Company also announces management change
TORONTO, May 7 /CNW/ - TeraGo Inc. (TSX: TGO) today announced financial and operating results for the first quarter ended March 31, 2008.
First Quarter 2008 Highlights
- Total revenue for the quarter was $7.1 million, an increase of 24%
over the same period in 2007
- ARPU(x) for the quarter was $603 compared to $590 in the
first quarter of 2007, an increase of 2%
- 3,971 customer locations in service as at March 31, 2008, an increase
of 23% from a year earlier
- Average monthly churn rate(x) of 0.76% compared to 1.00% in the
first quarter of 2007, a 24% improvement
"We are pleased to report record revenues after another quarter of solid
double digit growth," said Bryan Boyd, President and CEO, TeraGo Inc. "We
achieved record customer bookings in the quarter and added 194 net customers.
We continue to execute on the strategy communicated at the time of our IPO in
2007, namely to increase customer penetration, and expand our wireless
broadband network and service offering."
Key Financial & Operational Highlights
(All financial results are in thousands, except ARPU and loss per share)
Three months ended March 31
2008 2007
----------------------------
(Unaudited) (Unaudited)
Financial
Revenue $7,138 $5,780
Gross profit margin 75.3% 79.4%
EBITDA(x) $(221) $807
Income (loss) from operations $(2,452) $(629)
Net loss $(2,124) $(900)
Loss per share $(0.19) $(0.14)
Operating Metrics
Churn rate(x) 0.76% 1.00%
Customer locations in service 3,971 3,236
ARPU(x) $603 $590
Number of employees 175 127
(x) See Non-GAAP Measures below
Results of Operations
TeraGo's total revenue for the three-month period ended March 31, 2008 was $7.1 million, an increase of 24% compared to $5.8 million of revenues generated in the first quarter of 2007. The increase in revenue is primarily the result of a greater number of customer locations in service, and existing customers upgrading their Internet and data connections and/or adding additional service locations. Service revenues, which are recurring in nature, comprised 98% of total revenues in the quarter, while installation revenue represented 2%.
Total customer locations in service reached 3,971 at March 31, 2008, an increase of 735 net new locations or 23% compared to 3,236 customer locations in service one year earlier. Net customer additions during the quarter totaled 194.
Average monthly revenue per customer location, or ARPU, was $603 in the first quarter of 2008, an increase of 2% from $590 in the first quarter of 2007. 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 first quarter of 2008 was 0.76%, compared to 1.00% in the same period in 2007. Management believes the improvement is largely the result of the Company's continued investment in its network and customer support groups.
Gross profit was $5.4 million in the quarter, representing 75.3% of revenues, compared to $4.6 million or 79.4% of revenue in the comparable period of 2007. Margins in the first quarter were impacted primarily by network expansion in existing and new markets, and by an increase in the Company's customer support team. The Company's costs of service are largely fixed and will be leveraged as the business scales.
Sales, general and administrative expenses were $5.6 million in the quarter, an increase of 47% compared to $3.8 million for the previous year. The rise in SG&A is primarily driven by increases in salaries and compensation-related expenses, as the Company added personnel to accelerate its acquisition of new customers, support its growing base of subscribers, and to staff its expansion into new markets. Direct sales personnel grew to 49 as at March 31, 2008 from 33 as at March 31, 2007. Management expects SG&A expenses to continue to increase in the short term, although investments already made in personnel should enable the Company to reduce the rate of growth of headcount in 2008.
In line with management expectations, EBITDA was $(0.2) million in the first quarter of 2008 compared to $0.8 million a year earlier due to TeraGo's strategic decision to invest in market expansion and associated sales and operations personnel to accelerate and support future customer growth. Management plans to aggressively grow its customer base in existing markets and expand its wireless broadband network into new geographic markets, which is expected to impact EBITDA in the short-term. Management expects EBITDA to improve starting in the second half of 2008.
Net loss was $(2.1) million or $(0.19) per share in the first quarter of 2008 compared to a net loss of $(0.9) million or $(0.14) per share in the same period in 2007.
As of March 31, 2008, TeraGo had cash and cash equivalents and short-term investments of $25.0 million compared to $30.6 million at December 31, 2007. The Company had no debt outstanding as of March 31, 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 6, 2008, TeraGo had 7,558,466 Common Shares, 3,633,474 Class A Non-voting Shares and two Class B Shares outstanding.
Management Change
TeraGo Inc. also announced that Gerry O'Reilly, who has served as the Company's Chief Financial Officer since 2001, has resigned his position, effective immediately, to pursue an opportunity with a privately owned corporation. TeraGo has commenced a formal search to select a successor.
Until such time as a permanent successor is named, Kurban Khanbhai, the Company's Director of Corporate Planning and Finance, will assume the role of Interim Chief Financial Officer. Mr. Khanbhai joined TeraGo in May, 2004, and has been instrumental in building the Company's finance group.
"Gerry helped develop our efficient, recurring revenue-based business model, and more recently he oversaw our successful initial public offering and the establishment of processes required to meet our obligations as a public company," said Bryan Boyd, President and CEO, TeraGo Inc. "We appreciate these and other contributions over the past seven years, and wish Gerry continued success in his career."
Conference Call and Webcast
Management will host a conference call on Wednesday, May 7, 2008, at 11:30 a.m. EDT to discuss these results. To access the conference call, please dial 416-644-3417 or 1-800-731-5319. A replay of the conference call will be available until Wednesday, May 14, 2008 at midnight EDT. To access the replay, call 416-640-1917 or 1-877-289-8525, followed by passcode 21269184 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 annual financial statements for the three months ended March 31, 2008, and the notes thereto, and its Management Discussion and Analysis for the same period, will be 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 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 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 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 this document 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 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 2007 Annual MD&A and 2007 Annual Information Form that can be found on SEDAR www.sedar.com and other uncertainties and potential events. We do not intend, and disclaim any obligation to update or any forward-looking statements whether words 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 40 major markets across Canada, serving more than 4,000 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