Towerstream Corporation
Mar 14, 2012

Towerstream Reports Fourth Quarter and Year End 2011 Results

MIDDLETOWN, R.I., March 14, 2012 (GLOBE NEWSWIRE) -- Towerstream Corporation (Nasdaq:TWER), a leading 4G and Wi-Fi/ Small Cell Network Services provider, announced results for the fourth quarter and year ended December 31, 2011.

Fourth Quarter and Annual Operating Highlights

Management Comments

"The continued explosion in mobile data traffic and an increasing focus on small cell architecture are creating exciting opportunities for Towerstream," noted Jeff Thompson, Chief Executive Officer. "We believe that our rooftop assets on more than 4,000 buildings across 12 major markets in the country will be extremely valuable as mobile operators, tower companies, and other telecom providers search for innovative solutions to the spectrum crisis and the relentless need for more capacity."

"Our acquisition program was very successful in 2011 as evidenced by more than $2.2 million in gains recognized during the year," stated Joseph Hernon, Chief Financial Officer. "2011 revenue increased 35% as compared to 2010 and adjusted EBITDA profitability from our core services increased from $1.3 million in 2010 to $4.2 million in 2011."

Selected Financial Data and Key Operating Metrics  
(All dollars are in thousands except ARPU)  
  (Unaudited)
  Three months ended
  12/31/2011 9/30/2011 12/31/2010
Selected Financial Data      
Revenues $ 7,185 $ 6,776 $ 5,452
Gross margin 64% 67% 75%
Adjusted gross margin excluding Wi-Fi network expenses 72% 73% 75%
Depreciation and amortization 2,651 2,299 1,658
Core operating expenses (1)( 2) 5,109 4,875 3,842
Operating loss (1) (3,164) (2,629)  (1,403)
Gain on business acquisition  1,186  --   --
Net loss (1) (2,080) (2,620) (1,378)
Adjusted EBITDA (2) (63) 96 374
Non-recurring expenses 200 112 332
Wi-Fi network expenses 1,181 880 --
Adjusted EBITDA excluding non-recurring and 
 Wi-Fi network expenses(2) 
 
 1,318
 
 1,088
 
706
Capital expenditures      
Wireless broadband   $ 3,052  $ 2,627 $ 1,400
Wi-Fi network  1,071  1,663  57
       
Key Operating Metrics      
Churn rate (2) 1.43% 1.27% 1.36%
ARPU (2) $ 710 $ 709 $ 682
ARPU of new customers (2)  612  625 661
   
Years ended
  12/31/2011   12/31/2010
Selected Financial Data      
Revenues $ 26,495   $ 19,646
Gross margin 69%   75%
Adjusted gross margin excluding Wi-Fi network expenses 73%   75%
Depreciation and amortization 9,138   5,770
Core operating expenses (1)( 2) 18,349   15,036
Operating loss (1) (9,164)    (6,048)
Gain on business acquisition  2,232    356
Net loss (1) (7,025)   (5,603)
Adjusted EBITDA (2) 1,161   568
Non-recurring expenses 496   759
Wi-Fi network expenses 2,587   --
Adjusted EBITDA excluding non-recurring and
 Wi-Fi network expenses(2) 
 
 4,244
   
1,327
Capital expenditures      
Wireless broadband   $ 9,287   $ 4,787
Wi-Fi network  5,650      873
       
Key Operating Metrics      
Churn rate (2) 1.45%   1.35%
ARPU (2) $ 710   $ 682
ARPU of new customers (2)  599   561
       
(1) Includes stock-based compensation of $419, $415 and $94, and $1,081 and $772, 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 percentage 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
  12/31/2011 9/30/2011 12/31/2010
Reconciliation of Non-GAAP to GAAP:      
Adjusted EBITDA, excluding non-recurring expenses
 and Wi-Fi network expenses
$ 1,318 $ 1,088 $ 706 
Depreciation and amortization (2,651) (2,299)  (1,658)
Non-recurring expenses, primarily acquisition-related (200) (112) (332)
Wi-Fi network expenses (1,181) (880) --
Stock-based compensation (419) (415) (94)
Loss on property and equipment (16) (1) (25)
Loss on nonmonetary transactions (15) (10) --
Interest expense (8) (9) (1)
Gain on business acquisition 1,186 -- --
Other income (expense), net (1) (4) 23
Interest income  25  22 3
Provision for income taxes  (118)  -- --
Net loss  $ (2,080)  $ (2,620) $ (1,378)
   
