Towerstream Corporation
Mar 17, 2010

Towerstream Reports Fourth Quarter and Full Year 2009 Results

Average Revenues From New Customers Increased 5% and Customer Churn Decreased 16% for the Fourth Quarter

MIDDLETOWN, R.I., Mar 17, 2010 (GlobeNewswire via COMTEX News Network) -- Towerstream (Nasdaq:TWER), a leading wireless Internet service provider currently operating in ten major metropolitan areas, announced results for the fourth quarter and year ended December 31, 2009.

Fourth Quarter Operating Highlights:

  --  Revenues increased 26% to $4.0 million during the fourth quarter 2009
      compared to the same period last year
  --  ARPU for new customers increased 5% to $561 in the fourth quarter 2009
      compared to $536 in the third quarter 2009
  --  Tenth market, Philadelphia, launched in December 2009
  --  Customer churn for the fourth quarter 2009 was 1.43% compared to 1.71%
      during the third quarter 2009
  --  Adjusted EBITDA improved to a loss of $0.3 million in the fourth quarter
      2009 compared to a loss of $0.5 million in the third quarter 2009 and a
      loss of $1.5 million during the same period last year
  --  Adjusted Market EBITDA increased 25% to $2.0 million in the fourth
      quarter 2009 from $1.6 million in the third quarter 2009
  --  Gross margin remained strong at 75% during the fourth quarter 2009 which
      represented a 9% increase from 69% in the fourth quarter 2008


Management Comments:

"I am very pleased with the Company's solid execution throughout the year given our ability to maintain steady recurring revenue growth and improve our churn rate in a tough operating environment," stated Jeff Thompson, President and Chief Executive Officer. "We entered the new year with momentum and believe we are well positioned to benefit from the improving economy as we execute our growth strategy both organically and through acquisitions. I am excited about the recently announced acquisition of Sparkplug's Chicago and Nashville business assets, as it will allow the Company to increase its scale and achieve Adjusted EBITDA profitability once fully integrated. Towerstream will continue to look for value opportunities that can speed our growth and expand our coverage."

"We continued our steady march towards Adjusted EBITDA profitability during the fourth quarter," stated Joseph Hernon, Chief Financial Officer. "Cash flow generated by our market operations increased 25% to $2.0 million as we continue to add customers onto our network at low marginal costs. We maintained tight controls over capital expenditures in the fourth quarter and were able to beat our 2009 target of $5.0 million."

Selected Financial Data and Key Operating Metrics:

  (All dollars are in thousands except ARPU)

                                                 (Unaudited)
                                              Three months ended

                              12/31/2009          9/30/2009          12/31/2008*
                             -----------  -------------------------  -----------
  Selected Financial Data
  Revenues                       $ 4,042                    $ 3,783    $   3,210
  Gross margin                       75%                        75%          69%
  Operating expenses (1)           5,608                      5,556        5,936
  Operating loss (1)             (1,566)                    (1,773)      (2,726)
  Net loss (1)                   (1,972)                    (2,138)      (2,823)
  Adjusted EBITDA (2)              (263)                      (530)      (1,526)

  Capital expenditures           $ 1,165                    $ 1,657      $ 1,755

  Key Operating Metrics
  Churn rate (2)                   1.43%                      1.71%        1.23%
  ARPU (2)                         $ 715                      $ 731        $ 828
  ARPU of new customers (2)          561                        536          773

                                                  (Audited)
                                                 Years ended

                                   12/31/2009                  12/31/2008*
                             ----------------------     ------------------------
  Selected Financial Data
  Revenues                                $  14,915                  $    10,656
  Gross margin                                  75%                          63%
  Operating expenses (1)                     22,347                       24,103
  Operating loss (1)                        (7,432)                     (13,447)
  Net loss (1)                              (8,625)                     (13,377)
  Adjusted EBITDA (2)                       (2,537)                      (9,241)

