Towerstream Corporation
Aug 5, 2009

Towerstream Second Quarter 2009 Revenues Increased 47% Over Second Quarter 2008

Adjusted EBITDA improves 39% compared to First Quarter 2009

MIDDLETOWN, R.I., Aug 05, 2009 /PRNewswire-FirstCall via COMTEX News Network/ -- Towerstream (Nasdaq: TWER), a leading fixed WiMAX provider currently operating in nine major metropolitan areas, announced results for the second quarter ended June 30, 2009.

Operating Highlights:

    --  Second quarter 2009 revenues increased 47% from the second quarter 2008
        and increased 8% from the first quarter 2009
    --  Adjusted EBITDA improved 39% compared to the first quarter 2009,
        decreasing from a loss of almost $1.1 million to a loss of less than
        $0.7 million
    --  Record number of contracts signed in June 2009, exceeding the previous
        monthly record by 28%
    --  Gross margin remained strong at 75% during the second quarter 2009 which
        represented a 1% decrease from the first quarter 2009 and a 25% increase
        from the second quarter 2008
    --  Six markets are now generating positive quarterly adjusted EBITDA and
        all nine markets collectively are generating positive quarterly adjusted
        EBITDA
    --  "Cash burn" totaled $1.6 million in the second quarter 2009,
        representing a 40% decrease from the first quarter
    --  Customer churn for the second quarter 2009 was 1.90%, compared to 1.68%
        for the first quarter 2009 and 1.17% for the second quarter 2008

    --  Cash and cash equivalents totaled $20.2 million at June 30, 2009

Management Comments:

"This was a pivotal quarter for Towerstream to demonstrate the evolution of our sales strategy," said Jeff Thompson, President and Chief Executive Officer. "Already, we have seen positive results from this strategy as we reported a record number of contracts in June. New contracts executed in July were the second highest in our history, and we believe these sustained results reflect an accelerating interest in our wireless products."

"The core strength of our monthly recurring revenue model and tight cost controls resulted in a 39% improvement in adjusted EBITDA compared to the first quarter," stated Joseph Hernon, Chief Financial Officer. "Cash burn improved 40% sequentially, and our cash resources of approximately $20 million at June 30, 2009 provide solid coverage relative to current quarterly cash requirements. Gross margin remained strong at 75% and continued operational improvements resulted in a 5% sequential decrease in core operating expenses."

    Selected Financial Data and Key Operating Metrics:
    (All dollars are in thousands except ARPU)

                                                 (Unaudited)
                                             Three months ended
                                    6/30/2009     3/31/2009*    6/30/2008*
    Selected Financial Data
    Revenues                           $3,673        $3,417        $2,494
    Gross margin                           75%           76%           60%
    Operating expenses (1)              5,562         5,622         6,266
    Operating loss (1)                 (1,889)       (2,205)       (3,772)
    Net loss (1)                       (2,100)       (2,416)       (3,730)
    Adjusted EBITDA (2)                  (660)       (1,084)       (2,679)

    Capital expenditures               $1,071          $955        $1,841

    Key Operating Metrics
    Churn rate (2)                       1.90%         1.68%         1.17%
    ARPU (2)                             $769          $799          $819
    ARPU of new customers (2)            $547          $540          $898

    * Certain reclassifications of prior period amounts have been made
      to conform to current year presentation.
    (1) Includes stock-based compensation of $229, $157 and $336,
        respectively.
    (2) See Non-GAAP Measures below for a definition and reconciliation of
        adjusted EBITDA, and definitions of Churn, ARPU and ARPU of new
        customers.

Analysis of Results of Operations and Financial Condition

Second Quarter 2009 Results of Operations

Revenues for the second quarter 2009 increased 8% from the first quarter 2009, and increased 47% compared to the second quarter 2008. These increases were driven by growth in our customer base from approximately 1,100 customers at the end of the second quarter 2008 to approximately 1,600 at the end of second quarter 2009.

ARPU of new customers in the second quarter 2009 increased 1% compared to the first quarter 2009, and decreased 39% compared to the second quarter 2008. ARPU of all customers in the second quarter 2009 decreased 4% compared to the first quarter 2009, and decreased 6% compared to the second quarter 2008. Customer churn for the second quarter 2009 of 1.90% increased compared to 1.68% for the first quarter 2009 and 1.17% for the second quarter 2008. New customers continued to be cautious in their purchasing decisions which resulted in ARPU values below historical levels. The higher churn in the 2009 period reflects the effect of the ongoing economic recession on the Company's commercial customer base.

