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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(x) 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(x) 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
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2007 2006 2007 2006
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(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(x) $ 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
(x)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