  Capital expenditures                    $   4,848                     $  7,684

  Key Operating Metrics
  Churn rate (2)                              1.67%                        1.24%
  ARPU (2)                                  $   715                        $ 828
  ARPU of new customers (2)                     546                          806

  * Certain reclassifications of prior period amounts have been made to conform
   to current year presentation.
  (1) Includes stock-based compensation of $227, $189 and $202, respectively and
   $803 and $899, 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

Fourth Quarter 2009 Results of Operations

Revenues for the fourth quarter 2009 increased 7% from the third quarter 2009 and increased 26% compared to the fourth quarter 2008. These increases were driven by growth in our customer base from approximately 1,300 customers at the end of the fourth quarter 2008 to approximately 1,900 at the end of the fourth quarter 2009.

ARPU of new customers in the fourth quarter 2009 increased 5% compared to the third quarter 2009 and decreased 27% compared to the fourth quarter 2008. ARPU of all customers in the fourth quarter 2009 decreased 2% compared to the third quarter 2009 and decreased 14% compared to the fourth quarter 2008. New customers continued to be cautious in their purchasing decisions which resulted in ARPU values below historical levels.

Customer churn during the fourth quarter 2009 was 1.43% compared to 1.71% during the third quarter 2009 and 1.23% during the fourth quarter 2008. The sequential improvement from third quarter 2009 represents a concerted effort to improve customer service and reduce churn. The higher churn in the fourth quarter 2009 compared to the fourth quarter 2008 reflects the effect of the ongoing economic recession on the Company's commercial customer base.

Gross margin remained stable in the fourth quarter 2009 compared to the third quarter 2009 and increased 9% compared to the fourth quarter 2008. The year-over-year improvement in gross margin primarily related to a 43% increase in the number of customers, and the Company's ability to add these customers onto its network at relatively low marginal cost.

Sales and marketing expenses in the fourth quarter 2009 decreased 13% compared to the third quarter 2009 and decreased 30% compared to the fourth quarter 2008. The sequential decrease from the third quarter 2009 primarily related to a 13% decrease in payroll and commissions expense. The decrease from fourth quarter 2008 is related to lower department headcount which averaged 66 in the fourth quarter 2009 and 106 in fourth quarter 2008. During 2009, the Company's sales and marketing strategy evolved towards 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 6% in the fourth quarter 2009 compared to the third quarter 2009 and increased 2% compared to the fourth quarter 2008. Higher payroll and stock-based compensation expense represented 73% of the sequential increase.

Net loss decreased 8% in the fourth quarter 2009 compared to the third quarter 2009 and decreased 30% compared to the fourth quarter 2008. The sequential improvement reflects a 7% increase in revenues, partially offset by a 1% increase in operating expenses. The year-over-year improvement of 30% is attributable to a 26% increase in revenues and a 6% decrease in operating expenses.

2009 Full Year Results of Operations

Revenues for 2009 increased 40% compared to 2008. This increase primarily related to growth in our customer base from approximately 1,300 customers at the end of 2008 to approximately 1,900 at the end of 2009.

ARPU of new customers in 2009 decreased 32% compared to 2008. ARPU of all customers in 2009 decreased 14% compared to 2008. New customers continued to be cautious in their purchasing decisions which resulted in ARPU values for new customers below historical levels. This caused a decrease in ARPU for all customers.

Customer churn for 2009 of 1.67% increased compared to 1.24% for 2008. The higher churn reflects the effect of the ongoing economic recession on the Company's commercial customer base.

Gross margin increased by 19% in 2009 compared to 2008. The improvement primarily related to a 43% 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 2009 increased 7% compared to 2008. The increase reflects staffing additions and other costs incurred to support our growing customer base. The Company remains focused on maintaining high levels of customer service and reducing churn.

Sales and marketing expenses in 2009 decreased 26% compared to 2008. The decrease is primarily related to lower department headcount which averaged 82 in 2009 and 123 in 2008.

