TeraGo announces strong third quarter results



    Strong customer growth fuels 27% revenue increase

    TORONTO, Nov. 7 /CNW/ - TeraGo Inc. (TSX: TGO) today announced its
results for the third quarter ended September 30, 2007.
    "We are very pleased with our results for the third quarter. TeraGo
extended its quarterly record of revenue increases as a result of the
expansion of our sales and customer support teams and market expansion
strategy. This marks our fourteenth consecutive quarter of revenue growth.
TeraGo's wireless broadband network now reaches 35 markets across Canada,"
said Bryan Boyd, President and CEO.

    
    Q3 Highlights:

    -   Total revenue for the quarter was $6.4 million, a 27% increase over
        Q3 2006
    -   ARPU(*) for Q3 2007 was $596, an increase of 4% over Q3 2006
    -   Added more than 250 gross customer locations in the quarter. At the
        end of the quarter, TeraGo had 3,582 customer locations, an increase
        of 21% year-over-year
    -   Average monthly churn rate(*) of 0.86% compared to 0.82% in Q3 2006
    -   More than 70% of customer contracts signed in the quarter were for 3
        years
    

    "TeraGo's national IP network is a distinct service alternative that
provides business customers with truly redundant, scalable and reliable
Internet and data communications services," said Mr. Boyd. "Our technology is
independent from cable and telephone company networks, which enables us to go
where other carriers cannot. It also allows us to provide true redundancy and
diversity to help customers improve their business performance and mitigate
risks."

    
    RESULTS OF OPERATIONS

    Key Financial and Operating Highlights

    (All financial results are in thousands, unless
    otherwise stated, with the exception of loss per share)

                                          Three months        Nine months
                                      ended September 30  ended September 30
                                      ------------------- -------------------
                                         2007     2006       2007     2006
                                      ------------------- -------------------
                                        (Unau-   (Unau-     (Unau-   (Unau-
                                         dited)   dited)     dited)   dited)

    Financial
      Revenue                         $  6,449  $  5,087  $ 18,305  $ 14,382
      Gross profit margin %                76%       80%       77%       80%
      EBITDA(*)                       $    213  $    980  $  1,466  $  2,770
      Income (loss) from operations   $ (1,489) $   (365) $ (2,887) $   (974)
      Net loss                        $ (1,489) $   (378) $ (3,756) $ (1,001)
      Loss per share                  $ (0.203) $ (0.061) $ (0.559) $ (0.195)

    Operating Metrics
      Churn rate                         0.86%     0.82%     0.93%     1.08%
      Customer locations in service      3,582     2,964     3,582     2,964
      ARPU                            $    596  $    571  $    592  $    561
      Number of employees                  151       106       151       106

