TORONTO, ONTARIO — (Marketwire) — 02/26/13 — TeraGo Inc. (TSX: TGO) () today announced financial and operating results for the year ended December 31, 2012.
2012 Financial and Operational Highlights
Bryan Boyd, President and CEO, TeraGo Inc. said “Our growth strategy proved its worth in 2012 with record revenue, EBITDA and earnings, and strong results in all financial and operating areas. We successfully integrated the MetroBridge customer base and expanded our network footprint to include high growth areas of Canada. We look forward to continuing to deliver solid results and create value for our shareholders in 2013.”
2012 Results of Operations
Revenue
Total revenue for the year ended December 31, 2012 increased 9% to a record $49.2 million compared to $44.9 million for the same period in 2011. Fourth quarter 2012 revenue was a record at $12.6 million, up 5% from $12.0 million for the same period in 2011. The full year and quarterly increases largely resulted from the greater number of customer locations in service as well as existing customers upgrading their Internet and data connections. Approximately 98% of total 2012 revenue was recurring service revenue.
Customer locations
Adding 1,118 new customer additions in 2012 (1,691 in 2011), combined with a low churn rate, resulted in 297 net customer locations added, compared with 915 net additions in 2011, which included 585 in the second quarter of 2011 from the MetroBridge acquisition. The year ended with 6,575 customer locations in service, 5% growth over the 6,278 customer locations in service at December 31, 2011.
Churn rate
The average monthly churn rate in 2012 was 1.05% compared to 1.08% in 2011. The fourth quarter 2012 average monthly churn rate was 0.86%, compared to 1.18% for the same period in 2011. Management continues to strive for lower churn rates by focusing on network quality, customer service, and customer creditworthiness.
Gross margin
The gross profit margin for 2012 remained strong at 77.6% compared to 78.4% for 2011. Fourth quarter gross profit margin was 77.9% compared to 78.3% for the same period in 2011. The slight decrease is primarily due to an increase in telecommunication and other support costs as a result of the MetroBridge acquisition and annual increases in property access costs and spectrum costs.
SG&A
SG&A (Salaries and related costs – Other, and Other operating items) expenses decreased to $23.7 million in 2012 from $25.0 million in 2011. Fourth quarter SG&A expenses decreased to $5.6 million in 2012 from $5.9 million for the same period in 2011. The decreases were largely a result of lower salaries and severance costs, lower stock-based compensation, lower bad debt expense and certain other expenses. TeraGo had 31 direct sales personnel at year end, compared to 33 a year earlier.
Special charges
In September 2012, the Company announced a review process to identify, examine and consider a range of strategic options available to the Company with a view to enhancing shareholder value. Direct and incremental costs associated with this review process include investment banking fees, associated legal and other costs which have been separately classified in the Statement of Operations. For the year and three months ended December 31, 2012, special charges were $0.7 million and $0.4 million respectively, compared to $nil for the same periods in 2011.
EBITDA
2012 EBITDA increased to a record $15.3 million compared to $12.2 million in 2011, an improvement of 24.8%. Fourth quarter EBITDA increased to $4.0 million compared to $3.8 million for the same period in 2011. EBITDA includes special charges of $0.7 million and $0.4 million, respectively, for the year and fourth quarter. EBITDA, excluding the special charges, is $16.0 million and $4.4 million, respectively, for 2012 and the fourth quarter of 2012. The increase in EBITDA is in line with management-s expectations as TeraGo continues to increase revenue while focusing on cost management.
Net earnings
TeraGo achieved net earnings for the full year and fourth quarter 2012 of $4.9 million and $3.2 million respectively, compared to $0.2 million and $0.8 million for the same periods in 2011. Basic earnings per share were $0.43 and $0.29 for the full year and fourth quarter of 2012 respectively, compared to $0.02 and $0.07 for the comparable periods in 2011. Both full year and fourth quarter net earnings benefited from the recognition of $2.5 million of deferred income taxes resulting from temporary tax differences in the three months and year ended December 31, 2012.
Capital resources
At year end 2012, the Company had cash, cash equivalents and short-term investments of $2.6 million and access to the $4.0 million undrawn portion of its $20.0 million credit facilities.
Subsequent to year end, in January 2013, the Company drew down $1.0 million from its term debt facility, which bears interest at the rate of 3.98%.
Management believes the Company-s current cash, short-term investments, anticipated cash from operations, access to the undrawn portion of debt facilities and its access to additional financing in the form of debt or equity will be sufficient to meet its working capital and capital expenditure plans for the foreseeable future.
ARPU
Average monthly revenue per customer location, or ARPU, increased to $622 in 2012, compared with $618 in 2011. Fourth quarter 2012 ARPU increased to $625 compared to $622 for the same period in 2011. The increase was primarily a result of service capacity upgrades by existing customers, a higher proportion of new customers choosing higher capacity services or voice services, early termination fees, and lower credits partially offset by lower usage revenue.
Shares outstanding
As of December 31, 2012, TeraGo had 11,364,613 Common Shares and two Class B Shares outstanding.
TeraGo-s spectrum portfolio
TeraGo owns 76 spectrum licences in the 24 GHz and 38 GHz bands, covering Canadian markets with a population base of nearly 23 million and plans to use this spectrum to provide Ethernet-based broadband links for businesses, government and cellular backhaul, as part of the Company-s growth strategy.
Conference Call and Webcast
Management will host a conference call on Tuesday, February 26, 2013, at 9.00 a.m. EST to discuss these results. To access the conference call, please dial 416-340-2216 or 1-866-226-1792. A replay of the conference call will be available until March 19, 2013 at midnight EST. To access the replay, call 905-694-9451 or 1-800-408-3053, followed by passcode 9131735. The call will be accessible via webcast at or . An archived replay of the webcast will be available for one year.
TeraGo-s audited financial statements for the year ended December 31, 2012, and the notes thereto, and its Management Discussion and Analysis for the same period, have been filed on SEDAR at .
Non-GAAP Measures
The term “EBITDA” refers to earnings before deducting interest, taxes, depreciation and amortization. EBITDA is a term commonly used to evaluate operating results. We believe that EBITDA is useful additional information to management, the Board and Investors 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 depreciation and amortization. We also exclude foreign exchange gain or loss, finance costs, finance income, gain or loss on disposal of network assets, property and equipment and stock-based compensation from our calculation of EBITDA. Investors are cautioned that EBITDA should not be construed as an alternative to operating earnings or net earnings determined in accordance with IFRS 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 IFRS and, accordingly, investors are cautioned that ARPU should not be construed as an alternative to revenue determined in accordance with IFRS 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. The Company calculates churn 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 IFRS and, accordingly, investors are cautioned in using it. TeraGo-s 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 2012 MD&A and 2012 Annual Information Form that can be found on SEDAR at 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. provides small and medium sized businesses with carrier-grade wireless broadband, data and voice communications services. The national network service provider owns and manages its wireless IP network servicing 6,575 customer locations in 46 major markets across Canada including Toronto, Montreal, Calgary, Edmonton, Vancouver and Winnipeg. TeraGo Networks is a Competitive Local Exchange Carrier (CLEC) and is a wholly owned subsidiary of TeraGo Inc. (TSX: TGO). More information about TeraGo is available at .
Contacts:
TeraGo Inc.
Bryan Boyd
President and CEO
1-877-982-3688
TeraGo Inc.
Scott Browne
Chief Financial Officer
1-877-982-3688
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