Towerstream Corporation
Nov 14, 2011

Towerstream Reports Third Quarter 2011 Results

MIDDLETOWN, R.I., Nov. 14, 2011 (GLOBE NEWSWIRE) -- Towerstream Corporation (Nasdaq:TWER), a leading 4G service provider and Wi-Fi network operator, announced results for the third quarter ended September 30, 2011.

Third Quarter Operating Highlights

Management Comments

"We are excited to get our first Wi-Fi customer this quarter as the investment in our Wi-Fi network begins to bear fruit," noted Jeff Thompson, Chief Executive Officer. "With a solid, high margin core business, an active acquisition program and the launch of our Wi-Fi network, Towerstream is well positioned for continued growth."

"We are pleased to announce our fourth acquisition in 18 months and our largest transaction to date," stated Joseph Hernon, Chief Financial Officer. "The Los Angeles area will become the largest market for our core Internet access service once the Color Broadband acquisition closes."

Selected Financial Data and Key Operating Metrics
(All dollars are in thousands except ARPU)
  (Unaudited)
  Three months ended
  9/30/2011 6/30/2011 9/30/2010
Selected Financial Data      
Revenues $6,776 $6,581 $5,080
Gross margin 67% 72% 75%
Adjusted gross margin excluding Wi-Fi network expenses 73% 74% 75%
Depreciation and amortization 2,299 2,213 1,557
Core operating expenses (1)( 2) 4,875 4,379 3,681
Operating loss (1) (2,629) (1,857) (1,409)
Gain on business acquisition  --  564  --
Net loss (1) (2,620) (1,294) (1,387)
Adjusted EBITDA (2) 96 536 382
 Non-recurring expenses 112 135 32
 Wi-Fi network expenses 880 404 --
Adjusted EBITDA excluding non-recurring and       
 Wi-Fi network expenses (2)  1,088 1,075 414
Capital expenditures      
 Wireless broadband  $2,627 $2,077 $1,051
 Wi-Fi network 1,663 1,827  --
       
Key Operating Metrics      
Churn rate (2) 1.27% 1.56% 1.60%
ARPU (2) $709 $703 $669
ARPU of new customers (2) 625 607 543
(1) Includes stock-based compensation of $415, $141 and $220, 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 network expenses, has been reconciled to Net loss as follows:
 

(All dollars are in thousands)       
       
  Three months ended
  9/30/2011 6/30/2011 9/30/2010
Reconciliation of Non-GAAP to GAAP:      
Adjusted EBITDA, excluding non-recurring expenses and Wi-Fi network expenses $1,088 $1,075 $414
Depreciation and amortization (2,299) (2,213) (1,557)
Non-recurring expenses, primarily acquisition-related (112) (135) (32)
Wi-Fi network expenses (880) (404) --
Stock-based compensation (415) (141) (220)
Loss on property and equipment (1) (30) (14)
Loss on nonmonetary transactions (10) (9) --
Interest expense (9) (2) --
Gain on business acquisition -- 564 --
Other income (expense), net (4) (3) 21
Interest income 22 4 1
Net loss $ (2,620) $ (1,294) $ (1,387)
 
Summary Condensed Consolidated Financial Statements
(All dollars are in thousands except per share amounts)
         
         
Statement of Operations  (Unaudited) (Unaudited)
  Three months ended
September 30,
Nine months ended
September 30,
  2011 2010 2011 2010
         
Revenues $6,776 $5,080 $19,310 $14,193
         
Operating Expenses        
 Cost of revenues (exclusive of depreciation) 2,231 1,251 5,583 3,533
 Depreciation and amortization 2,299 1,557 6,487 4,112
 Customer support services 870 637 2,374 1,887
 Sales and marketing  1,348 1,286 4,069 3,833
 General and administrative 2,657 1,758 6,797 5,474
 Total Operating Expenses 9,405 6,489 25,310 18,839
 Operating Loss (2,629) (1,409) (6,000) (4,646)
Other Income (Expense)        
 Gain on business acquisition -- -- 564 356
 Interest income 22 1 32 2
 Interest expense (9) -- (14) --
 Other income (expense), net (4) 21 (9) 63
 Total Other Income (Expense) 9 22 573 421
 Net Loss $ (2,620) $ (1,387) $ (5,427) $ (4,225)
         
Net loss per common share $ (0.05) $ (0.04) $ (0.12) $ (0.12)
Weighted average common shares outstanding — basic and diluted 51,599 35,005 45,517 34,864

Analysis of Third Quarter Results of Operations

Revenues for the third quarter 2011 increased 3% from the second quarter 2011 and increased 33% compared to the third quarter 2010. The year-over-year increase was driven by a 24% growth in our customer base from approximately 2,600 customers at the end of the third quarter 2010 to approximately 3,200 at the end of the third quarter 2011.