    (*)See Non-GAAP Measures
    

    Total revenue increased by 27% to $6.4 million for the third quarter of
2007 compared with $5.1 million for the same period in the prior year. The
increase in revenue is the result of a greater number of customer locations in
service and existing customers upgrading their Internet and data connections.
Service revenue increased by 28% to $6.3 million in the third quarter of 2007,
up from $5.0 million in the same period in the prior year. Increase in service
revenue was driven primarily by the addition of 618 net new customer locations
in service. Installation revenue was $0.1 million for the third quarter 2007.
For the nine-month period ended September 30, 2007, total revenue increased
27% to $18.3 million compared to $14.4 million for the period ended September
30, 2006.
    ARPU, average monthly revenue per customer location, increased by 4% to
$596 for the three months ended September 30, 2007, from $571 for the same
period in 2006. For the nine months ended September 30, 2007, ARPU increased
by 5% to $592, from $561 for the nine months ended September 30, 2006. The
increase in ARPU for both the current quarter and the first nine months of
fiscal 2007, compared to the same periods in 2006, is driven 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 of 0.86% for the three-month period ended
September 30, 2007, compared to 0.82% for the same period in the prior year.
For the nine-month periods ended September 30, 2007 and 2006, average monthly
churn was 0.93% and 1.08%, respectively. We believe the lower churn for the
first nine months of fiscal 2007, compared to the same periods in 2006, is
largely the result of continued investment in our network and our ongoing
commitment to customer support.
    Gross profit margin was 76% for the three months ended September 30,
2007, compared to 80% for the same period in 2006. Gross profit margin for the
nine months ended September 30, 2007, and 2006 was 77% and 80%, respectively.
This marginal decrease in gross profit margin was in line with management's
expectations and reflects the network expansion in existing and new markets,
an increase in our customer support team and the increase of the number of
customer locations in service. Our cost of services comprises costs that are
largely fixed and will be leveraged as the business scales.
    For the third quarter, sales, general and administrative (SG&A) expenses
increased by 52% to $4.7 million compared to $3.1 million for the same quarter
last year. For the nine months ended September 30, 2007, SG&A expenses
increased 46%, to $12.8 million compared to $8.8 million for the nine months
ended September 30, 2006. The increase in SG&A in the third quarter and first
nine months of fiscal 2007 as compared to 2006 levels, is primarily due to the
increase in salaries and compensation-related expenses. The increase in
salaries is a result of additional employees hired to accelerate the
acquisition of new customers, to support the growing base of subscribers and
to staff the expansion into new markets. SG&A expenses are expected to
continue to increase in future periods as we add personnel to support new
market expansion, a growing subscriber base and to accelerate our rapid growth
and market penetration.
    In line with management expectations, EBITDA decreased to $0.2 million
for the three months ended September 30, 2007, compared to $1.0 million in
EBITDA for the same period in the prior year. For the nine months ended
September 30, 2007 and 2006, EBITDA was $1.5 million and $2.8 million,
respectively. Lower EBITDA in 2007 is the result of the company's investment
in new markets and the addition of associated sales and operations personnel
to accelerate and support future customer growth. Going forward, management
plans to aggressively grow our customer base in existing markets and expand
our wireless broadband network into new geographic markets, which it expects
will have an adverse impact on EBITDA in the near term.
    As of September 30, 2007, TeraGo had cash and cash equivalents, and
short-term investments of $33.9 million and no long-term debt. The Company
anticipates incurring additional capital expenditures for the purchase and
installation of network and customer premise equipment, and plans to expand
its network coverage to new Canadian markets and to strategic centers around
existing markets. It also intends to expand its product portfolio and invest
in sales and marketing. 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.

    CONFERENCE CALL AND WEBCAST

    Management will host a conference call at 10:00 a.m. (ET) on Wednesday,
November 7, 2007, to discuss the results. Investors who wish to participate
can access the call using the following numbers: 416-644-3422 or
1-800-731-6941. The conference call will also be accessible via webcast on the
company's website at www.terago.ca.
    A taped rebroadcast will be available to listeners following the call
until 11:59 p.m. ET, Wednesday, November 14, 2007. To access the rebroadcast,
please dial 416-640-1917 or 1-877-289-8525, followed by passcode 21250554
followed by the number sign.
    Our unaudited interim financial statements for the three and nine months
ended September 30, 2007, and the notes thereto, and our Management Discussion
and Analysis for the three and nine months ended September 30, 2007, can be
found 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
document not to place undue reliance on our forward-looking statements as a
number of factors could cause actual future 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
third quarter MD&A that can be found on SEDAR at 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

    TeraGo has been providing Canadian businesses with carrier grade wireless
broadband and data communications services since 2001. The national broadband
service provider owns, manages and maintains its wireless IP network in 35
major markets across Canada. TeraGo's common shares are listed on the Toronto
Stock Exchange under the symbol 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; Gerry O'Reilly, Chief Financial
Officer, Telephone: (905) 707-0788, E-mail: gerry.oreilly@terago.ca

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TERAGO INC.

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