing customers upgrading their Internet and data connections and/or adding additional service locations. Service revenues, which are primarily recurring in nature, comprised 98% of total revenues in 2009, while installation revenue represented 2%.

Total customer locations in service reached 4,743 at December 31, 2009, an increase of 221 net new locations or 5% compared to 4,522 customer locations in service at the end of 2008. Net customer locations added during the fourth quarter of 2009 totaled 74, the second consecutive quarter of sequential improvement.

Average monthly revenue per customer location, or ARPU, was $612 in fiscal 2009, an increase of 1% from $604 in 2008. The increase in ARPU was driven primarily by existing customers upgrading the capacity of their services in addition to an increase in the number of new customers requiring higher capacity services.

The average monthly churn rate for the year was 1.26% in 2009, compared to 1.00% in 2008. The average monthly churn rate in the fourth quarter of 2009 was 1.18%, compared to 1.12% in the fourth quarter of 2008. Management will continue to focus on network quality and customer service in addition to monitoring customer creditworthiness and churn levels.

Gross profit was $25.7 million in 2009, representing 73.9% of revenues, compared to $23.1 million or 74.4% of revenue in 2008. TeraGo's costs of service are largely fixed and the Company expects that these fixed costs will be leveraged as revenue grows.

Sales, general and administrative expenses were $21.4 million in 2009, a decrease of $2.3 million compared to $23.7 million for the previous year. The decrease in SG&A was primarily a result of the continued benefit of the cost cutting initiatives that were carried out in the fourth quarter of 2008 and an ongoing focus on cost management. In the second half of 2009, the Company began making selective investments in areas such as sales, marketing and customer service in anticipation of improving economic conditions. These selective investments will continue into 2010. The Company ended the year at 186 employees, including 32 direct sales personnel, compared to 173 employees including 35 direct sales personnel at December 31, 2008.

EBITDA was $5.0 million in 2009 compared to $(0.4) million in 2008, an improvement of $5.4 million. This increase in EBITDA was in line with management's expectation as the Company continued to grow revenue and focused on prudent cost management. Fourth quarter 2009 EBITDA was $1.5 million, a record for the Company, compared to $0.6 million in the fourth quarter of 2008.

Net loss was $(6.2) million or $(0.56) per share in 2009 compared to a net loss of $(12.4) million or $(1.11) per share in 2008. Net loss decreased due to the increase in EBITDA as the Company continued to grow revenue and focus on prudent cost management. In addition, net loss decreased in 2009 partially due to a future income tax expense of $2.6 million recorded in the fourth quarter of 2008 which had a $(0.23) impact on loss per share. 

As of December 31, 2009, TeraGo had cash and cash equivalents and short-term investments of $8.2 million compared to $8.1 million at September 30, 2009, and $12.7 million at December 31, 2008. The fourth quarter of 2009 was the first period since its 2007 initial public offering in which the Company increased its cash, cash equivalents and short term investments. The Company had less than $0.2 million of long-term debt outstanding as of December 31, 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.

During 2009, the Company repurchased and cancelled a total of 3,600 common shares under its normal course issuer bid which expired on May 8, 2009. As of February 26, 2010, TeraGo had 7,535,821 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 Wednesday, March 3, 2010, at 9:00 a.m. EST 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 March 10, 2010 at midnight EST. To access the replay, call 416-695-5800 or 1-800-408-3053, followed by passcode 6671033. The call will also be accessible via webcast at www.terago.ca or at www.investorcalendar.com/IC/CEPage.asp?ID=155891. An archived replay of the webcast will be available for one year.

TeraGo's audited financial statements for the year ended December 31, 2009, and the notes thereto, and its Management Discussion and Analysis for the same period, will be filed on SEDAR at www.sedar.com after the close of market hours today.

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 2009 Annual MD&A and 2009 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 43 major markets across Canada, serving more than 4,700 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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