General and administrative expenses decreased 7% in 2009 compared to 2008. Lower stock-based compensation charges, taxes, and professional fees represented 78% of the decrease.

Net loss decreased 36% in 2009 compared to 2008. The decrease is related to a 40% increase in revenues and a 7% decrease in operating expenses.

Operating Outlook and Guidance:

  --  Revenues for the first quarter 2010 are expected to range between $4.2
      million to $4.3 million


  --  Adjusted EBITDA loss for the first quarter 2010 is expected to range
      between $0.1 million to $0.2 million


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 principal 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 costs. We believe that Adjusted EBITDA trends are insightful indicators of our markets' relative performance, and 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 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

                                  12/31/2009           9/30/2009          12/31/2008*
                                 ------------  -------------------------  -----------
  Reconciliation of Non-GAAP to
   GAAP:
  Adjusted EBITDA                     $ (263)                    $ (530)    $ (1,526)
  Interest expense                      (187)                      (185)        (115)
  Interest income                           1                          4           18
  Loss on derivative financial
   instruments                          (219)                      (184)           --
  Loss on property and
   equipment                              (7)                       (18)         (62)
  Depreciation                        (1,070)                    (1,036)        (936)

  Stock-based compensation              (227)                      (189)        (202)
                                 ------------  -------------------------  -----------

  Net loss                          $ (1,972)                  $ (2,138)    $ (2,823)
                                 ------------  -------------------------  -----------



                                                      Years ended

                                        12/31/2009                  12/31/2008*
                                 -----------------------     ------------------------
  Reconciliation of Non-GAAP to
   GAAP:
  Adjusted EBITDA                            $   (2,537)                  $   (9,241)
  Interest expense                                 (740)                        (509)
  Interest income                                     27                          578
  Loss on derivative financial
   instruments                                     (479)                           --
  Loss on property and
   equipment                                        (58)                         (83)
  Depreciation                                   (4,035)                      (3,223)

  Stock-based compensation                         (803)                        (899)
                                 -----------------------     ------------------------

  Net loss                                    $  (8,625)                  $  (13,377)
                                 -----------------------     ------------------------

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


  Summary Condensed Consolidated Financial
   Statements
                                  (Audited)

                              December   December
                                31,        31,
                                2009       2008
                             ---------  ---------
  Assets
  Current Assets
   Cash and cash
    equivalents              $  14,041   $ 24,740
   Accounts receivable, net        403        280

   Other                           258        319
                             ---------  ---------
    Total Current Assets        14,702     25,339

  Property and equipment,
   net                          13,635     12,891


  Other assets                   1,166      1,058
                             ---------  ---------


    Total Assets                29,503     39,288
                             =========  =========

  Liabilities and
   Stockholders' Equity
  Current Liabilities
   Accounts payable              1,056      1,395
   Accrued expenses              1,086        861
   Deferred revenues             1,029        986
   Short-term debt, net of
    discount                        --      2,607

   Other                            79         78
                             ---------  ---------
    Total Current
     Liabilities                 3,250      5,927

  Long-Term Liabilities
   Derivative liabilities          567         --

   Other                           275        354
                             ---------  ---------
    Total Long-Term
     Liabilities                   842        354
                             ---------  ---------
    Total Liabilities            4,092      6,281

  Stockholders' Equity
   Common stock                     35         34
   Additional
    paid-in-capital             55,127     54,852

   Accumulated deficit        (29,751)   (21,879)
                             ---------  ---------
    Total Stockholders'
     Equity                     25,411     33,007
                             ---------  ---------
    Total Liabilities and
     Stockholders' Equity     $ 29,503  $  39,288
                             =========  =========


                                                  (Unaudited)                                      (Audited)
                                               Three months ended                                  Years ended
                                                 December 31,                                     December 31,

                                         2009                  2008                            2009                     2008
                                  -----------------   -----------------------   ---------------------------------   ------------

