TeraGo announces second quarter results



    Strong growth in existing markets increases revenues

    TORONTO, Aug. 14 /CNW/ - TeraGo Inc. (TSX: TGO) today announced its
results for the second quarter ended June 30, 2007.

    
    Quarterly Highlights:

      -  Closed $50-million initial public offering and TSX listing on
         June 26, 2007
      -  Record revenue of $6.1 million, up 27% year-over-year and our 25th
         consecutive quarter of revenue growth
      -  Record number of customer locations in service to 3,419, an increase
         of 21% year-over-year
      -  In the quarter, 278 gross customer additions with more than 70% of
         new customers signing three-year service agreements
      -  ARPU(*) increased 5% year-over-year to $589
      -  Churn rate(*) of 0.9% an improvement from 1.1% churn rate in Q2 2006

    (*) See Non-GAAP Measures
    

    "TeraGo's results for the second quarter continues our record of
consecutive quarterly revenue increases, based on strong organic growth of new
customers," said Bryan Boyd, President and CEO. "During the quarter, our
initial quarter as a public company, our sales and customer support teams were
expanded to serve growing markets. We extended service offerings in selected
established locations, such as the Kitchener-Waterloo region in Ontario. So
far this year, we have launched service in Vancouver, as well as Richmond,
B.C., Red Deer, Alberta and Newmarket, Ontario."
    "TeraGo has a highly efficient business model with strong recurring
revenues and compelling customer economics. More Canadian businesses are
recognizing our value proposition as a clear alternative for reliable,
high-performance broadband service. With a fully funded business plan, and
applying the proceeds of our IPO, we are accelerating our pace of strategic
growth, and increasing the numbers of customers and locations in service
across our designated geographic markets in Canada," said Mr. Boyd.


    
    RESULTS OF OPERATIONS

    Key Financial and Operating Highlights
    (All financial figures are in thousands, unless otherwise stated,
    with the exception of loss per share)

                                          Three months         Six months
                                         ended June 30       ended June 30
                                      ------------------- -------------------
                                         2007     2006       2007     2006
                                      ------------------- -------------------
                                          (Unaudited)         (Unaudited)

    Financial
      Revenue                           $6,075    $4,782   $11,856    $9,295
      Gross margin %                       77%       81%       78%       80%
      EBITDA(*)                           $446      $987    $1,252    $1,791
      Income (loss) from operations      ($766)     ($46)  ($1,398)    ($609)
      Net loss                         ($1,367)     ($63)  ($2,267)    ($623)
      Loss per share                   ($0.212)  ($0.032)  ($0.353)  ($0.319)

    Operating Metrics
      Churn rate(*)                      0.94%     1.11%     0.97%     1.21%
      Customer locations in service      3,419     2,814     3,419     2,814
      ARPU(*)                              589       561       590       557
      Number of employees                  129       102       129       102

    (*) See Non-GAAP Measures
    

    Total revenue increased by 27% to $6.1 million for the second quarter of
2007 compared with $4.8 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 27% to $5.9 million in the second quarter of
2007, over the same quarter in 2006. This was driven primarily by the addition
of 605 net customer locations in service. Installation revenue was
$0.2 million for the second quarter 2007. For the six-month period ended June
30, 2007, total revenue increased 28% to $11.9 million compared to $9.3
million for the period ended June 30, 2006.
    ARPU, average monthly revenue per customer location, increased by 5% to
$589 for the three months ended June 30, 2007, from $561 for the same period
in 2006. ARPU increased by 6% to $590 for the six months ended June 30, 2007,
from $557 for the six months ended June 30, 2006. The increase in ARPU for
both the current quarter and the first six months of fiscal 2007, compared to
the same periods in 2006, is largely the result of 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 decreased to 0.9% for the three-month
period ended June 30, 2007, compared to 1.1% for the three-month period ended
June 30, 2006. Average monthly churn was 1.0% and 1.2% for the six month
periods ended June 30, 2007, and 2006, respectively. Lower churn in the second
quarter and in the first six months of fiscal 2007, compared to the same
periods in 2006, is largely the result of continued investment in our network
and our commitment to customer support.
    Gross profit margin was 77% for the three months ended June 30, 2007,
compared to 81% for the three-month period ended June 30, 2006. Gross profit
margin for the six months ended June 30, 2007, and 2006 was 78% and 80%,
respectively. This marginal decrease was in line with management's
expectations and reflected the expansion of our wireless broadband network to
Vancouver, Richmond and Newmarket, an investment in our customer support team
and an increase in the number of customer locations in service. Our cost of
services is comprised primarily of costs which are largely fixed and will be
leveraged as the business scales.
    For the second quarter, sales, general and administrative (SG&A) expenses
increased by 49% to $4.3 million compared to $2.9 million for the same quarter
last year. For the six months ended June 30, 2007, SG&A expenses increased
43%, to $8.1 million compared to $5.7 million for the six months ended
June 30, 2006. The increase in SG&A in the second quarter and first six months
of fiscal 2007 as compared to 2006 levels is primarily due to increase in
salaries and compensation-related expenses. The increase in salaries and
compensation related expenses is the result of additional employees hired to
accelerate our acquisition of new clients, to support our growing base of
subscribers and to staff our expansion into new markets. Sales, general and
administrative expenses are expected to continue to increase in future periods
as we add personnel to support our expansion to new markets, to support our
increasing subscriber base and to accelerate our rapid growth and market
penetration.
    In line with management expectations, EBITDA decreased to $0.4 million
for the three months ended June 30, 2007, compared to $1.0 million in EBITDA
for the three months ended June 30, 2006. EBITDA for the six months ended
June 30, 2007, and 2006 was $1.2 million and $1.8 million, respectively. An
increase in SG&A expense in the second quarter and the first six months of
fiscal 2007 as compared to 2006 levels, driven by the launch of service in
Vancouver, Richmond and Newmarket along with an investment in our direct sales
force and our operations team, resulting in a planned reduction in our EBITDA.
Going forward, our investment in new markets and associated sales and
operations personnel will help drive and support future customer growth.
    On June 26, 2007, TeraGo completed its initial public offering of common
shares and listed its shares on the Toronto Stock Exchange. Pursuant to this
offering, the Company sold 4.256 million Common Shares at $11.75 per share.
The net proceeds to the Company after applicable expenses, including
underwriting fees, were $45.4 million. The net proceeds from the Offering
together with the Company's existing cash resources will be used for
supporting the Company's growth strategy and for general corporate purposes.
With a portion of the IPO proceeds, we repaid the US$9.3 million outstanding
debt obligation on June 29, 2007.

    CONFERENCE CALL AND WEBCAST

    Management will host a conference call at 10:00 a.m. (ET) on Tuesday,
August 14, 2007, to discuss the results. Investors who wish to participate can
access the call using the following numbers: 416-644-3417 or 1-866-249-1964.
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 1:59 ET, Tuesday, August 21, 2007. To access the rebroadcast, please
dial 416-640-1917 or 1-877-289-8525, followed by passcode 21241087 followed by
the number sign.

    (*)NON-GAAP MEASURES

    The term "EBITDA" refers to income before deducting interest, taxes,
depreciation 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 and gain or loss
in network asset disposals 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 MD&A 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. 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 and similar expressions are
intended to identify forward-looking statements. Should one or more of the
risks and uncertainties materialize or should the underlying assumptions prove
incorrect, actual results or events may differ materially from current
expectations. Please refer to the Risks section at the end of this MD&A. We do
not intend, and disclaim any obligation to update or revise any
forward-looking statements whether 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 more
than 30 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





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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