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"Dolphin was one of our earliest investors. They've proven to be trusted, long-term partners who have supported the growth of our business through ongoing financing and membership on our board." Bryan Boyd
CEO, TeraGo Inc.

TeraGo Announces Record Quarterly Revenue with Year over Year Growth of 26% in the Second Quarter of 2008

Growth driven by record net customer additions

Toronto – August 6, 2008 – TeraGo Inc. (TSX: TGO) today announced financial and operating results for the second quarter ended June 30, 2008. 

Second Quarter 2008 Highlights
-> Total revenue for the quarter was $7.6 million, an increase of 26% over the second quarter of 2007
-> 242 net customer locations added in the quarter, an increase of 32% over the second quarter of 2007
-> Average monthly churn rate* for the quarter was flat at 0.94% compared to the second quarter of 2007
-> ARPU* for the quarter was $604 compared to $589 in the second quarter of 2007, an increase of 3%
-> 4,213 customer locations in service as at June 30, 2008, an increase of 23% from a year earlier

“Our pattern of consistent growth demonstrates the strength of demand for our wireless broadband services across the country,” said Bryan Boyd, President and CEO, TeraGo Inc. “The investments we have made in both our network and our sales and operations teams are yielding positive results as reflected in our record operational performance, in particular, a 25% sequential acceleration of net customer additions in the quarter.   While challenges lie ahead, I expect improved EBITDA performance beginning in the third quarter of this year as we continue to grow our subscriber base.”
Key Financial & Operational Highlights
(All financial results are in thousands, except ARPU and loss per share)

 

Three months ended June 30

 

 

 

 

2008

2007

 

(Unaudited)

(Unaudited)

Financials

 

 

Revenue

$7,636

$6,076

Gross profit margin

75%

77%

EBITDA*

$(720)

$446

Income (loss) from operations

$(3,053)

$(783)

Net loss

$(2,864)

$(1,367)

Loss per share

$(0.26)

$(0.21)

 

 

 

Operating

 

 

Churn rate*

0.94%

0.94%

Customer locations in service

4,213

3,419

ARPU*

$604

$589

Number of employees

189

129

 

 

 

* See Non-GAAP Measures below

 

 

Results of Operations
TeraGo’s total revenue for the three-month period ended June 30, 2008 was $7.6 million, an increase of 26% compared to $6.1 million of revenue generated in the second quarter of 2007. The increase in revenue is 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 are recurring in nature, comprised 98% of total revenue in the quarter, while installation revenue represented 2%.

Total customer locations in service reached 4,213 at June 30, 2008, an increase of 794 net new locations or 23% compared to 3,419 customer locations in service one year earlier. Net customer locations added during the second quarter of 2008 totaled 242, the highest of any quarter in Company history.

Average monthly revenue per customer location, or ARPU, was $604 in the second quarter of 2008, an increase of 3% from $589 in the second quarter of 2007. 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 was 0.94% for the three months ended June 30, 2008, unchanged from a year earlier. This continued strong performance in monthly churn is largely the result of the Company’s ongoing investment in its network and customer support groups.

Gross profit was $5.7 million in the quarter, representing 75% of revenue, compared to $4.7 million or 77% of revenue in the comparable period of 2007. Gross profit margins in the quarter were impacted primarily by network expansion and upgrade activities and by an increase in the Company’s customer support team. The Company’s costs of service are largely fixed and will be leveraged as the business scales.

Sales, general and administrative (SG&A) expenses were $6.6 million in the quarter, an increase of 53% compared to $4.3 million for the same quarter in the previous year. The increase in SG&A is primarily driven by higher salaries and compensation-related expenses, as the Company added personnel to accelerate its acquisition of new customers and support its growing base of subscribers. Direct sales personnel stood at 46 as at June 30, 2008, three fewer than at the end of the prior quarter, due to normal sales force management activities. Management expects to increase the number of direct sales personnel to 50 by the end of 2008. In addition, management expects to leverage the investments already made in personnel and does not expect to increase headcount at the same rate.

In line with management expectations, EBITDA was $(0.7) million in the quarter compared to $0.4 million a year earlier due to TeraGo’s strategic decision to invest in market expansion and associated sales and operations personnel to accelerate and support customer growth. As indicated in the previous quarter, second quarter EBITDA was impacted by expenses incurred to aggressively grow the Company’s customer base in existing markets and expand its wireless broadband network into new geographic markets. In the second quarter of 2008, the Company achieved its highest quarterly net customer locations added in its history. Management expects EBITDA to improve in the third quarter of 2008 as we leverage our investment in headcount and increase our revenue. Net loss was $(2.9) million or $(0.26) per share in the second quarter of 2008 compared to a net loss of $(1.4) million or $(0.21) per share in the same period in 2007.

As of June 30, 2008, TeraGo had cash and cash equivalents and short-term investments of $20.9 million compared to $24.9 million at March 31, 2008. The Company had no debt outstanding as of June 30, 2008. 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 August 5, 2008, TeraGo had 7,515,473 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, August 6, 2008, at 9:00 a.m. EDT to discuss these results. To access the conference call, please dial 416-644-3426 or 1-800-594-3615. A replay of the conference call will be available until Wednesday, August 12, 2008 at midnight EDT. To access the replay, call 416- 640-1917 or 1-877- 289-8525, followed by passcode 21278862#. 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 months ended June 30, 2008, and the notes thereto, and its Management Discussion and Analysis for the same period, will be 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, gain or loss in network asset disposals and stock option 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 at the end of 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 is not a recognized measure under GAAP and, accordingly, investors are cautioned in using it. Our method of calculating churn 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 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 legislation. 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 2007 Annual MD&A and 2007 Annual Information Form that can be found on SEDAR www.sedar.com and other uncertainties and potential events. We do not intend, and disclaim any obligation to update or revise any forward-looking statements whether words 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 40 major markets across Canada, serving more than 4,000 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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