Towerstream Announces Year-over-Year Quarterly Revenue
Growth of 64%
Company reports fourth consecutive quarter of improved operating results
Middletown, RI, May 6, 2009 – Towerstream (NASDAQ: TWER), a leading WiMAX provider currently operating in nine major metropolitan areas, announced results for the first quarter ended March 31, 2009.
Operating Highlights:
| | · | First quarter 2009 revenues increased 64% from the first quarter 2008 and increased 6% from the fourth quarter 2008 |
| | · | Record number of customer installations in first quarter 2009 |
| | · | Gross margin improved to 76% during the first quarter 2009 which represented a 10% increase from the fourth quarter 2008 and a 38% increase from the first quarter 2008 |
| | · | Adjusted EBITDA increased by 29% from the fourth quarter 2008, improving from a loss of $1.5 million to a loss of $1.1 million |
| | · | Six markets are now generating positive EBITDA and all nine markets collectively are generating positive EBITDA |
| | · | “Cash burn” totaled $2.7 million in the first quarter 2009, representing a 19% decrease from the fourth quarter 2008 and a 43% decrease from its peak of $4.7 million in the first quarter 2008 |
| | · | Customer churn for the first quarter 2009 was 1.68%, compared to 1.23% for the fourth quarter 2008 and 1.33% for the first quarter 2008 |
| | · | Cash and cash equivalents totaled $21.8 million at March 31, 2009 |
Management Comments:
“Our first quarter results were impressive, especially considering the difficult economic environment,” said Jeff Thompson, President and Chief Executive Officer. “ARPU for new customers was lower in the first quarter, reflecting more cautious purchasing decisions by new customers. However, our total number of installations reached a corporate record during the quarter, reflecting strong overall customer demand. Businesses need a strong Internet connection to operate effectively and our unique, simple broadband products provide that solution.”
“Our current operating focus on existing markets is clearly demonstrating the leveraging capacity of our business model,” stated Joseph Hernon, Chief Financial Officer. “Gross margin improved for the fourth consecutive quarter and reached 76%, a corporate record. Operating expenses decreased 5% on a sequential basis, reflecting our continued focus on controlling costs. As a result, adjusted EBITDA improved by 29% in the first quarter 2009 compared to the fourth quarter 2008. As expected, capital expenditures decreased to approximately $955,000 which represents a 50% decrease from our quarterly average during 2008. Improved adjusted EBITDA and lower capital expenditures resulted in a 19% decrease in cash burn as compared to the fourth quarter 2008. We ended the first quarter 2009 in a strong financial position with approximately $21.8 million in cash and cash equivalents. We have the capital required to execute our business plan through this challenging economic period.”
“We have included operating information on each of our nine markets in this quarter’s report,” stated Mr. Thompson. “We believe that this information will enable shareholders and investors to better understand the long-term potential of our business model. This potential is evident in reviewing the performance of our first two markets, Boston and New York, which generated gross margins of 85% and 86% respectively, and per-market adjusted EBITDA of approximately $650,000 and $740,000 respectively. In total, six of our nine markets are now reporting positive adjusted EBITDA, and collectively, our nine markets are profitable on an adjusted EBITDA basis. Our Dallas, Miami, and Seattle markets have each been consistently reducing their per-market adjusted EBITDA losses over the past six months and we expect continued improvement going forward. We presently expect Miami to be the next market to reach EBITDA profitability.”
The Company also announced that Bruce Grinnell had left the Company, effective May 1, 2009. His responsibilities are being assumed by the Company’s other executive officers in order to realize additional expense savings and operational efficiencies.
Selected Financial Data and Key Operating Metrics:
(All dollars are in thousands except ARPU)
| | | (Unaudited) | |
| | | Three months ended | |
| | | 3/31/2009 | | | 12/31/2008* | | | 3/31/2008* | |
| Selected Financial Data | | | | | | | | | |
| Revenues | | $ | 3,417 | | | $ | 3,210 | | | $ | 2,082 | |
| Gross margin | | | 76 | % | | | 69 | % | | | 55 | % |
| Operating expenses (1) | | | 5,605 | | | | 5,874 | | | | 5,792 | |
| Operating loss (1) | | | (2,188 | ) | | | (2,664 | ) | | | (3,710 | ) |
| Net loss (1) | | | (2,416 | ) | | | (2,823 | ) | | | (3,609 | ) |
| Adjusted EBITDA (2) | | | (1,084 | ) | | | (1,526 | ) | | | (2,859 | ) |
| | | | | | | | | | | | | |
| Capital expenditures | | $ | 955 | | | $ | 1,755 | | | $ | 2,047 | |
| | | | | | | | | | | | | |
| Key Operating Metrics | | | | | | | | | | | | |
| Churn rate (2) | | | 1.68 | % | | | 1.23 | % | | | 1.33 | % |
| ARPU (2) | | $ | 799 | | | $ | 828 | | | $ | 772 | |
| ARPU of new customers (2) | | $ | 540 | | | $ | 773 | | | $ | 842 | |
* Certain reclassifications of prior period amounts have been made to conform to current year presentation.
