Towerstream Corporation
Aug 9, 2012

Towerstream Reports Second Quarter 2012 Results

Signs Agreement to Acquire Delos Internet in Houston

MIDDLETOWN, R.I., Aug. 9, 2012 (GLOBE NEWSWIRE) -- Towerstream Corporation (Nasdaq:TWER) (the "Company"), a leading 4G and Wi-Fi/ Small Cell Network Services provider, announced results for the second quarter ended June 30, 2012.

Second Quarter Operating Highlights

Management Comments

"Node construction activity was robust during the second quarter and we are on track to reach our target of 5,000 nodes by the first quarter of 2013," stated Jeffrey Thompson, President and Chief Executive Officer. "We expect to be well positioned when network integration is complete and data traffic begins moving onto our small cell network in 2013."

"We are pleased to announce our plans to acquire Delos Internet which is based in Houston, the fourth largest city in the country" stated Joseph Hernon, Chief Financial Officer. "Houston has been growing rapidly and we believe there are excellent opportunities to increase the revenue base for our broadband services and utilize Delos' network to support our small cell rooftop asset platform. This transaction will expand our national presence to 13 markets including 9 of the 10 largest in the country."

Selected Financial Data and Key Operating Metrics
(All dollars are in thousands except ARPU)
  (Unaudited)
  Three months ended
  6/30/2012 3/31/2012 6/30/2011
Selected Financial Data      
Revenues $ 8,103 $ 7,819 $ 6,581
Gross margin 54% 61% 72%
Adjusted gross margin excluding small cell rooftop asset platform expenses 70% 72% 74%
Depreciation and amortization 3,348 3,281 2,213
Core operating expenses (1)(2) 5,750 5,840 4,379
Operating loss (1) (4,714) (4,370) (1,857)
Gain (loss) on business acquisition (40) - 1,046
Net loss (1) (4,759) (4,380) (812)
Adjusted EBITDA (2) (884) (520) 536
Non-recurring expenses 41 334 135
Small cell rooftop asset platform expenses, net 2,180 1,617 404
Adjusted EBITDA excluding non-recurring and small cell rooftop asset platform expenses, net(2)  1,337 1,431 1,075
Capital expenditures      
Wireless broadband  $ 3,779 $ 3,813 $ 2,077
Small cell rooftop asset platform 4,046  2,048 1,827
       
Key Operating Metrics      
Churn rate (2) 1.65% 1.58% 1.56%
ARPU (2) $ 708 $ 706 $  703
ARPU of new customers (2) 477  545 607
       
(1)  Includes stock-based compensation of $392, $524 and $141, 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 small cell rooftop asset platform expenses, net, has been reconciled to Net loss as follows:

(All dollars are in thousands)  
  Three months ended
  6/30/2012 3/31/2012 6/30/2011
Reconciliation of Non-GAAP to GAAP:      
Adjusted EBITDA, excluding non-recurring expenses and small cell rooftop asset platform expenses, net $ 1,337 $ 1,431 $  1,075
Depreciation and amortization (3,348) (3,281) (2,213)
Non-recurring expenses, primarily acquisition-related (41) (334) (135)
Small cell rooftop asset platform expenses, net (2,180) (1,617) (404)
Stock-based compensation (392) (524) (141)
Loss on property and equipment (12) (12) (30)
Loss on nonmonetary transactions (78) (33) (9)
Interest expense (17) (22) (2)
Gain (loss) on business acquisition (40) - 1,046
Other income (expense), net (2) (5) (3)
Interest income 14 17 4
Net loss $ (4,759) $ (4,380) $ (812)
 
 
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,
  2012 2011 2012 2011
         
Revenues $ 8,103 $ 6,581 $ 15,922 $ 12,534
         
Operating Expenses        
Cost of revenues (exclusive of depreciation) 3,719 1,846 6,787 3,352
Depreciation and amortization 3,348 2,213 6,629 4,188
Customer support services 1,173 733 2,240 1,504
Sales and marketing 1,510 1,381 2,940 2,721
General and administrative 3,067 2,265 6,410 4,140
Total Operating Expenses 12,817 8,438 25,006 15,905
Operating Loss (4,714) (1,857) (9,084) (3,371)
Other Income (Expense)        
Gain (loss) on business acquisition (40) 1,046 (40) 1,046
Interest income 14 4 31 10
Interest expense (17) (2) (39) (5)
Other income (expense), net (2) (3) (7) (5)
Total Other Income (Expense) (45) 1,045 (55) 1,046
Net Loss $  (4,759) $  (812) $  (9,139) $ (2,325)
         
Net loss per common share $ (0.09) $ (0.02) $ (0.17) $ (0.05)
Weighted average common shares outstanding — basic and diluted 54,369 42,639 54,341 42,426
         

Analysis of Second Quarter Results of Operations

Revenues for the second quarter 2012 increased 4% from the first quarter 2012 and increased 23% compared to the second quarter 2011. These increases were driven by a 16% growth in our customer base from approximately 3,100 customers at the end of the second quarter 2011 to approximately 3,600 at the end of the second quarter 2012.

