Company delivers significant sequential improvement in EBITDA in Q1
TORONTO, May 6 /CNW/ - TeraGo Inc. (TSX: TGO) today announced financial and operating results for the first quarter ended March 31, 2009.
Financial and Operational Highlights - Total revenue for the quarter was $8.6 million, an increase of 21% over the first quarter of 2008. Service revenues, the majority of which are recurring in nature, comprised 97% of total revenue. - EBITDA(x) was $932 thousand in the first quarter of 2009, compared to $(221) thousand a year earlier. - Second consecutive quarter of positive EBITDA following EBITDA of $597 thousand in Q4 2008. - Added 266 gross customer locations, compared to 283 a year earlier, representing 95% of prior year levels despite a challenging economy. - Ended the quarter with 4,590 customer locations in service as at March 31, 2009, an increase of 16% compared to 3,971 customer locations in service as at March 31, 2008. - Approximately 83% of new customers signed contracts with terms of three years or more in Q1 2009, compared to 70% in Q1 2008. - Average monthly churn rate(x) for Q1 2009 was 1.43% compared to 0.76% in the first quarter of 2008. - ARPU(x) for Q1 2009 was $609 compared to $603 in the first quarter of 2008, an increase of 1%. - An Industry Canada decision released in March, 2009, resulted in the granting of a five-year extension to the initial term of the 24 and 38 GHz licences held by the Company. In the decision, the Department waived its proposed annual licensing fee during the extension period. - The Company completed the implementation of a National Multiprotocol Label Switching (MPLS) backbone network. In subsequent quarters, the Company expects to realize benefits in terms of improved operation efficiencies and service levels for customers as a result of this investment.
"We delivered material sequential improvement in EBITDA for the third consecutive quarter, positive EBITDA for the second consecutive quarter, and maintained a double digit revenue growth rate despite the ongoing challenges in the broader economy," said Bryan Boyd, President and CEO, TeraGo Inc. "Our priority in 2009 will be to continue to increase EBITDA as we balance growth with prudent management of our cash resources."
Key Financial & Operational Highlights
(All financial results are in thousands, except gross margin, loss per
share and operating metrics)
Three months ended March 31
2009 2008
--------------------------
(Unaudited) (Unaudited)
Financial
Revenue $8,621 $7,138
Gross profit margin 73.5% 75.3%
EBITDA(x) $932 $(221)
Income (loss) from operations $(1,633) $(2,452)
Net loss $(1,556) $(2,124)
Loss per share $(0.14) $(0.19)
Operating
Churn rate(x) 1.43% 0.76%
Customer locations in service 4,590 3,971
ARPU(x) $609 $603
Number of employees 168 175
(x) See Non-GAAP Measures below
First Quarter 2009 Results of Operations
TeraGo's total revenue for the three-month period ended March 31, 2009 was $8.6 million, an increase of $1.5 million or 21% compared with $7.1 million of revenue in Q1 2008. 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 revenues, which are primarily recurring in nature, comprised 97% of total revenues in the first quarter, while installation and one-time revenue represented 3%.
Total customer locations in service reached 4,590 at March 31, 2009, an increase of 619 net new locations or 16% compared to 3,971 customer locations in service one year earlier. Gross customer locations added during the first quarter of 2009 totaled 266 compared to 283 for the same period last year representing 95% of prior year levels despite a challenging economy.
Average monthly revenue per customer location, or ARPU, was $609 in the first quarter of 2009, an increase of 1% from $603 in Q1 2008. 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 for the year was 1.43% for the three months ended March 31, 2009, compared to 0.76% for the same period in 2008. A significant portion of the increase is due to increased collection and bankruptcy issues, and to more customers closing locations and ending projects. Given the challenging economic environment, there is a significant risk of churn remaining at current levels or increasing in future periods. The Company will continue to monitor customer credit worthiness and churn levels closely.
Gross profit was $6.3 million in the first quarter of 2009, representing 73.5% of revenues, compared to $5.4 million or 75.3% of revenue in Q1 2008. Margins were impacted primarily by ongoing network expansion and upgrade activities in existing markets, and by an increase in 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 $5.4 million in Q1 2009, a decrease of 3% compared to $5.6 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 30 direct sales personnel, compared to 35 at December 31, 2008. The Company is currently recruiting to return to replace open sales positions and further growth of the sales team will be dependent on the economic environment.
EBITDA was $0.9 million in the first quarter of 2009, compared to $(0.2) million in Q1 2008. EBITDA in Q1 2009 represents a sequential improvement of $0.3 million compared to $0.6 million in Q4 2008. Ongoing EBITDA improvement is in line with management's expectation as the Company focused on prudent cost management while continuing to grow revenue.
Net loss was $(1.6) million or $(0.14) per share in Q1 2009 compared to a net loss of $(2.1) million or $(0.19) per share a year earlier.
As of March 31, 2009, TeraGo had cash and cash equivalents and short-term investments of $9.8 million, compared to $12.7 million at December 31, 2008. The Company had no debt outstanding as of March 31, 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 first quarter of 2009 was $2.9 million compared to $4.6 million for the same period in 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 May 1, 2009, TeraGo had 7,492,632 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, May 6, 2009, at 10:00 a.m. EDT to discuss these results. To access the conference call, please dial 416-644-3429 or 1-800-589-8577. A replay of the conference call will be available until Wednesday, May 13, 2009 at midnight EDT. To access the replay, call 416-640-1917 or 1-877-289-8525, followed by passcode 21305091 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 months ended March 31, 2009, and the notes thereto, and its Management Discussion and Analysis for the same period, 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 4,500 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