Gross margin decreased 1% in the second quarter 2009 compared to the first quarter 2009, and increased by 25% compared to the second quarter 2008. The year-over-year improvement in gross margin primarily related to a 47% increase in the number of customers, and the Company's ability to add these customers onto its network at relatively low marginal cost.

Customer support expenses in the second quarter 2009 decreased 12% compared to the first quarter 2009, and decreased less than 1% compared to the second quarter 2008. The quarter-over-quarter decrease relates to lower payroll expenses as the Company continues to focus on cost control.

Sales and marketing expenses in the second quarter 2009 decreased 12% compared to the first quarter 2009, and decreased 31% compared to the second quarter 2008. The decreases are primarily related to lower department headcount which averaged 100, 102, and 130 in the second quarter 2009, first quarter 2009, and second quarter 2008, respectively. The Company continues to optimize its sales and marketing strategy, including the enhanced use of Internet-based marketing programs which has both increased qualified leads and enabled the Company to reduce headcount. Sales and marketing headcount includes marketing, direct sales which includes account executives and sales managers, and indirect sales which includes sales operations, support and administration.

General and administrative expenses increased 4% in the second quarter 2009 compared to the first quarter 2009, and decreased 11% compared to the second quarter 2008. The year-over-year decrease of 11% is attributable to lower professional fees of approximately $100,000 and stock-based compensation of approximately $110,000.

Net loss decreased 13% in the second quarter 2009 compared to the first quarter 2009, and decreased 44% compared to the second quarter 2008. The 13% sequential improvement reflects the positive effect of an 8% increase in revenues and a 1% decrease in operating expenses. The year-over-year improvement of 44% is attributable to a 47% increase in revenues and an 11% decrease in operating expenses.

Operating Outlook and Guidance:

    --  Revenues for the third quarter 2009 are expected to range between $3.85
        million to $3.95 million

    --  Adjusted EBITDA loss for the third quarter 2009 is expected to range
        between $0.5 million to $0.6 million, excluding $0.1 million that the
        Company expects to spend related to efforts to secure grants under the
        U.S. Government's Broadband Stimulus program

Non-GAAP Measures

The terms "Adjusted EBITDA," "Churn," "Churn rate," "ARPU," and "Market Cash Flow" are measurements used by Towerstream to monitor business performance and are not recognized measures under generally accepted accounting principles ("GAAP"). Accordingly, investors are cautioned in using or relying upon these measures as alternatives to recognized GAAP measures. Our methods of calculating these measures may differ from other issuers and, accordingly, may not be comparable to similar measures presented by other issuers.

We focus on adjusted EBITDA as a principle indicator of the operating performance of our business. EBITDA represents net income (loss) before interest, income taxes, depreciation and amortization. We define adjusted EBITDA as net income (loss) before interest, income taxes, depreciation and amortization expenses, excluding, when applicable, stock-based compensation, gain or loss on disposal of property and equipment, gain or loss on derivative instruments, and other non-operating income or expenses. Adjusted EBITDA for a market also excludes corporate overhead expenses and other centralized operating costs. We believe that adjusted EBITDA trends are valuable indicators of our markets' relative performance, and of whether our markets are able to produce sufficient market cash flow to fund working capital and capital expenditure needs.

The terms "Churn" and "Churn rate" refer to the percent of revenue lost on a monthly basis from customers disconnecting from our network or reducing the amount of their bandwidth. The term "ARPU" refers to the monthly average revenue per user, or customer, being generated from those customers under contract at the end of each indicated period. We calculate ARPU by dividing our monthly recurring revenue ("MRR") at the end of a period by the number of customers generating that MRR. ARPU of new customers is calculated in the same manner but only includes new customers who entered into contracts during the indicated period. Market Cash Flow represents the amount of cash generated in a market after deducting a market's direct operating expenses from that market's revenues. Market Cash Flow does not include (i) centralized operating costs which support all markets collectively or (ii) any network related capital expenditures incurred in a market.

The Non-GAAP measure, adjusted EBITDA, has been reconciled to Net loss as follows:

All amounts are in thousands except per share amounts

                                                Three months ended
                                       6/30/2009    3/31/2009*    6/30/2008*
    Reconciliation of Non-GAAP
     to GAAP:
    Adjusted EBITDA                        $(660)     $(1,084)      $(2,679)
    Interest expense                        (186)        (184)         (106)
    Interest income                            9           13           148
    Loss on derivative financial
     instruments                             (34)         (41)            -
    Loss on property and equipment           (18)         (16)           (4)
    Depreciation                            (982)        (947)         (753)
    Stock-based compensation                (229)        (157)         (336)
    Net loss                             $(2,100)     $(2,416)      $(3,730)

    * Certain reclassifications of prior period amounts have been made to
      conform to current year presentation.