ARPU of all customers in the second quarter 2012 increased less than 1% compared to the first quarter 2012 and increased 1% compared the second quarter 2011. ARPU of new customers decreased 12% in the second quarter 2012 compared to the first quarter 2012 and decreased 21% compared to the second quarter 2011. ARPU of new customers can fluctuate on a quarter-to-quarter basis depending upon the relative percentage of customers purchasing lower bandwidth service, known as multipoint, and higher bandwidth service, known as point-to-point. 

Customer churn during the second quarter 2012 was 1.65% compared to 1.58% during the first quarter 2012 and 1.56% during the second quarter 2011. Our churn rate was within our targeted range of 1.4% to 1.7% and remains low compared to industry averages.

Cost of revenue increased 21% in the second quarter 2012 compared to the first quarter 2012 and increased by slightly greater than 100% compared to the second quarter 2011. The Company spent $1.3 million in the second quarter 2012 related to the construction of its small cell rooftop asset platform as compared to $0.8 million in the first quarter 2012 and $0.1 million in the second quarter 2011. The increase also related to additional network expenses associated with the acquisition of One Velocity and Color Broadband.

Depreciation expense increased 11% in the second quarter 2012 compared to the first quarter 2012 and increased 65% compared to the second quarter 2011. The base of depreciable assets was 14% higher at the end of the second quarter 2012 as compared to the first quarter 2012 and 58% higher compared to the second quarter of 2011. The increased depreciable base reflects continued growth in the core business as well as spending on the small cell rooftop asset platform.

Amortization expense decreased 17% in the second quarter 2012 compared to the first quarter 2012 and increased 23% compared to the second quarter 2011. The sequential decrease relates to customer based intangible assets recorded in connection with the acquisition of Pipeline Wireless which were fully amortized as of June 30, 2012. The year-over-year increase relates to customer based intangible assets recorded in connection with the acquisition of Color Broadband in the fourth quarter 2011.

Customer support expenses increased 10% in the second quarter 2012 compared to the first quarter 2012 and increased 60% compared to the second quarter 2011. Costs associated with the small cell rooftop asset platform totaled approximately $252,000 in the second quarter 2012 compared to approximately $214,000 in the first quarter 2012 and approximately $42,000 in the second quarter 2011. In addition, there were staffing additions and other costs incurred to support our customer base which increased 16% over the one year period.

Sales and marketing expenses increased 6% in the second quarter 2012 compared to the first quarter 2012 and increased 9% compared to the second quarter 2011. These increases primarily related to higher payroll costs.

General and administrative expenses decreased 8% in the second quarter 2012 compared to the first quarter 2012 and increased 35% compared to the second quarter 2011. Costs associated with the small cell rooftop asset platform totaled approximately $0.6 million in the second quarter 2012 compared to approximately $0.6 million in the first quarter 2012 and approximately $0.2 million in the second quarter 2011. The year-over-year increase also relates to higher employee stock-based compensation and information technology spending.

Capital expenditures totaled $7.8 million for the second quarter 2012 as compared to $5.9 million for the first quarter 2012 and $3.9 million for the second quarter 2011. The Company spent $4.0 million in the second quarter 2012 related to the construction of its small cell rooftop asset platform as compared to $2.0 million in the first quarter 2012 and $1.8 million in the second quarter 2011.

Balance Sheet    
(All dollars are in thousands)    
  (Unaudited)
June 30, 2012
(Audited)
December 31, 2011
Assets    
Current Assets    
Cash and cash equivalents $ 31,416 $ 44,672
Other 1,764  1,216
Total Current Assets 33,180  45,888
     
Property and equipment, net 36,487  27,531
     
Other assets 8,900  10,218
     
Total Assets 78,567  83,637
     
Liabilities and Stockholders' Equity    
Current Liabilities    
Accounts payable and accrued expenses 5,066  3,564
Deferred revenues and other 2,495  2,277
Total Current Liabilities 7,561 5,841
     
Long-Term Liabilities 2,266  651
Total Liabilities 9,827  6,492
     
Stockholders' Equity    
Common stock 54  54
Additional paid-in-capital 120,204  119,470
Accumulated deficit (51,518)  (42,379)
Total Stockholders' Equity 68,740  77,145
Total Liabilities and Stockholders' Equity $ 78,567 $ 83,637
   
Statement of Cash Flows (Unaudited)  Six months ended June 30,  
  2012 2011
Cash Flows From Operating Activities    
Net loss $ (9,139) $  (2,325)
Non-cash adjustments:    
Depreciation & amortization 6,629 4,188
Stock-based compensation 916 247
(Gain) loss on business acquisition 40 (1,046)
Other 147 119
Changes in operating assets and liabilities 247 (176)
Net Cash (Used in) Provided By Operating Activities (1,160) 1,007
     
Cash Flows From Investing Activities    
Acquisitions of property and equipment (11,643) (6,320)
Acquisition of businesses - (1,600)
Other  (400) (42)
Net Cash Used in Investing Activities (12,043) (7,962)
     