Years ended
  12/31/2011   12/31/2010
Reconciliation of Non-GAAP to GAAP:      
Adjusted EBITDA, excluding non-recurring expenses
 and Wi-Fi network expenses
$ 4,244   $  1,327 
Depreciation and amortization (9,138)    (5,770)
Non-recurring expenses, primarily acquisition-related (496)   (759)
Wi-Fi network expenses (2,587)   --
Stock-based compensation (1,081)   (772)
Loss on property and equipment (65)   (74)
Loss on nonmonetary transactions (41)   --
Interest expense (22)   (1)
Gain on business acquisition 2,232   356
Other income (expense), net (10)   86
Interest income  57   4
Provision for income taxes  (118)    --
Net loss  $ (7,025)   $ (5,603)
   
Summary Condensed Consolidated Financial Statements  
(All dollars are in thousands except per share amounts)    
         
Statement of Operations         
  (Unaudited)
Three months ended
December 31,
(Audited)
Years ended
December 31,
  2011 2010 2011 2010
         
Revenues $ 7,185 $ 5,452 $ 26,495 $ 19,646
         
Operating Expenses        
Cost of revenues (exclusive of depreciation) 2,589 1,355 8,172 4,888
Depreciation and amortization 2,651 1,658 9,138 5,770
Customer support services 976 663 3,350 2,550
Sales and marketing  1,259 1,255 5,328 5,088
General and administrative 2,874 1,924 9,671 7,398
Total Operating Expenses 10,349 6,855 35,659 25,694
Operating Loss (3,164) (1,403) (9,164) (6,048)
Other Income (Expense)        
Gain on business acquisition 1,186 -- 2,232 356
Interest income 25 3 57 4
Interest expense (8) (1) (22) (1)
Other income (expense), net (1) 23 (10) 86
Total Other Income (Expense) 1,202 25 2,257 445
Loss before income taxes (1,962) (1,378) (6,907) (5,603)
Provision for income taxes (118) -- (118) --
Net Loss $ (2,080) $ (1,378) $ (7,025) $ (5,603)
         
Net loss per common share $ (0.04) $ (0.04) $ (0.15) $ (0.16)
         
Weighted average common shares outstanding — basic and diluted 53,580 37,891 47,506 35,627

Analysis of Fourth Quarter Results of Operations

Revenues for the fourth quarter 2011 increased 6% from the third quarter 2011 and increased 32% compared to the fourth quarter 2010. The year-over-year increase was driven by a 26% growth in our customer base from approximately 2,800 customers at the end of the fourth quarter 2010 to approximately 3,600 at the end of the fourth quarter 2011.

ARPU of new customers (excluding acquisitions) decreased 2% in the fourth quarter 2011 compared to the third quarter 2011 and decreased 7% compared to the fourth quarter 2010. ARPU of all customers in the fourth quarter 2011 remained consistent compared to the third quarter 2011 and increased 4% compared to the fourth quarter 2010.

Customer churn was 1.43% for the fourth quarter 2011 compared to 1.27% for the third quarter 2011 and 1.36% for the fourth quarter 2010. Our churn rate was stable and within our targeted range of 1.4% to 1.7% and below industry averages.

Cost of revenue increased by 16% in the fourth quarter 2011 compared to the third quarter 2011 and increased by 91% compared to the fourth quarter 2010. The Company spent $0.6 million in the fourth quarter 2011 related to the construction of its Wi-Fi network as compared to $0.4 million in the third quarter 2011 and zero in the fourth quarter 2010. The increase also related to additional network expenses associated with the acquisition of One Velocity and Color Broadband.

Depreciation expense increased 14% in the fourth quarter 2011 compared to the third quarter 2011 and increased 52% compared to the fourth quarter 2010. The base of depreciable assets was 13% higher at the end of the fourth quarter 2011 as compared to the third quarter 2011 and 57% higher compared to the fourth 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 increased 21% in the fourth quarter 2011 compared to the third quarter 2011 and increased 87% compared to the fourth quarter 2010.  The quarter-over-quarter increase relates to customer based intangible assets recorded in connection with the acquisition of Color Broadband in the fourth quarter 2011. The year-over-year increase relates to customer based intangible assets recorded in connection with the acquisitions of One Velocity in the second quarter 2011 and Color Broadband in the fourth 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 12% in the fourth quarter 2011 compared to the third quarter 2011 and increased 47% compared to the fourth quarter 2010. The year-over-year increase reflects staffing additions and other costs incurred to support a customer base which increased 26% over the one year period. 

