Towerstream Corporation
Aug 15, 2011

Towerstream Reports Second Quarter 2011 Results

MIDDLETOWN, R.I., Aug. 15, 2011 (GLOBE NEWSWIRE) -- Towerstream Corporation (Nasdaq:TWER), a leading 4G service provider delivering high-speed wireless Internet access to businesses in 12 major metropolitan areas in the U.S., announced results for the second quarter ended June 30, 2011.

Second Quarter Operating Highlights

Management Comments

"I said on the last call that I thought we would have a carrier contract by the time we reported the second quarter 2011 results. We are all disappointed that has not happened as of August 15th, but I am not disappointed with the progress we have made with the carriers and I am very confident that we will reach our goal on this front in the very near future. Additionally, we are very excited to have our first customer on our Wi-Fi network just 30 days after launching the network for business," said Jeff Thompson, Chief Executive Officer.

"We are pleased to close our third acquisition in the past fifteen months," stated Joseph Hernon, Chief Financial Officer. "Our acquisition program accelerates our growth and the gain recognized on the One Velocity transaction indicates the compelling values at which we are acquiring these assets."

Selected Financial Data and Key Operating Metrics
(All dollars are in thousands except ARPU)
       
  (Unaudited)
  Three months ended
  6/30/2011 3/31/2011 6/30/2010
Selected Financial Data      
Revenues $6,581 $5,953 $4,869
Gross margin 72% 75% 75%
Adjusted gross margin excluding Wi-Fi offload program expenses 74% 75% 75%
Depreciation and amortization 2,213 1,975 1,454
Core operating expenses (1)(2) 4,379 3,986 3,893
Operating loss (1) (1,857) (1,514) (1,685)
Gain on business acquisition 564  -- 356
Net loss (1) (1,294) (1,513) (1,306)
Adjusted EBITDA (2) 536 593 46
Non-recurring expenses 135 49 245
Wi-Fi offload program 404 121 --
Adjusted EBITDA excluding non-recurring and       
Wi-Fi offload program expenses (2)  1,075 763 291
Capital expenditures      
Wireless broadband  $2,077 $1,532 $1,173
Wi-Fi offload program 1,827 1,088 605
       
Key Operating Metrics
Churn rate (2) 1.56% 1.56% 1.15%
ARPU (2) $703 $688 $671
ARPU of new customers (2) 607 558 550
       
(1) Includes stock-based compensation of $141, $106 and $264, respectively.
(2) See Non-GAAP Measures below for a definition and reconciliation of Adjusted EBITDA, and definitions of Core Operating Expenses, Churn, ARPU and ARPU of new customers.

Operating Outlook and Guidance

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, other non-operating income or expenses as well as gain or loss on (i) disposal of property and equipment, (ii) nonmonetary transactions, and (iii) business acquisitions. Adjusted Market EBITDA also excludes corporate overhead expenses and other centralized costs. We believe that Adjusted Market 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 term "Core Operating Expenses" includes customer support services, sales and marketing, and general and administrative expenses, and excludes cost of revenues, depreciation and amortization.

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, excluding non-recurring expenses and Wi-Fi offload program expenses, has been reconciled to Net loss as follows:

(All dollars are in thousands) 
       
  Three months ended
  6/30/2011 3/31/2011 6/30/2010
Reconciliation of Non-GAAP to GAAP:      
Adjusted EBITDA, excluding non-recurring expenses and Wi-Fi offload program expenses $1,075 $763 $291
Depreciation and amortization (2,213) (1,975) (1,454)
Non-recurring expenses, primarily acquisition-related (135) (49) (245)
Wi-Fi offload program expenses (404) (121) --
Stock-based compensation (141) (106) (264)
Loss on property and equipment (30) (18) (13)
Loss on nonmonetary transactions (9) (8) --
Interest expense (2) (3) --
Gain on business acquisition 564 -- 356
Other income (expense), net (3) (2) 22
Interest income 4 6 1
Net loss $(1,294) $(1,513) $(1,306)
 