 Revenues                                   $ 4,042                   $ 3,210                            $ 14,915       $ 10,656

 Operating Expenses
  Cost of revenues (exclusive of
   depreciation)                              1,018                       982                               3,690          3,891
  Depreciation                                1,070                       936                               4,035          3,223
  Customer support services                     555                       566                               2,133          1,997
  Sales and marketing                         1,205                     1,725                               5,546          7,536

  General and administrative                  1,760                     1,727                               6,943          7,456
                                  -----------------   -----------------------   ---------------------------------   ------------

   Total Operating Expenses                   5,608                     5,936                              22,347         24,103
                                  -----------------   -----------------------   ---------------------------------   ------------

   Operating Loss                           (1,566)                   (2,726)                             (7,432)       (13,447)
                                  -----------------   -----------------------   ---------------------------------   ------------
 Other (Expense) Income
  Interest income                                 1                        18                                  27            578
  Interest expense                            (187)                     (115)                               (740)          (509)
  Loss on derivative financial
   instruments                                (219)                        --                               (479)             --

  Other, net                                    (1)                        --                                 (1)              1
                                  -----------------   -----------------------   ---------------------------------   ------------

   Total Other (Expense) Income               (406)                      (97)                             (1,193)             70
                                  -----------------   -----------------------   ---------------------------------   ------------

   Net Loss                               $ (1,972)                 $ (2,823)                           $ (8,625)     $ (13,377)
                                  =================   =======================   =================================   ============
   Net loss per common share               $ (0.06)                  $ (0.08)                            $ (0.25)       $ (0.39)
   Net loss per common share
    excluding
   stock-based compensation                $ (0.05)                  $ (0.08)                            $ (0.23)       $ (0.36)
   Weighted average common shares
   outstanding -- basic and
    diluted                                  34,634                    34,567                              34,607         34,544


                                                                                            (Audited)
                                                                                    Years ended December 31,

                                                                                2009                            2008
                                                                 ---------------------------------------------------------------
 Cash Flows From Operating Activities
  Net loss                                                                               $ (8,625)                    $ (13,377)
  Non-cash adjustments:
   Depreciation                                                                              4,035                         3,223
   Stock-based compensation                                                                    803                           899
   Other                                                                                     1,079                           555

  Changes in operating assets and liabilities                                                (272)                           827
                                                                 ---------------------------------   ---------------------------

 Net Cash Used In Operating Activities                                                     (2,980)                       (7,873)
                                                                 ---------------------------------   ---------------------------

 Cash Flows From Investing Activities
  Acquisitions of property and equipment                                                   (4,848)                       (7,684)

  Other                                                                                       (96)                         (412)
                                                                 ---------------------------------   ---------------------------
 Net Cash Used In Investing Activities                                                     (4,944)                       (8,096)

 Cash Flows From Financing Activities
  Repayment of capital leases                                                                 (25)                          (48)

  Repayment of short-term debt                                                             (2,750)                            --
                                                                 ---------------------------------   ---------------------------

 Net Cash Used In Financing Activities                                                     (2,775)                          (48)
                                                                 ---------------------------------   ---------------------------

 Net Decrease In Cash and Cash Equivalents                                                (10,699)                      (16,017)

 Cash and Cash Equivalents -- Beginning                                                     24,740                        40,757
                                                                 ---------------------------------   ---------------------------

 Cash and Cash Equivalents -- Ending                                                      $ 14,041                      $ 24,740
                                                                 =================================   ===========================


  Market data for the three months ended December 31, 2009
  (in thousands)

                                      Cost of                          Operating      Adjusted Market
  Market                Revenues    Revenues(1)    Gross Margin(1)       Costs             EBITDA
  -------------------  -----------  -----------  -------------------  ------------  -------------------
  New York                 $ 1,353        $ 247    $ 1,106       82%         $ 295                $ 811
  Boston                     1,018          163        855       84%           153                  702
  Los Angeles                  585          104        481       82%           264                  217
  San Francisco                273           68        205       75%            77                  128
  Providence/Newport           135           38         97       72%            42                   55
  Chicago                      275          131        144       52%           104                   40
  Miami                        179           67        112       63%            72                   40
  Seattle                      115           54         61       53%            29                   32