Cash Flows From Financing Activities    
Repayment of capital leases (275) (40)
Proceeds from stock issuances 222 267
Net Cash (Used in) Provided By Financing Activities (53) 227
     
Net Decrease In Cash and Cash Equivalents (13,256) (6,728)
Cash and Cash Equivalents — Beginning 44,672 23,173
Cash and Cash Equivalents — Ending $ 31,416 $ 16,445
 
 
Market data for the three months ended June 30, 2012
(All dollars are in thousands)
           


Market


Revenues


Cost of
Revenues(1)


Gross Margin(1)


Operating Costs


Adjusted
Market EBITDA
Los Angeles $ 1,926 $ 646 $ 1,280 66% $ 381 $  899
New York 1,806 482  1,324   73%  283  1,041
Boston 1,748 365 1,383  79% 225 1,158
Chicago 938 274 664  71% 193 471
San Francisco 410 93 317 77% 73 244
Miami 406 98 308 76% 95 213
Las Vegas-Reno 397 153 244 62% 46 198
Dallas-Fort Worth 161 92 69 43% 90 (21)
Providence-Newport 125 45 80 64% 32 48
Seattle 115 56 59 51% 25 34
Philadelphia 25 17 8 32% 23 (15)
Nashville 10 15 (5) -% 8 (13)
Total $ 8,067 $  2,336 $ 5,731 71% $ 1,474 $  4,257
             
Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure    
             
Adjusted market EBITDA           $ 4,257
Centralized costs (1)           (1,013)
Corporate expenses           (2,038)
Small cell rooftop platform, net           (2,180)
Depreciation and amortization           (3,348)
Stock-based compensation           (392)
Other income (expense)           (45)
Net loss           $ (4,759)
 
 
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  350  1,153  77%  314  839
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 $ 1,670 $ 4,911   75%  $ 1,392 $ 3,519
             
Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure
             
Adjusted market EBITDA           $ 3,519
Centralized costs (1)           (726)
Corporate expenses           (1,893)
Small cell rooftop asset platform           (404)
Depreciation and amortization           (2,213)
Stock-based compensation           (141)
Other income (expense)            1,046
Net loss           $ (812)
 
 
Market data for the six months ended June 30, 2012
(All dollars are in thousands)
           
Market Revenues Cost of Revenues(1) Gross Margin(1) Operating Costs Adjusted Market EBITDA
Los Angeles $ 3,893 $ 1,226 $ 2,667 69% $ 729 $ 1,938
New York 3,439 905  2,534 74% 591 1,943
Boston 3,436 759 2,677 78% 490 2,187
Chicago 1,799 532 1,267 70% 336 931
Las Vegas-Reno 829 306 523 63% 87 436
Miami 825 187 638 77% 196 442
San Francisco 787 162 625 79% 148 477
Dallas-Fort Worth 331 175 156 47% 168 (12)
Providence-Newport 233 85 148 64% 63 85
Seattle 231 119 112 49% 52 60
Philadelphia 48 33 15 32% 44 (29)
Nashville 20 28 (8) -% 18 (26)
Total $ 15,871 $ 4,517 $ 11,354 72% $ 2,922 $  8,432
             
Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure
             
Adjusted market EBITDA           $  8,432
Centralized costs (1)           (1,885)
Corporate expenses           (4,289)
Small cell rooftop platform, net           (3,797)
Depreciation and amortization           (6,629)
Stock-based compensation           (916)
Other income (expense)           (55)
Net loss           $  (9,139)
 
 
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  675  2,276  77%  637  1,639
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
Philadelphia  64  31  33  52%  56  (23)
Nashville  32  20  12  38%  23  (11)
Total $ 12,534 $ 3,115 $ 9,419  75%  $  2,740 $ 6,679
             
Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure
             
Adjusted market EBITDA           $ 6,679
Centralized costs (1)           (1,483)
Corporate expenses           (3,607)
Small cell rooftop asset platform           (525)
Depreciation and amortization           (4,188)
Stock-based compensation           (247)
Other income (expense)            1,046
Net loss           $  (2,325)

(1)  Certain expenses are reported as Cost of Revenues for financial statement purposes but are included in other line items in the Market Data table, either because they are not specific to any market or they relate to the small cell rooftop asset platform.

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 9, 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 August 16, 2012 at 11:59 p.m. ET by dialing 800-585-8367 or 404-537-3406 (for international callers) using pass code 99397866.

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

About Towerstream Corporation

Towerstream (Nasdaq:TWER) is a leading 4G and Wi-Fi/Small Cell Network provider. The company owns, operates, and leases Wi-Fi and Small Cell sites to cellular phone operators, tower, Internet and cable companies and hosts a variety of customers on its network. Towerstream was originally founded in 2000 to deliver fixed-wireless high-speed Internet access to businesses and to date offers superior broadband services in over 12 urban 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. For more information on Towerstream services, please visit www.towerstream.com and/or follow us @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 small cell rooftop asset platform 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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