(1) Includes stock-based compensation of $157, $202 and $174, 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
First Quarter 2009 Results of Operations
Revenues for the first quarter 2009 increased 64% from the first quarter 2008, and increased 6% compared to the fourth quarter 2008. These increases were driven by the continued growth in our customer base.
ARPU of new customers in the first quarter 2009 decreased 30% compared to the fourth quarter 2008, and decreased 36% compared to the first quarter 2008. ARPU of all customers in the first quarter 2009 decreased 4% compared to the fourth quarter 2008, and increased 3% compared to the first quarter 2008. Customer churn for the first quarter 2009 of 1.68% increased compared to 1.23% for the fourth quarter 2008 and 1.33% for the first quarter 2008. The higher churn in the 2009 period reflects the effect of the ongoing economic recession on the Company’s commercial customer base.
Gross margin increased by 10% in the first quarter 2009 compared to the fourth quarter 2008, and increased by 38% compared to the first quarter 2008. The improvement in gross margin primarily related to an 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 the first quarter 2009 decreased 3% compared to the fourth quarter 2008, and increased 21% compared to the first quarter 2008. The year-over-year increase reflects staffing additions and other costs incurred to support our growing customer base. The number of customers increased 51% during the twelve months ended March 31, 2009.
Sales and marketing expenses in the first quarter 2009 decreased 9% compared to the fourth quarter 2008, and decreased 11% compared to the first quarter 2008. The decreases are primarily related to lower average department headcount as the Company increased its focus on cost controls and continued to optimize its sales model. Department headcount averaged 102, 106, and 120 in the first quarter 2009, fourth quarter 2008, and first quarter 2008, respectively. Sales and marketing headcount includes direct sales personnel including account executives, sales managers and sales directors, as well as indirect sales personnel which includes sales operations, support and administration.
General and administrative expenses increased 2% in the first quarter 2009 compared to the fourth quarter 2008, and decreased 13% compared to the first quarter 2008. The year-over-year decrease of 13% is attributable to lower professional fees of approximately $196,000.
Net loss decreased 14% in the first quarter 2009 compared to the fourth quarter 2008, and decreased 33% compared to the first quarter 2008. The 14% improvement on a sequential basis reflects the positive effect of a 6% increase in revenues and a 5% decrease in operating expenses. The year-over-year improvement of 33% is attributable to a 64% increase in revenues, and a 3% decrease in operating expenses.
Operating Outlook and Guidance:
| | · | Revenues for the second quarter 2009 are expected to range between $3.6 million & $3.7 million. |
| | · | Cash Burn for the second quarter 2009 is expected to range between $2.0 million to $2.4 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 principle 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 liabilities, and other non-operating income or expenses. Adjusted EBITDA for a market also excludes corporate overhead expenses and other centralized operating costs. We believe that adjusted EBITDA trends are valuable indicators of our markets relative performance, and of 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 operating 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 | |
| | | 3/31/2009 | | | 12/31/2008* | | | 3/31/2008* | |
| Reconciliation of Non-GAAP to GAAP: | | | | | | | | | |
| Adjusted EBITDA | | $ | (1,084 | ) | | $ | (1,526 | ) | | $ | (2,859 | ) |
| Interest expense | | | (184 | ) | | | (115 | ) | | | (183 | ) |
| Interest income | | | 13 | | | | 18 | | | | 289 | |
| Other expense, net | | | (16 | ) | | | (62 | ) | | | (5 | ) |
| Loss on derivative financial instruments | | | (41 | ) | | | - | | | | - | |
| Depreciation | | | (947 | ) | | | (936 | ) | | | (677 | ) |
| Stock-based compensation | | | (157 | ) | | | (202 | ) | | | (174 | ) |
| Net loss | | $ | (2,416 | ) | | $ | (2,823 | ) | | $ | (3,609 | ) |
* Certain reclassifications of prior period amounts have been made to conform to current year presentation.