Summary Condensed Consolidated Financial Statements
(All dollars are in thousands except per share amounts)
         
Statement of Operations  (Unaudited) (Unaudited)
  Three months ended June 30, Six months ended June 30,
  2011 2010 2011 2010
         
Revenues $6,581 $4,869 $12,534 $9,113
         
Operating Expenses        
Cost of revenues (exclusive of depreciation) 1,846 1,207 3,352 2,282
Depreciation and amortization 2,213 1,454 4,188 2,555
Customer support services 733 672 1,504 1,250
Sales and marketing  1,381 1,314 2,721 2,547
General and administrative 2,265 1,907 4,140 3,716
Total Operating Expenses 8,438 6,554 15,905 12,350
Operating Loss (1,857) (1,685) (3,371) (3,237)
Other Income (Expense)        
Gain on business acquisition 564 356 564 356
Interest income 4 1 10 1
Interest expense (2) -- (5) --
Other income (expense), net (3) 22 (4) 42
Total Other Income (Expense) 563 379 565 399
Net Loss $(1,294) $(1,306) $(2,806) $(2,838)
         
Net loss per common share $(0.03) $(0.04) $(0.07) $(0.08)
Weighted average common shares
outstanding — basic and diluted
42,639 34,915 42,426 34,792

Analysis of Second Quarter Results of Operations

Revenues for the second quarter 2011 increased 11% from the first quarter 2011 and increased 35% compared to the second quarter 2010. These increases were driven by a 27% growth in our customer base from approximately 2,500 customers at the end of the second quarter 2010 to approximately 3,100 at the end of the second quarter 2011.

ARPU of new customers increased 9% in the second quarter 2011 compared to the first quarter 2011 and increased 10% compared to the second quarter 2010. New higher ARPU point-to-point customers continued to increase in the second quarter 2011. ARPU of all customers in the second quarter 2011 increased 2% compared to the first quarter 2011 and increased 5% compared to the second quarter 2010.

Customer churn remained consistent at 1.56% for both the second and first quarters of 2011 compared to 1.15% during the second quarter 2010. Our churn rate remains within our targeted range of 1.4% to 1.7% and below industry averages.

Depreciation expense increased 13% in the second quarter 2011 compared to the first quarter 2011 and increased 26% compared to the second quarter 2010.  The base of depreciable assets was 16% higher at the end of the second quarter 2011 as compared to the first quarter 2011 and 37% higher compared to the second quarter of 2010. The increased depreciable base reflects continued growth in the core business as well as spending on the Wi-Fi offload program and additions resulting from acquisitions.

Amortization expense increased 10% in the second quarter 2011 compared to the first quarter 2011 and increased greater than 100% compared to the second quarter 2010. The increase relates to customer based intangible assets recorded in connection with the acquisitions of Pipeline Wireless in the fourth quarter 2010 and One Velocity in the second quarter 2011.

Customer support expenses decreased 5% in the second quarter 2011 compared to the first quarter 2011 and increased 9% compared to the second quarter 2010. The year-over-year increase reflects staffing additions and other costs incurred to support a customer base which increased 27% over the one year period. 

Sales and marketing expenses increased 3% in the second quarter 2011 compared to the first quarter 2011 and increased 5% compared to the second quarter 2010. The increase related to higher commissions earned.

General and administrative expenses increased 21% in the second quarter 2011 compared to the first quarter 2011 and increased 19% compared to the second quarter 2010. Costs associated with the Wi-Fi offload program totaled approximately $231,000 in the second quarter 2011 compared to approximately $55,000 in the first quarter 2011 and zero in the second quarter 2010.

Capital expenditures totaled $3.9 million for the second quarter 2011 as compared to $2.6 million for the first quarter 2011 and $1.8 million for the second quarter 2010. The Company spent $1.8 million in the second quarter 2011 related to the construction of a Wi-Fi offload network, primarily in New York City, compared to $1.1 million in the first quarter 2011 and $0.6 million in the second quarter 2010.

