Company delivers significant sequential improvement in EBITDA in fourth quarter
TORONTO, March 10 /CNW/ - TeraGo Inc. (TSX: TGO) today announced financial and operating results for the fourth quarter and fiscal year ended December 31, 2008.
Financial and Operational Highlights - Total revenue of $31.0 million for 2008, an increase of 23% over fiscal 2007. Service revenues, the majority of which are recurring in nature, comprised 98% of total revenue. Total revenue for Q4 2008 was $8.3 million, an increase of 22% over the fourth quarter of 2007. - EBITDA(x) was $597 thousand for Q4 2008, compared to $8 thousand a year earlier, $(62) thousand in Q3 2008, and $(720) thousand in Q2 2008. - Added 745 net customer locations, ending the year with 4,522 customer locations in service as at December 31, 2008, an increase of 20% from 3,777 the prior year. Net customer locations grew by 140 in Q4, compared to 195 in the fourth quarter of 2007. Approximately 75% of new customers signed contracts with terms of three years or more in 2008. - Expanded service to the Nation's Capital in the fourth quarter, ending the year with a total of 42 markets including the six largest population centers in Canada. - Average monthly churn rate(x) for Q4 2008 was 1.12% compared to 0.87% in the fourth quarter of 2007. - ARPU(x) for Q4 2008 was $610 compared to $600 in the fourth quarter of 2007, an increase of 2%.
"We maintained a solid revenue growth rate in the fourth quarter and also delivered significant sequential improvement in EBITDA despite the economic slowdown," said Bryan Boyd, President and CEO, TeraGo Inc. "TeraGo is well positioned with a strong balance sheet having no debt and significant cash resources."
Key Financial & Operational Highlights
(All financial results are in thousands, except gross margin, loss per
share and operating metrics)
Three Months Ended Year Ended
December 31 December 31
2008 2007 2008 2007
------------------------ --------------------
(Unaudited) (Unaudited) (Audited) (Audited)
Financial
Revenue $8,342 $6,815 $30,979 $25,120
Gross profit margin % 73.6% 74.6% 74.4% 76.7%
EBITDA(x) $597 $8 $(406) $1,474
Loss from operations $(2,386) $(2,099) $(10,588) $(5,033)
Net loss $(4,807) $(1,730) $(12,352) $(5,486)
Loss per share $(0.43) $(0.15) $(1.11) $(0.62)
Operating
Churn rate(x) 1.12% 0.87% 1.00% 0.92%
Customer locations in
service 4,522 3,777 4,522 3,777
ARPU(x) $610 $600 $604 $594
Number of employees 173 165 173 165
(x) See Non-GAAP Measures below
Fiscal 2008 Results of Operations
TeraGo's total revenue was $31.0 million for the year ended December 31, 2008, an increase of $5.9 million or 23% compared with $25.1 million of revenue in 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 primarily recurring in nature, comprised 98% of total revenues in 2008, while installation revenue represented 2%.
Total customer locations in service reached 4,522 at December 31, 2008, an increase of 745 net new locations or 20% compared to 3,777 customer locations in service at the end of 2007. Net customer locations added during the fourth quarter of 2008 totaled 140.
Average monthly revenue per customer location, or ARPU, was $604 in fiscal 2008, an increase of 2% from $594 in 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 year was 1.00% in 2008, compared to 0.92% in 2007. While the churn rate remains below industry averages, management believes the economic slowdown experienced in the latter stages of 2008 contributed to higher churn levels and may continue to do so in the near term. The Company will continue to monitor churn levels closely.
Gross profit was $23.1 million in 2008, representing 74.4% of revenues, compared to $19.3 million or 76.7% of revenue in 2007. Margins in 2008 were impacted primarily by ongoing network expansion and upgrade activities in existing and new markets, and by an increase in the Company's customer support team. TeraGo's costs of service are largely fixed and these fixed costs will be leveraged as the business scales.
Sales, general and administrative expenses were $23.6 million in 2008, an increase of 32% compared to $17.9 million for the previous year. The increase was primarily driven by the cost of adding personnel during the first half of 2008 to accelerate and support growth. In light of the challenging economic environment, management implemented cost-cutting initiatives in the fourth quarter of 2008. The Company ended the year at 173 employees, including 35 direct sales personnel, compared to 189 employees including 46 direct sales personnel at June 30, 2008.
EBITDA was $(0.4) million in 2008 compared to $1.5 million in 2007. The decline in EBITDA was due to investment in market expansion and associated sales and operations personnel to accelerate and support customer growth. In line with management expectations, EBITDA began to improve on a sequential basis in the third quarter of 2008, and in the fourth quarter EBITDA returned to a positive result. Fourth quarter 2008 EBITDA was $0.6 million, compared to $0.01 million in the fourth quarter of 2007.
Net loss was $(12.4) million or $(1.11) per share in 2008 compared to a net loss of $(5.5) million or $(0.62) per share in 2007. The net loss increased in 2008 partially due to the increased future income tax expense of $2.6 million recorded in the fourth quarter of 2008 which had a $0.23 impact on loss per share. In addition, the 2008 net loss also increased due to an increase in amortization of property, equipment and network assets of $2.7 million.
As of December 31, 2008, TeraGo had cash and cash equivalents and short-term investments of $12.7 million compared to $16.1 million at September 30, 2008, and $29.6 million at December 31, 2007. The Company had no debt outstanding as of December 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.
During 2008, the Company repurchased and cancelled a total of 130,821 common shares under its normal course issuer bid. As of March 6, 2009, TeraGo had 7,486,546 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 Tuesday, March 10, 2009, at 8:30 a.m. EDT to discuss these results. To access the conference call, please dial 416-644-3418 or 1-800-732-9307. A replay of the conference call will be available until Tuesday, March 17, 2009 at midnight EDT. To access the replay, call 416-640-1917 or 1-877-289-8525, followed by passcode 21298762 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 audited financial statements for the year ended December 31, 2008, 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