Summary Condensed Consolidated Financial Statements
| | | (Unaudited) | | | (Audited) | |
| | | March 31, 2009 | | | December 31, 2008 | |
| Assets | | | | | | |
| Current Assets | | | | | | |
| Cash and cash equivalents | | $ | 21,807 | | | $ | 24,740 | |
| Accounts receivable, net | | | 385 | | | | 280 | |
| Other | | | 359 | | | | 319 | |
| Total Current Assets | | | 22,551 | | | | 25,339 | |
| | | | | | | | | |
| Property and equipment, net | | | 12,881 | | | | 12,891 | |
| | | | | | | | | |
| Other assets | | | 1,062 | | | | 1,058 | |
| | | | | | | | | |
| Total Assets | | | 36,494 | | | | 39,288 | |
| | | | | | | | | |
| Liabilities and Stockholders’ Equity | | | | | | | | |
| Current Liabilities | | | | | | | | |
| Accounts payable | | | 865 | | | | 1,395 | |
| Accrued expenses | | | 759 | | | | 861 | |
| Deferred revenues | | | 952 | | | | 986 | |
| Short-term debt, net of discount | | | 2,406 | | | | 2,607 | |
| Derivative liabilities | | | 14 | | | | - | |
| Other | | | 69 | | | | 78 | |
| Total Current Liabilities | | | 5,065 | | | | 5,927 | |
| | | | | | | | | |
| Other Liabilities | | | | | | | | |
| Derivative liabilities | | | 116 | | | | - | |
| Other | | | 338 | | | | 354 | |
| Total Other Liabilities | | | 454 | | | | 354 | |
| Total Liabilities | | | 5,519 | | | | 6,281 | |
| | | | | | | | | |
| Stockholders’ Equity | | | | | | | | |
| Common stock | | | 34 | | | | 34 | |
| Additional paid-in-capital | | | 54,482 | | | | 54,852 | |
| Accumulated deficit | | | (23,541 | ) | | | (21,879 | ) |
| Total Stockholder’s Equity | | | 30,975 | | | | 33,007 | |
| Total Liabilities and Stockholder’s Equity | | $ | 36,494 | | | $ | 39,288 | |
| | | (Unaudited) | |
| | | Three months ended March 31, | |
| | | 2009 | | | 2008 | |
| | | | | | | |
| Revenues | | $ | 3,417 | | | $ | 2,082 | |
| | | | | | | | | |
| Operating Expenses | | | | | | | | |
| Cost of revenues (exclusive of depreciation) | | | 826 | | | | 933 | |
| Depreciation | | | 947 | | | | 677 | |
| Customer support services | | | 550 | | | | 453 | |
| Sales and marketing | | | 1,576 | | | | 1,774 | |
| General and administrative | | | 1,706 | | | | 1,955 | |
| Total Operating Expenses | | | 5,605 | | | | 5,792 | |
| Operating Loss | | | (2,188 | ) | | | (3,710 | ) |
| Other Income (Expense) | | | | | | | | |
| Interest income | | | 13 | | | | 289 | |
| Interest expense | | | (184 | ) | | | (183 | ) |
| Other expense, net | | | (16 | ) | | | (5 | ) |
| Loss on derivative financial instruments | | | (41 | ) | | | - | |
| Total Other Income (Expense) | | | (228 | ) | | | 101 | |
| Net Loss | | $ | (2,416 | ) | | $ | (3,609 | ) |
| | | | | | | | | |
| Net loss per common share | | $ | (0.07 | ) | | $ | (0.10 | ) |
| Net loss per common share excluding stock-based compensation | | $ | (0.07 | ) | | $ | (0.10 | ) |
| Weighted average common shares outstanding – basic and diluted | | | 34,588 | | | | 34,496 | |
| | | (Unaudited) | |
| | | Three months ended March 31, | |
| | | 2009 | | | 2008 | |
| | | | | | | |
| Cash Flows From Operating Activities | | | | | | |
| Net loss | | $ | (2,416 | ) | | $ | (3,609 | ) |
| Non-cash adjustments: | | | | | | | | |
| Depreciation | | | 947 | | | | 677 | |
| Stock-based compensation | | | 157 | | | | 174 | |
| Other | | | 172 | | | | 251 | |
| Changes in operating assets and liabilities | | | (823 | ) | | | (157 | ) |
| Net Cash Used In Operating Activities | | | (1,963 | ) | | | (2,664 | ) |
| | | | | | | | | |
| Cash Flows From Investing Activities | | | | | | | | |