ARPU of new customers increased 3% in the third quarter 2011 compared to the second quarter 2011 and increased 15% compared to the third quarter 2010. New higher ARPU point-to-point customers continued to increase in the third quarter 2011. ARPU of all customers in the third quarter 2011 increased 1% compared to the second quarter 2011 and increased 6% compared to the third quarter 2010.

Customer churn improved to 1.27% compared to 1.56% for the second quarter 2011 and 1.60% for the third quarter 2010. Our churn rate is below our targeted range of 1.4% to 1.7% and industry averages.

Depreciation expense increased 15% in the third quarter 2011 compared to the second quarter 2011 and increased 39% compared to the third quarter 2010. The base of depreciable assets was 10% higher at the end of the third quarter 2011 as compared to the second quarter 2011 and 46% higher compared to the third quarter of 2010. The increased depreciable base reflects continued growth in the core business as well as spending on the Wi-Fi network.

Amortization expense decreased 19% in the third quarter 2011 compared to the second quarter 2011 and increased 81% compared to the third quarter 2010.  The year-over-year 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. The customer based intangible assets recorded in connection with the acquisition of Sparkplug Chicago were fully amortized as of June 30, 2011.

Customer support expenses increased 19% in the third quarter 2011 compared to the second quarter 2011 and increased 37% compared to the third quarter 2010. The year-over-year increase reflects staffing additions and other costs incurred to support a customer base which increased 24% over the one year period. 

Sales and marketing expenses decreased 2% in the third quarter 2011 compared to the second quarter 2011 and increased 5% compared to the third quarter 2010. The increase related to higher commissions earned.

General and administrative expenses increased 17% in the third quarter 2011 compared to the second quarter 2011 and increased 51% compared to the third quarter 2010. Costs associated with the Wi-Fi network totaled approximately $309,000 in the third quarter 2011 compared to approximately $231,000 in the second quarter 2011 and zero in the third quarter 2010. The year-over-year increase reflects higher professional fees and employee stock-based compensation.

Capital expenditures totaled $4.3 million for the third quarter 2011 as compared to $3.9 million for the second quarter 2011 and $1.1 million for the third quarter 2010. The Company spent $1.7 million in the third quarter 2011 related to the construction of a Wi-Fi network, primarily in New York City, and  $1.8 million in the second quarter 2011 and zero in the third quarter 2010.

     
Balance Sheet     
  (Unaudited) (Audited)
  September 30, December 31, 
  2011 2010
Assets    
Current Assets    
 Cash and cash equivalents $51,587 $23,173
 Other  847 856
 Total Current Assets 52,434 24,029
     
Property and equipment, net 23,414 15,266
     
Other assets 6,426 5,295
     
 Total Assets 82,274 44,590
     
Liabilities and Stockholders' Equity    
Current Liabilities    
 Accounts payable and accrued expenses 3,339 2,506
 Deferred revenues and other 1,781 1,339
 Total Current Liabilities 5,120 3,845
     
 Long-Term Liabilities  605 724
 Total Liabilities 5,725 4,569
     
Stockholders' Equity    
 Common stock 53 42
 Additional paid-in-capital 117,277 75,333
 Accumulated deficit (40,781) (35,354)
 Total Stockholders' Equity 76,549 40,021
 Total Liabilities and Stockholders' Equity $82,274 $44,590
     
     
Statement of Cash Flows (Unaudited) Nine months ended September 30,
  2011 2010
Cash Flows From Operating Activities    
 Net loss $ (5,427) $ (4,225)
 Non-cash adjustments:    
 Depreciation & amortization 6,487 4,112
 Stock-based compensation  661 678
 Gain on business acquisition (564) (356)
 Other  202 94
 Changes in operating assets and liabilities 18 (563)
Net Cash Provided By (Used In) Operating Activities 1,377 (260)
     
Cash Flows From Investing Activities    
 Acquisitions of property and equipment (10,359) (4,203)
 Acquisition of businesses (1,600) (1,170)
 Other  (51) (3)
Net Cash Used In Investing Activities (12,010) (5,376)
     
Cash Flows From Financing Activities    
 Payments on capital leases (97)  --
 Proceeds from stock issuances 309  --
 Net proceeds from sale of common stock 38,835  --
 Net Cash Provided By Financing Activities 39,047  --
     
 Net Decrease In Cash and Cash Equivalents 28,414 (5,636)
 Cash and Cash Equivalents — Beginning 23,173 14,041
 Cash and Cash Equivalents — Ending  $51,587 $8,405
 
Market data for the three months ended September 30, 2011 
(All dollars are in thousands)
 
Market

Revenues

Cost of
Revenues(1)


Gross Margin(1)