    Summary Condensed Consolidated Financial Statements

                                              (Unaudited)    (Audited)
                                                June 30,    December 31,
                                                 2009           2008
    Assets
    Current Assets
      Cash and cash equivalents                 $20,188        $24,740
      Accounts receivable, net                      340            280
      Other                                         305            319
        Total Current Assets                     20,833         25,339

    Property and equipment, net                  12,953         12,891

    Other assets                                  1,162          1,058

        Total Assets                             34,948         39,288

    Liabilities and Stockholders' Equity
    Current Liabilities
      Accounts payable                              882          1,395
      Accrued expenses                              820            861
      Deferred revenues                             979            986
      Short-term debt, net of discount            2,613          2,607
      Derivative liabilities                         12              -
      Other                                          69             78
        Total Current Liabilities                 5,375          5,927

    Long-Term Liabilities
      Derivative liabilities                        152              -
      Other                                         317            354
        Total Long-Term Liabilities                 469            354
        Total Liabilities                         5,844          6,281

    Stockholders' Equity
      Common stock                                   35             34
      Additional paid-in-capital                 54,711         54,852
      Accumulated deficit                       (25,642)       (21,879)
        Total Stockholders' Equity               29,104         33,007
        Total Liabilities and
         Stockholders' Equity                   $34,948        $39,288



                                      (Unaudited)             (Unaudited)
                                   Three months ended       Six months ended
                                        June 30,                June 30,
                                  2009            2008      2009        2008

    Revenues                    $3,673          $2,494    $7,090      $4,576

    Operating Expenses
      Cost of revenues
       (exclusive of
       depreciation)               915             993     1,741       1,927
      Depreciation                 982             753     1,930       1,429
      Customer support
       services                    484             485     1,034         938
      Sales and marketing        1,385           2,020     2,961       3,794
      General and
       administrative            1,796           2,015     3,518       3,975
        Total Operating
         Expenses                5,562           6,266    11,184      12,063
        Operating Loss          (1,889)         (3,772)   (4,094)     (7,487)
    Other Income (Expense)
      Interest income                9             148        22         437
      Interest expense            (186)           (106)     (369)       (289)
      Loss on derivative
       financial instruments       (34)              -       (75)          -
         Total Other Income
          (Expense)               (211)             42      (422)        148
         Net Loss              $(2,100)        $(3,730)  $(4,516)    $(7,339)

        Net loss per common
         share                  $(0.06)         $(0.11)   $(0.13)     $(0.21)
        Net loss per common
         share excluding
         stock-based
         compensation           $(0.05)         $(0.10)   $(0.12)     $(0.20)
        Weighted average
         common shares
         outstanding - basic
         and diluted            34,595          34,556    34,591      34,526



                                                          (Unaudited)
                                                    Six months ended June 30,
                                                        2009          2008

    Cash Flows From Operating Activities
      Net loss                                       $(4,516)       $(7,339)
      Non-cash adjustments:
        Depreciation                                   1,930          1,429
        Stock-based compensation                         386            510
        Other                                            366            340
      Changes in operating assets and liabilities       (662)           (64)
    Net Cash Used In Operating Activities             (2,496)        (5,124)

    Cash Flows From Investing Activities
      Acquisitions of property and equipment          (2,026)        (3,888)
      Other                                               (3)           (13)
    Net Cash Used In Investing Activities             (2,029)        (3,901)

    Cash Flows From Financing Activities
      Repayment of capital leases                        (19)           (25)
      Repayment of short-term debt                        (8)             -
    Net Cash Used In Financing Activities                (27)           (25)

    Net Decrease In Cash and Cash Equivalents         (4,552)        (9,050)

    Cash and Cash Equivalents - Beginning             24,740         40,757
    Cash and Cash Equivalents - Ending               $20,188        $31,707



    Market data for the three months ended June 30, 2009
    (in thousands)

                                                                 Adjusted
                                Cost of   Gross       Operating   Market
    Market            Revenues  Revenues  Margin        Costs     EBITDA
    New York           $1,322     $228    $1,094  83%    $279      $815
    Boston              1,008      166       842  84%     238       604
    Los Angeles           442       82       360  81%     238       122
    San Francisco         235       56       179  76%      99        80
    Providence/Newport    126       37        89  71%      19        70
    Chicago               220       87       133  60%     116        17
    Miami                 150       66        84  56%     110       (26)
    Seattle               107       59        48  45%      87       (39)
    Dallas-Fort Worth      63       60         3   5%     118      (115)
    Total              $3,673     $841    $2,832  77%  $1,304    $1,528

    Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure

    Adjusted market EBITDA                                       $1,528
    Centralized operating costs                                    (639)
    Corporate expenses                                           (1,567)
    Depreciation                                                   (982)
    Stock-based compensation                                       (229)
    Other income (expense)                                         (211)
    Net loss                                                    $(2,100)



    Market data for six months ended June 30, 2009
    (in thousands)

                                                                  Adjusted
                                Cost of   Gross        Operating   Market
    Market            Revenues  Revenues  Margin         Costs     EBITDA
    New York           $2,559     $426    $2,133   83%    $626    $1,507
    Boston              1,969      335     1,634   83%     441     1,193
    Los Angeles           848      149       699   82%     510       189
    San Francisco         459      100       359   78%     228       131
    Providence/Newport    267       74       193   72%      71       122
    Chicago               422      168       254   60%     243        11
    Miami                 260      126       134   52%     217       (83)
    Seattle               204      126        78   38%     187      (109)
    Dallas-Fort Worth     102      114       (12) (12%)    243      (255)
    Total              $7,090   $1,618    $5,472   77%  $2,766    $2,706

    Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure

    Adjusted market EBITDA                                        $2,706
    Centralized operating costs                                   (1,352)
    Corporate expenses                                            (3,132)
    Depreciation                                                  (1,930)
    Stock-based compensation                                        (386)
    Other income (expense)                                          (422)
    Net loss                                                     $(4,516)

Conference Call and Webcast

A conference call led by President and Chief Executive Officer, Jeff Thompson, and Chief Financial Officer, Joseph Hernon, will be held on August 5, 2009 at 5:00 p.m. EDT to review results and provide an update on business developments.

Interested parties may participate in the conference by dialing 888-679-8033 or 617-213-4846 (for international callers) using pass code 70974945. A telephonic replay of the conference may be accessed approximately three hours after the call through August 12, 2009 at 11:59 p.m. EDT by dialing 888-286-8010 or 617-801-6888 (for international callers) using pass code 78771672.

The call will also be webcast and can be accessed in a listen-only mode on the Company's website at http://ir.towerstream.com/events.cfm.

Towerstream's wireless broadband solution network delivers high-speed Internet access supporting VoIP, bandwidth on demand, wireless redundancy, VPNs, disaster recovery, bundled data, and video services, and can be delivered in days. Unlike cable Internet and DSL, Towerstream connections are symmetrical, which means that the upload and download speeds are identical. This creates a more stable connection, suitable for VoIP and web hosting, as well as many other business applications. Companies utilizing multiple appliances simultaneously, such as streaming video and VoIP, can prioritize their bandwidth to secure mission-critical activities. All of Towerstream's products are backed by its Service Level Agreement (SLA) and the ability to be up and running within a week. Towerstream currently serves businesses of all sizes in New York, Boston, Los Angeles, Chicago, the San Francisco Bay Area, Miami, Seattle, Dallas-Fort Worth and Providence/Newport, RI.

For more information, visit www.towerstream.com.

About Towerstream Corporation

Towerstream is a leading fixed WiMAX service provider in the U.S., delivering high-speed Internet access to businesses. Founded in 2000, the Company has established networks in nine markets including New York City, Boston, Los Angeles, Chicago, the San Francisco Bay Area, Miami, Seattle, Dallas-Fort Worth, and the greater Providence area where the Company is based. The Company was the first carrier selected to join the WiMAX Forum to assist leading vendors in establishing industry compliance with international broadband wireless access standards and cross-vendor interoperability. Towerstream was awarded two 2008 Telephony Innovation Awards for Most Innovative Broadband Wireless Service and Most Innovative Small Business Service and the Best of WiMAX World 2008 Service Provider Deployment Award for its New York City network.

Safe Harbor

Certain statements contained in this press release are "forward-looking statements" within the meaning of applicable federal securities laws, including, without limitation, anything relating or referring to future financial results and plans for future business development activities, and are thus prospective. Forward-looking statements are inherently subject to risks and uncertainties some of which cannot be predicted or quantified based on current expectations. Such risks and uncertainties include, without limitation, the risks and uncertainties set forth from time to time in reports filed by the Company with the Securities and Exchange Commission. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Consequently, future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements contained herein. The Company undertakes no obligation to correct or update any forward-looking statements, whether as a result of new information, future events or otherwise.

    CONTACT:  ICR Inc.
INVESTOR CONTACT:
Seth Potter
646-277-1230
Seth.Potter@icrinc.com
MEDIA CONTACT: Amanda Lordy Dukas Public Relations 212-704-7385 amanda@dukaspr.com

SOURCE Towerstream Corporation

 
http://www.towerstream.com

Copyright © 2009 PR Newswire. All rights reserved