TeraGo Announces Record EBITDA of $1.2 million in the Second Quarter of 2009



    Company delivers record revenue in the second quarter

    TORONTO, Aug. 12 /CNW/ - TeraGo Inc. (TSX: TGO) today announced financial
and operating results for the second quarter ended June 30, 2009.

    
    Financial and Operational Highlights

    -   Total revenue for the quarter was $8.6 million, an increase of
        13% over the second quarter of 2008.
    -   EBITDA(*) was $1.2 million in the second quarter of 2009, an
        improvement of $2.0 million compared to $(720) thousand a year
        earlier. EBITDA was the highest in Company history, and represented
        the fourth consecutive quarter of sequential improvement.
    -   ARPU(*) for Q2 2009 was $614 compared to $604 in the second quarter
        of 2008, an increase of 2%.
    -   Added 198 gross customer locations, despite the challenging economic
        environment.
    -   Average monthly churn rate for the three months ended June 30, 2009
        declined to 1.35% compared to 1.43% for the first quarter of 2009.
        Churn for the three months ended June 30, 2008 was 0.94%.
    -   Approximately 79% of new customers signed contracts with terms of
        three years or more in Q2 2009, compared to 75% in Q2 2008.
    -   Ended the quarter with 4,600 customer locations in service, an
        increase of 9% compared to 4,213 customer locations in service as at
        June 30, 2008.
    -   Business plan remains fully funded with $8.9 million of cash, cash
        equivalents and short term investments as at June 30, 2009, a
        decrease of $1.0 million from March 31, 2009 compared to a decrease
        of $4.0 million for the same period in 2008.
    -   TeraGo was selected by a new Advanced Wireless Services ("AWS")
        wireless entrant to provide wireless backhaul services. The value of
        this initial contract is not considered material to the Company in
        2009. The Company is investing to further develop and pursue
        additional opportunities with this provider and other new wireless
        entrants.
    

    "In the second quarter we accomplished our primary objectives of growing
revenue, improving EBITDA, and preserving our cash resources," said Bryan
Boyd, President and CEO, TeraGo Inc. "I believe our success on all these
counts during a time of economic difficulty demonstrates the strength of our
business model and positions us well to further accelerate growth when a
broader recovery is underway."

    
    Key Financial & Operational Highlights

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

                                                  Three months ended June 30
                                                         2009           2008
                                                  ---------------------------
                                                   (Unaudited)    (Unaudited)
    Financial
    Revenue                                            $8,645         $7,636
    Gross profit margin                                  74.5%          74.9%
    EBITDA(*)                                          $1,246          $(720)
    Income (loss) from operations                     $(1,343)       $(3,053)
    Net loss                                          $(1,287)       $(2,864)
    Loss per share                                     $(0.12)        $(0.26)

    Operating
    Churn rate(*)                                        1.35%          0.94%
    Customer locations in service                       4,600          4,213
    ARPU(*)                                              $614           $604
    Number of employees                                   163            189

    (*) See Non-GAAP Measures below

    Second Quarter 2009 Results of Operations
    

    TeraGo's total revenue for the three-month period ended June 30, 2009 was
$8.6 million, an increase of $1.0 million or 13% compared with $7.6 million of
revenue in Q2 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 second quarter, while installation and one-time
revenue represented 2%.
    Total customer locations in service reached 4,600 at June 30, 2009, an
increase of 387 net new locations or 9% compared to 4,213 customer locations
in service one year earlier. Gross customer locations added during the second
quarter of 2009 totaled 198, despite the challenging economic environment,
compared to 360 for the same period last year.
    Average monthly revenue per customer location, or ARPU, was $614 in the
second quarter of 2009, an increase of 2% from $604 in Q2 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 1.35% for the second quarter of 2009,
compared to 0.94% for the same period in 2008, and 1.43% in Q1 2009. Given the
challenging economic environment, there is still a risk of churn remaining at
current levels or even increasing in future periods. The Company will continue
to monitor customer credit worthiness and churn levels closely .
    Gross profit was $6.4 million in the second quarter of 2009, representing
74.5% of revenues, compared to $5.7 million or 74.9% of revenue in Q2 2008.
The small variance in gross profit margin was primarily the result of ongoing
network expansion and upgrade 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 $5.2 million in Q2 2009,
a decrease of 20% compared to $6.6 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 ended the quarter with 27 direct sales
personnel, three fewer than at the end of the prior quarter. The Company is
currently recruiting to replace some of the open sales positions and further
growth of the sales team will be dependent on the economic environment.
    EBITDA was $1.2 million in the second quarter of 2009, a record for the
Company, and an increase of nearly $2.0 million compared to $(0.7) million in
Q2 2008. EBITDA in Q2 2009 represents a sequential improvement of $0.3 million
compared to $0.9 million of EBITDA in Q1 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 $(1.3) million or $(0.12) per share in Q2 2009 compared to a
net loss of $(2.9) million or $(0.26) per share a year earlier.
    As of June 30, 2009, TeraGo had cash and cash equivalents and short-term
investments of $8.9 million, compared to $9.8 million at March 31, 2009. The
Company had no debt outstanding as of June 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 second quarter of 2009 was $1.0 million compared to $4.0 million for
the same period in 2008 and $2.9 million in the first 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 June 30, 2009, TeraGo had 7,505,491 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 12, 2009, at
9:00 a.m. EDT to discuss these results. To access the conference call, please
dial 416-644-3424 or 1-800-595-8550. A replay of the conference call will be
available until Wednesday, August 19, 2009 at midnight EDT. To access the
replay, call 416-640-1917 or 1-877-289-8525, followed by passcode 21311828
followed by the number sign. 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 six
month periods ended June 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, 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 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.

    %SEDAR: 00025345E




For further information:

For further information: Bryan Boyd, President and CEO, Telephone: (905)
707-0788, E-mail: bryan.boyd@terago.ca; Jeff Codispodi, The Equicom Group,
Telephone: (416) 815-0700 ext 261, E-mail: jcodispodi@equicomgroup.com

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