Sales and marketing expenses decreased 7% in the fourth quarter 2011 compared to the third quarter 2011 and increased less than 1% compared to the fourth quarter 2010. The decrease primarily related to lower payroll expenses.

General and administrative expenses increased 8% in the fourth quarter 2011 compared to the third quarter 2011 and increased 49% compared to the fourth quarter 2010. Costs associated with the Wi-Fi network totaled approximately $377,000 in the fourth quarter 2011 compared to approximately $309,000 in the third quarter 2011 and zero in the fourth quarter 2010. The year-over-year increase also relates to higher employee stock-based compensation of approximately $419,000 in the fourth quarter 2011 compared to approximately $94,000 in the fourth quarter 2010.

Capital expenditures totaled $4.1 million for the fourth quarter 2011 as compared to $4.3 million for the third quarter 2011 and $1.5 million for the fourth quarter 2010. The Company spent $1.1 million in the fourth quarter 2011 related to the construction of its Wi-Fi network, and $1.7 million in the third quarter 2011 and $0.1 million in the fourth quarter 2010.

Balance Sheet  (Audited)  
 
  December 31, 2011 December 31, 2010
Assets    
Current Assets    
Cash and cash equivalents $ 44,672 $   23,173
Other  1,216    856
Total Current Assets  45,888    24,029
     
Property and equipment, net  27,531    15,266
     
Other assets    10,218    5,295
     
Total Assets  83,637    44,590
     
Liabilities and Stockholders' Equity    
Current Liabilities    
Accounts payable and accrued expenses  3,564    2,506
Deferred revenues and other  2,277     1,339
Total Current Liabilities  5,841    3,845
     
Long-Term Liabilities   651    724
Total Liabilities  6,492     4,569
     
Stockholders' Equity    
Common stock     54      42
Additional paid-in-capital  119,470   75,333
Accumulated deficit    (42,379)      (35,354)
Total Stockholders' Equity  77,145     40,021
Total Liabilities and Stockholders' Equity  $    83,637  $   44,590
   
Statement of Cash Flows (Audited) Years ended December 31,
  2011 2010
Cash Flows From Operating Activities    
Net loss $ (7,025) $ (5,603)
Non-cash adjustments:    
Depreciation & amortization   9,138  5,770
Stock-based compensation  1,081  772
Gain on business acquisitions  (2,232)  (356)
Other  349  149
Changes in operating assets and liabilities  255  (139)
Net Cash Provided By Operating Activities  1,566  593
     
Cash Flows From Investing Activities    
Acquisitions of property and equipment  (14,484)  (5,660)
Acquisition of businesses  (4,400)  (2,750)
Other   (198)  (3)
Net Cash Used In Investing Activities  (19,082)  (8,413)
     
Cash Flows From Financing Activities    
Payments on capital leases  (175)  (7)
Proceeds from stock issuances  355   1
Net proceeds from sale of common stock  38,835  16,958
Net Cash Provided By Financing Activities  39,015  16,952
     
Net Increase In Cash and Cash Equivalents  21,499  9,132
Cash and Cash Equivalents — Beginning  23,173  14,041
Cash and Cash Equivalents — Ending   $ 44,672 $ 23,173
         
Market data for the three months ended December 31, 2011         
(All dollars are in thousands)            
             
Market Revenues Cost of
Revenues(1)
Gross  Margin(1) Operating
Costs
Adjusted
Market
EBITDA
Boston  $ 1,687 $ 381 $ 1,306 77% $ 226 $ 1,080
Los Angeles 1,387 319 1,068 77% 252 816
New York 1,617 933 684 42% 332 352
Chicago  858 254 604 70% 143 461
Miami 381 77 304 80% 96 208
San Francisco 386 95 291 75% 91 200
Las Vegas-Reno 434 181 253 58% 53 200
Providence-Newport 108 43 65 60% 19 46
Seattle 126 60 66 52% 32 34
Dallas-Fort Worth 166 89 77 46% 61 16
Philadelphia 26 16 10 38% 22 (12)
Nashville 9 31 (22) 0% 8 (30)
Total $ 7,185 $ 2,479 $ 4,706 65% $ 1,335 $ 3,371
             
Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure      
             
Adjusted market EBITDA           $ 3,371
Centralized costs (1)           (1,010)
Corporate expenses           (2,455)
Depreciation and amortization           (2,651)
Stock-based compensation           (419)
Other income (expense)           1,202
Provision for income taxes           (118)
Net loss           $ (2,080)
             
Market data for the three months ended December 31, 2010             
(All dollars are in thousands)            
             
Market Revenues Cost of
Revenues(1)
Gross  Margin(1) Operating
Costs
Adjusted
Market
EBITDA
New York  $ 1,494 $ 322 $ 1,172 78% $ 274 $ 898
Boston  1,243 208 1,035 83% 184 851
Los Angeles  909 184 725 80% 257 468
Chicago 762 256 506 66% 174 332
San Francisco  331 68 263 79% 123 140
Miami 290 80 210 72% 104 106
Providence-Newport 120 40 80 67% 26 54
Seattle 133 55 78 59% 32 46
Dallas-Fort Worth 141 64 77 55% 51 26
Nashville 19 7 12 63% 5 7
Philadelphia 10 12 (2) 0% 39 (41)
Total $ 5,452 $ 1,296 $ 4,156 76% $ 1,269 $ 2,887
             
Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure            
             
Adjusted market EBITDA           $2,887
Centralized costs (1)           (708)
Corporate expenses           (1,830)
Depreciation and amortization           (1,658)
Stock-based compensation           (94)
Other income (expense)           25
Net loss           $ (1,378)
             
Market data for the year ended December 31, 2011             
(All dollars are in thousands)            
             
Market Revenues Cost of
Revenues(1)
Gross  Margin(1) Operating
Costs
Adjusted
Market
EBITDA
Boston  $ 6,741 $ 1,564 $ 5,177 77% $ 948 $ 4,229
Los Angeles 4,472 908 3,564 80% 1,051 2,513
New York 6,100 2,445 3,655 60% 1,328 2,327
Chicago  3,462 1,042 2,420 70% 642 1,778
San Francisco 1,492 294 1,198 80% 374 824
Miami 1,389 306 1,083 78% 392 691
Las Vegas-Reno 1,032 438 594 58% 105 489
Providence-Newport 459 177 282 61% 94 188
Seattle 526 223 303 58% 122 181
Dallas-Fort Worth 656 334 322 49% 276 46
Nashville 53 52 1 2% 42 (41)
Philadelphia 113 62 51 45% 106 (55)
Total $ 26,495 $ 7,845 $ 18,650 70% $ 5,480 $ 13,170
             
Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure            
             
Adjusted market EBITDA           $ 13,170
Centralized costs (1)           (3,525)
Corporate expenses           (8,590)
Depreciation and amortization           (9,138)
Stock-based compensation           (1,081)
Other income (expense)           2,257
Provision for income taxes           (118)
Net loss           $ (7,025)
         
Market data for the year ended December 31, 2010         
(All dollars are in thousands)            
             
Market Revenues Cost of
Revenues(1)
Gross  Margin(1) Operating
Costs
Adjusted
Market
EBITDA
New York  $ 5,783 $ 1,161 $ 4,622 80% $ 1,187 $ 3,435
Boston  4,510 729 3,781 84% 689 3,092
Los Angeles  3,178 612 2,566 81% 1,098 1,468
Chicago 2,453 799 1,654 67% 604 1,050
San Francisco  1,161 246 915 79% 362 553
Miami 987 317 670 68% 361 309
Providence/Newport 495 162 333 67% 112 221
Seattle 510 217 293 57% 127 166
Nashville 59 29 30 51% 18 12
Dallas-Fort Worth 493 315 178 36% 226 (48)
Philadelphia 17 54 (37) 0% 184 (221)
Total $ 19,646 $ 4,641 $ 15,005 76% $ 4,968 $ 10,037
             
Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure    
             
Adjusted market EBITDA           $ 10,037
Centralized costs (1)           (2,917)
Corporate expenses           (6,626)
Depreciation and amortization           (5,770)
Stock-based compensation           (772)
Other income (expense)           445
Net loss           $ (5,603)
             
(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 $110 and $59 respectively for the three months ended December 31, 2011 and 2010 and $327 and $247 for years ended December 31, 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 March 14, 2012 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 March 21, 2012 at 11:59 p.m. ET by dialing 855-859-2056 or 404-537-3406 (for international callers) using pass code 48026232.

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=108889.

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

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

         646-396-6090

         todd@indicatemedia.com

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Source: Towerstream Corporation

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