Operating
Costs
Adjusted
Market
EBITDA
Boston  $1,695 $390 $1,305 77% $224 $1,081
New York  1,533 708 825 54% 341 484
Los Angeles  1,087 223 864 79% 263 601
Chicago  870 266 604 69% 151 453
San Francisco 370 67 303 82% 92 211
Las Vegas-Reno 409 180 229 56% 44 185
Miami 365 81 284 78% 100 184
Providence-Newport 120 51 69 58% 24 45
Seattle 125 55 70 56% 27 43
Dallas-Fort Worth 166 85 81 49% 80 1
Nashville 13 1 12 92% 11 1
Philadelphia 23 15 8 35% 28 (20)
Total $6,776 $2,122 $4,654 69% $1,385 $3,269
             
Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure
             
Adjusted market EBITDA           $3,269
Centralized costs (1)           (942)
Corporate expenses           (2,242)
Depreciation and amortization           (2,299)
Stock-based compensation           (415)
Other income (expense)           9
Net loss           $ (2,620)
             
             
Market data for the three months ended September 30, 2010 
(All dollars are in thousands)
 
Market

Revenues

Cost of
Revenues(1)


Gross Margin(1)

Operating
Costs
Adjusted
Market
EBITDA
New York  $1,436 $281 $1,155 80% $271 $884
Boston  1,130 174 956 85% 167 789
Los Angeles  840 158 682 81% 294 388
Chicago 749 227 522 70% 181 341
San Francisco  285 61 224 79% 92 132
Miami 243 84 159 65% 81 78
Providence-Newport 121 39 82 68% 23 59
Seattle 125 54 71 57% 32 39
Nashville 18 8 10 56% 4 6
Dallas-Fort Worth 128 87 41 32% 59 (18)
Philadelphia 5 13 (8) 0% 40 (48)
Total $5,080 $1,186 $3,894 77% $1,244 $2,650
             
Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure
             
Adjusted market EBITDA           $2,650
Centralized costs (1)           (744)
Corporate expenses           (1,538)
Depreciation and amortization           (1,557)
Stock-based compensation           (220)
Other income (expense)           22
Net loss           $ (1,387)
             
Market data for the nine months ended September 30, 2011 
(All dollars are in thousands)
             
Market

Revenues

Cost of
Revenues(1)


Gross Margin(1)

Operating
Costs
Adjusted
Market
EBITDA
Boston  $5,054 $1,183 $3,871 77% $722 $3,149
New York  4,484 1,512 2,972 66% 997 1,975
Los Angeles  3,085 589 2,496 81% 799 1,697
Chicago  2,604 788 1,816 70% 499 1,317
San Francisco 1,105 199 906 82% 283 623
Miami 1,008 229 779 77% 295 484
Las Vegas-Reno 598 257 341 57% 52 289
Seattle 400 163 237 59% 90 147
Providence-Newport 351 134 217 62% 75 142
Dallas-Fort Worth 490 245 245 50% 215 30
Nashville 44 21 23 52% 34 (11)
Philadelphia 87 46 41 47% 84 (43)
Total $19,310 $5,366 $13,944 72% $4,145 $9,799
             
Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure
             
Adjusted market EBITDA           $9,799
Centralized costs (1)           (2,516)
Corporate expenses           (6,135)
Depreciation and amortization           (6,487)
Stock-based compensation           (661)
Other income (expense)           573
Net loss           $ (5,427)
             
Market data for the nine months ended September 30, 2010 
(All dollars are in thousands)
 
Market  

Revenues

Cost of
Revenues(1)


Gross Margin(1)

Operating
Costs
Adjusted
Market
EBITDA
New York  $4,289 $838 $3,451 80% $914 $2,537
Boston  3,266 520 2,746 84% 505 2,241
Los Angeles  2,269 428 1,841 81% 841 1,000
Chicago 1,691 542 1,149 68% 431 718
San Francisco  830 178 652 79% 239 413
Miami 697 238 459 66% 257 202
Providence-Newport 374 122 252 67% 85 167
Seattle 378 164 214 57% 94 120
Nashville 40 22 18 45% 12 6
Dallas-Fort Worth 352 252 100 28% 174 (74)
Philadelphia 7 41 (34) 0% 146 (180)
Total $14,193 $3,345 $10,848 76% $3,698 $7,150
             
Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure
             
Adjusted market EBITDA           $7,150
Centralized costs (1)           (2,210)
Corporate expenses           (4,796)
Depreciation and amortization           (4,112)
Stock-based compensation           (678)
Other income (expense)           421
Net loss           $ (4,225)
             
(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 $109 and $65 respectively for the three months ended September 30, 2011 and 2010 and $218 and $188 for nine months ended September 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 November 14, 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 November 21, 2011 at 11:59 p.m. ET by dialing 855-859-2056 or 404-537-3406 (for international callers) using pass code 23554995.

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=104887.

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 over 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. In 2011, Towerstream launched its Manhattan Wi-Fi network geared towards mobile operators, retail/daily deal providers and Wi-Fi operators. 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

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Source: Towerstream Corporation

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