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(x) increased 5% year-over-year to $589
- Churn rate(x) of 0.9% an improvement from 1.1% churn rate in Q2 2006
(x) 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(x) $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(x) 0.94% 1.11% 0.97% 1.21%
Customer locations in service 3,419 2,814 3,419 2,814
ARPU(x) 589 561 590 557
Number of employees 129 102 129 102
(x) 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.
(x)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
%SEDAR: 00010252E