Balance Sheet 
  (Unaudited) (Audited)
  June 30, 2011 December 31, 2010
Assets    
Current Assets    
Cash and cash equivalents $16,445 $23,173
Other  853 856
Total Current Assets 17,298 24,029
     
Property and equipment, net 20,864 15,266
     
Other assets 6,610 5,295
     
Total Assets 44,772 44,590
     
Liabilities and Stockholders' Equity    
Current Liabilities    
Accounts payable and accrued expenses 2,932 2,506
Deferred revenues and other 1,620 1,339
Total Current Liabilities 4,552 3,845
     
Long-Term Liabilities  651 724
Total Liabilities 5,203 4,569
     
Stockholders' Equity    
Common stock 43 42
Additional paid-in-capital 77,687 75,333
Accumulated deficit (38,161) (35,354)
Total Stockholders' Equity 39,569 40,021
Total Liabilities and Stockholders' Equity $44,772 $44,590
     
     
Statement of Cash Flows (Unaudited) Six months ended June 30,
  2011 2010
Cash Flows From Operating Activities    
Net loss $(2,806) $(2,838)
Non-cash adjustments:    
Depreciation & amortization 4,188 2,555
Stock-based compensation  247 458
Gain on business acquisition (564) (356)
Other  118 (72)
Changes in operating assets and liabilities (176) 59
Net Cash Provided By (Used In) Operating Activities 1,007 (50)
     
Cash Flows From Investing Activities    
Acquisitions of property and equipment (6,320) (3,152)
Acquisition of businesses (1,600) (1,170)
Other  (42) (3)
Net Cash Used In Investing Activities (7,962) (4,325)
     
Cash Flows From Financing Activities    
Repayment of capital leases (40)  --
Proceeds from stock issuances 267  --
Net Cash Provided By Financing Activities 227  --
     
Net Decrease In Cash and Cash Equivalents (6,728) (4,375)
Cash and Cash Equivalents — Beginning 23,173 14,041
Cash and Cash Equivalents — Ending  $16,445 $9,666
 
Market data for the three months ended June 30, 2011 
(All dollars are in thousands)
 
Market Revenues Cost of Revenues(1) Gross Margin(1) Operating Costs Adjusted Market EBITDA
Boston  $1,706 $399 $1,307 77% $275 $1,032
New York  1,503 464 1,039 69% 324 715
Los Angeles  1,048 192 856 82% 275 581
Chicago  917 295 622 68% 162 460
San Francisco 386 73 313 81% 97 216
Miami 342 80 262 77% 92 170
Las Vegas-Reno 189 76 113 60% 8 105
Seattle 138 54 84 61% 35 49
Providence-Newport 112 42 70 63% 24 46
Dallas-Fort Worth 180 79 101 56% 71 30
Philadelphia 44 18 26 59% 28 (2)
Nashville 16 12 4 25% 11 (7)
Total $6,581 $1,784 $4,797 73% $1,402 $3,395
             
Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure
             
Adjusted market EBITDA           $3,395
Centralized costs (1)           (774)
Corporate expenses           (2,124)
Depreciation and amortization           (2,213)
Stock-based compensation           (141)
Other income (expense)           563
Net loss            $ (1,294)
 
Market data for the three months ended June 30, 2010 
(All dollars are in thousands)
 
Market Revenues Cost of Revenues(1) Gross Margin(1) Operating Costs Adjusted Market EBITDA
New York  $1,459 $285 $1,174 80% $353 $821
Boston  1,084 171 913 84% 164 749
Los Angeles  754 137 617 82% 258 359
Chicago 650 203 447 69% 155 292
San Francisco  276 61 215 78% 81 134
Miami 255 85 170 67% 89 81
Providence-Newport 125 39 86 69% 28 58
Seattle 131 57 74 56% 32 42
Nashville 21 14 7 33% 7  --
Dallas-Fort Worth 113 82 31 27% 62 (31)
Philadelphia 1 13 (12) 0% 54 (66)
Total $4,869 $1,147 $3,722 76% $1,283 $2,439
             
Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure
             
Adjusted market EBITDA           $2,439
Centralized costs (1)           (763)
Corporate expenses           (1,643)
Depreciation and amortization           (1,454)
Stock-based compensation           (264)
Other income (expense)           379
Net loss            $ (1,306)
 
Market data for the six months ended June 30, 2011 
(All dollars are in thousands)
             
Market Revenues Cost of Revenues(1) Gross Margin(1) Operating Costs Adjusted Market EBITDA
Boston  $3,359 $794 $2,565 76% $497 $2,068
New York  2,951 804 2,147 73% 656 1,491
Los Angeles  1,999 366 1,633 82% 537 1,096
Chicago  1,733 521 1,212 70% 348 864
San Francisco 735 132 603 82% 190 413
Miami 643 149 494 77% 195 299
Las Vegas-Reno 189 76 113 60% 8 105
Seattle 274 107 167 61% 63 104
Providence-Newport 231 84 147 64% 50 97
Dallas-Fort Worth 324 160 164 51% 136 28
Nashville 32 20 12 38% 23 (11)
Philadelphia 64 31 33 52% 56 (23)
Total $12,534 $3,244 $9,290 74% $2,759 $6,531
             
Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure
             
Adjusted market EBITDA           $6,531
Centralized costs (1)           (1,574)
Corporate expenses           (3,893)
Depreciation and amortization           (4,188)
Stock-based compensation           (247)
Other income (expense)           565
Net loss            $ (2,806)
   
Market data for the six months ended June 30, 2010   
(All dollars are in thousands)
             
Market Revenues Cost of Revenues(1) Gross Margin(1) Operating Costs Adjusted Market EBITDA
New York  $2,853 $557 $2,296 80% $643 $1,653
Boston  2,136 346 1,790 84% 338 1,452
Los Angeles  1,429 270 1,159 81% 547 612
Chicago 942 315 627 67% 250 377
San Francisco 545 118 427 78% 146 281
Miami 455 155 300 66% 176 124
Providence-Newport 253 83 170 67% 63 107
Seattle 253 109 144 57% 63 81
Nashville 21 14 7 33% 7  --
Dallas-Fort Worth 225 164 61 27% 116 (55)
Philadelphia 1 28 (27) 0% 105 (132)
Total $9,113 $2,159 $6,954 76% $2,454 $4,500
             
Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure
             
Adjusted market EBITDA           $4,500
Centralized costs (1)           (1,466)
Corporate expenses           (3,258)
Depreciation and amortization           (2,555)
Stock-based compensation           (458)
Other income (expense)           399
Net loss            $ (2,838)

(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 $60  respectively for the three months ended June 30, 2011 and 2010 and $108 and $123 for six months ended June 30, 2011 and 2010.

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 15, 2011 at 5:00 p.m. ET to review our financial results and provide an update on current 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 two hours after the call through August 22, 2011 at 11:59 p.m. ET by dialing 855-859-2056 or 404-537-3406 (for international callers) using pass code 87549655.

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=100653.

About Towerstream Corporation

Towerstream is a leading 4G service provider in the U.S., delivering high-speed wireless Internet access to businesses. Founded in 2000, the Company has established networks in 12 markets including New York City, Boston, Los Angeles, Chicago, Philadelphia, the San Francisco Bay area, Miami, Seattle, Dallas-Fort Worth, Nashville, Las Vegas-Reno and the greater Providence area where the Company is based. For more information, visit our website at www.towerstream.com or follow us on Twitter @Towerstream.

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

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 have the ability to be up and running within a week.         

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, including, without limitation, risk related to our ability to deploy and expand a Wi-Fi network in the New York City and other key markets. 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: INVESTOR CONTACT:

         Terry McGovern

         Vision Advisors

         415-902-3001

         mcgovern@visionadvisors.net



         MEDIA CONTACT:

         Todd Barrish

         Indicate Media

         646-396-6038

         todd@indicatemedia.com

Towerstream Corporation Logo

Source: Towerstream Corporation

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