| Acquisitions of property and equipment | | | (955 | ) | | | (2,047 | ) |
| Other | | | (3 | ) | | | (9 | ) |
| Net Cash Used In Investing Activities | | | (958 | ) | | | (2,056 | ) |
| | | | | | | | | |
| Cash Flows From Financing Activities | | | | | | | | |
| Repayment of capital leases | | | (12 | ) | | | (14 | ) |
| Net Cash Used In Financing Activities | | | (12 | ) | | | (14 | ) |
| | | | | | | | | |
| Net Decrease In Cash and Cash Equivalents | | | (2,933 | ) | | | (4,734 | ) |
| | | | | | | | | |
| Cash and Cash Equivalents – Beginning | | | 24,740 | | | | 40,757 | |
| Cash and Cash Equivalents – Ending | | $ | 21,807 | | | $ | 36,023 | |
Market data for the quarter ended March 31, 2009
(in thousands)
| Market | | Revenues | | | Cost of Revenues | | | Gross Margin | | | Operating Cost | | | Adjusted Market EBITDA | |
| New York | | $ | 1,237 | | | $ | 174 | | | $ | 1,063 | | | | 86 | % | | $ | (323 | ) | | $ | 740 | |
| Boston | | | 962 | | | | 140 | | | | 822 | | | | 85 | % | | | (172 | ) | | | 650 | |
| Los Angeles | | | 406 | | | | 65 | | | | 341 | | | | 84 | % | | | (270 | ) | | | 71 | |
| Providence/Newport | | | 141 | | | | 34 | | | | 107 | | | | 76 | % | | | (49 | ) | | | 58 | |
| San Francisco | | | 223 | | | | 43 | | | | 180 | | | | 81 | % | | | (129 | ) | | | 51 | |
| Chicago | | | 202 | | | | 71 | | | | 131 | | | | 65 | % | | | (117 | ) | | | 14 | |
| Seattle | | | 97 | | | | 56 | | | | 41 | | | | 42 | % | | | (88 | ) | | | (47 | ) |
| Miami | | | 109 | | | | 59 | | | | 50 | | | | 46 | % | | | (107 | ) | | | (57 | ) |
| Dallas-Fort Worth | | | 40 | | | | 54 | | | | (14 | ) | | | (35 | )% | | | (125 | ) | | | (139 | ) |
| Total | | $ | 3,417 | | | $ | 696 | | | $ | 2,721 | | | | 80 | % | | $ | 1,380 | | | $ | 1,341 | |
| Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure | | | |
| | | | |
| Adjusted market EBITDA | | $ | 1,341 | |
| Centralized operating costs | | | (876 | ) |
| Corporate expenses | | | (1,549 | ) |
| Depreciation | | | (947 | ) |
| Stock-based compensation | | | (157 | ) |
| Other income (expense) | | | (228 | ) |
| Net loss | | $ | (2,416 | ) |
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 May 6, 2009 at 4:30 p.m. EDT to review results and provide an update on business developments.
Interested parties may participate in the conference by dialing 888-679-8033 or 617-213-4846 (for international callers) using pass code 70974945. A telephonic replay of the conference may be accessed approximately four hours after the call through May 13, 2009 at 11:59 p.m. EDT by dialing 888-286-8010 or 617-801-6888 (for international callers) using pass code 47296875.
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.
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 and Providence/Newport, RI.
For more information, visit www.towerstream.com.
About Towerstream Corporation
Towerstream is a leading WiMAX service provider in the U.S., delivering high-speed Internet access to businesses. Founded in 2000, the Company has established networks in nine markets including New York City, Boston, Los Angeles, Chicago, the San Francisco Bay Area, Miami, Seattle, Dallas-Fort Worth, 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.
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 publicly release statements made to reflect events or circumstances after the date hereof.
INVESTOR CONTACT:
Terry McGovern
Vision Advisors
415-902-3001
mcgovern@visionadvisors.net
Amanda Lordy/ Todd Barrish
Dukas Public Relations
212-704-7385
amanda@dukaspr.com / todd@dukaspr.com