  Dallas-Fort Worth            109           84         25       23%            62                 (37)
                       -----------  -----------  ---------  --------  ------------  -------------------

  Total                    $ 4,042        $ 956    $ 3,086       76%       $ 1,098              $ 1,988
                       -----------  -----------  ---------  --------  ------------  -------------------

  Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure
  --------------------------------------------------------------------------------

  Adjusted market EBITDA                                                                        $ 1,988
  Centralized costs (1)                                                                           (724)
  Corporate expenses                                                                            (1,533)
  Depreciation                                                                                  (1,070)
  Stock-based compensation                                                                        (227)

  Other income (expense)                                                                          (406)
                                                                                              ---------

  Net loss                                                                                    $ (1,972)
                                                                                              =========

  Market data for the year ended December 31, 2009
  (in thousands)

                                      Cost of                         Operating      Adjusted Market
  Market                Revenues    Revenues(1)   Gross Margin(1)       Costs             EBITDA
  -------------------  -----------  -----------  ------------------  ------------  -------------------
  New York                 $ 5,218        $ 929    $ 4,289      82%       $ 1,247              $ 3,042
  Boston                     3,983          656      3,327      84%           735                2,592
  Los Angeles                1,930          340      1,590      82%         1,043                  547
  San Francisco                984          218        766      78%           414                  352
  Providence/Newport           530          151        379      72%           200                  179
  Chicago                      951          391        560      59%           460                  100
  Miami                        590          259        331      56%           382                 (51)
  Seattle                      431          233        198      46%           259                 (61)

  Dallas-Fort Worth            298          261         37      12%           404                (367)
                       -----------  -----------  ---------  -------  ------------  -------------------

  Total                   $ 14,915      $ 3,438   $ 11,477      77%       $ 5,144              $ 6,333
                       -----------  -----------  ---------  -------  ------------  -------------------

  Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure
  -------------------------------------------------------------------------------

  Adjusted market EBITDA                                                                       $ 6,333
  Centralized costs (1)                                                                        (2,787)
  Corporate expenses                                                                           (6,140)
  Depreciation                                                                                 (4,035)
  Stock-based compensation                                                                       (803)

  Other income (expense)                                                                       (1,193)
                                                                                             ---------

  Net loss                                                                                   $ (8,625)
                                                                                             =========

  (1) Certain expenses are reported as Cost of Revenues for financial statement purposes but are
   included in Centralized costs in the Market Data table because they are not specific to any market.
   These costs totaled $62 and $252 for the three months and year ended December 31, 2009,
   respectively.

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 March 17, 2010 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 877-755-7423 or 678-894-3069 (for international callers). A telephonic replay of the conference may be accessed approximately one hour after the call through March 24, 2010 at 11:59 p.m. EDT by dialing 800-642-1687 or 706-645-9291 (for international callers) using pass code 56447159.

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/eventdetail.cfm?eventid=77896

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, Philadelphia and Providence/Newport, RI.

For more information, visit www.towerstream.com.

About Towerstream Corporation

Towerstream is a leading wireless Internet service provider in the U.S., delivering high-speed Internet access to businesses. Founded in 2000, the Company has established networks in ten markets including New York City, Boston, Los Angeles, Chicago, the San Francisco Bay Area, Miami, Seattle, Dallas-Fort Worth, Philadelphia 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.

The Towerstream Corporation logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=6570

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.

This news release was distributed by GlobeNewswire, www.globenewswire.com

SOURCE: Towerstream Corporation

CONTACT:  ICR Inc.
Investor Contact:
Seth Potter
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