Towerstream Reports First Quarter 2012 Results

 

 

MIDDLETOWN, R.I., May 10, 2012 – Towerstream Corporation (NASDAQ: TWER), a leading 4G and Wi-Fi/ Small Cell Network Services provider, announced results for the first quarter ended March 31, 2012.

 

First Quarter Operating Highlights

 

·

Revenues increased 9% to $7.8 million during the first quarter 2012 compared to the fourth quarter 2011 and increased 31% compared to the first quarter 2011

·

Adjusted EBITDA profitability, excluding non-recurring expenses and costs associated with the Wi-Fi network investment, increased to $1.4 million for the first quarter 2012 compared to $1.3 million for the fourth quarter 2011 and compared to $0.8 million for the first quarter 2011

·

Customer churn for the first quarter 2012 was 1.58% and remained within or below the Company’s target range of 1.4% to 1.7% for the tenth consecutive quarter.

 

Management Comments

 

“We are very pleased with the progress we are making with the carriers with our Wi-Fi and Small Cell rooftop assets,” stated Jeff Thompson, Chief Executive Officer. “We believe that we have positioned the Company to become one of the leaders in Small Cell rooftops leasing and operating during one of the biggest network upgrades in the history of Mobile broadband.” 

 

“Adjusted EBITDA profitability from core services continued to improve in the first quarter,” stated Joseph Hernon, Chief Financial Officer. “We are expanding investment in our Wi-Fi offload program into additional markets based on the strong interest in these services in major urban areas.”

 

Selected Financial Data and Key Operating Metrics

(All dollars are in thousands except ARPU)

		(Unaudited)
		Three months ended
		3/31/2012				12/31/2011				3/31/2011
Selected Financial Data
Revenues		$	7,819			$	7,185			$	5,953
Gross margin			61	%			64	%			75	%
Adjusted gross margin excluding Wi-Fi network expenses			72	%			72	%			75	%
Depreciation and amortization			3,281				2,651				1,975
Core operating expenses (1)(2)			5,840				5,109				3,986
Operating loss (1)			(4,370	)			(3,164	)			(1,514	)
Gain on business acquisition			-				1,186				-
Net loss (1)			(4,380	)			(2,080	)			(1,513	)
Adjusted EBITDA (2)			(520	)			(63	)			593
Non-recurring expenses			334				200				49
Wi-Fi network expenses			1,632				1,181				121
Adjusted EBITDA excluding non-recurring and Wi-Fi network expenses(2)			1,446				1,318				763
Capital expenditures
Wireless broadband		$	3,813			$	3,052			$	1,532
Wi-Fi network			2,048				1,071				1,088
Key Operating Metrics
Churn rate (2)			1.58	%			1.43	%			1.56	%
ARPU (2)		$	706			$	710			$	688
ARPU of new customers (2)			545				612				558

 

(1) Includes stock-based compensation of $524, $419 and $106, 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

  

·

Revenues for the second quarter 2012 are expected to range between $8.0 million to $8.1 million.

 

·

Adjusted EBITDA profitability is expected to range between $1.3 million to $1.5 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 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
		3/31/2012				12/31/2011				3/31/2011
Reconciliation of Non-GAAP to GAAP:
Adjusted EBITDA, excluding non-recurring expenses and Wi-Fi network expenses		$	1,446			$	1,318			$	763
Depreciation and amortization			(3,281	)			(2,651	)			(1,975	)
Non-recurring expenses, primarily acquisition-related			(334	)			(200	)			(49	)
Wi-Fi network expenses			(1,632	)			(1,181	)			(121	)
Stock-based compensation			(524	)			(419	)			(106	)
Loss on property and equipment			(12	)			(16	)			(18	)
Loss on nonmonetary transactions			(33	)			(15	)			(8	)
Interest expense			(22	)			(8	)			(3	)
Gain on business acquisition			-				1,186				-
Other income (expense), net			(5	)			(1	)			(2	)
Interest income			17				25				6
Provision for income taxes			-				(118	)			-
Net loss		$	(4,380	)		$	(2,080	)		$	(1,513	)

 

Summary Condensed Consolidated Financial Statements

(All dollars are in thousands except per share amounts)

 

Statement of Operations		(Unaudited)
		Three months ended March 31,
		2012				2011
Revenues		$	7,819			$	5,953
Operating Expenses
Cost of revenues (exclusive of depreciation)			3,068				1,506
Depreciation and amortization			3,281				1,975
Customer support services			1,068				771
Sales and marketing			1,430				1,340
General and administrative			3,342				1,875
Total Operating Expenses			12,189				7,467
Operating Loss			(4,370	)			(1,514	)
Other Income (Expense)
Interest income			17				6
Interest expense			(22	)			(3	)
Other income (expense), net			(5	)			(2	)
Total Other Income (Expense)			(10	)			1
Net Loss		$	(4,380	)		$	(1,513	)
Net loss per common share		$	(0.08	)		$	(0.04	)
Weighted average common shares outstanding – basic and diluted			54,312				42,210

 

 

Analysis of First Quarter Results of Operations

 

Revenues for the first quarter 2012 increased 9% from the fourth quarter 2011 and increased 31% compared to the first quarter 2011. These increases were driven by a 24% growth in our customer base from approximately 2,900 customers at the end of the first quarter 2011 to approximately 3,600 at the end of the first quarter 2012.

 

ARPU of new customers decreased 11% in the first quarter 2012 compared to the fourth quarter 2011 and decreased 2% compared to the first quarter 2011. The sequential decrease related to a higher relative percentage of new customers purchasing lower ARPU bandwidth in the first quarter 2012 compared to the fourth quarter 2011. ARPU of all customers in the first quarter 2012 decreased 1% compared to the fourth quarter 2011 and increased 3% compared to the first quarter 2011.

 

Customer churn during the first quarter 2012 was 1.58% compared to 1.43% during the fourth quarter 2011 and 1.56% during the first 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 19% in the first quarter 2012 compared to the fourth quarter 2011 and increased by slightly greater than 100% compared to the first quarter 2011. The Company spent $0.8 million in the first quarter 2012 related to the construction of its Wi-Fi network as compared to $0.6 million in the fourth quarter 2011 and basically zero in the first quarter 2011. The increase also related to additional network expenses associated with the acquisition of One Velocity and Color Broadband.

 

Depreciation expense increased 14% in the first quarter 2012 compared to the fourth quarter 2011 and increased 68% compared to the first quarter 2011. The base of depreciable assets was 11% higher at the end of the first quarter 2012 as compared to the fourth quarter 2011 and 62% higher compared to the first quarter of 2011. The increased depreciable base reflects continued growth in the core business as well as spending on the Wi-Fi network.

 

Amortization expense increased 51% in the first quarter 2012 compared to the fourth quarter 2011 and increased 63% compared to the first 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.

 

Customer support expenses increased 9% in the first quarter 2012 compared to the fourth quarter 2011 and increased 38% compared to the first quarter 2011. These increases related to staffing additions and other costs incurred to support a customer base which increased 24% over the one year period.

 

 

Sales and marketing expenses increased 14% in the first quarter 2012 compared to the fourth quarter 2011 and increased 7% compared to the first quarter 2011. These increases primarily related to higher payroll costs.

 

General and administrative expenses increased 16% in the first quarter 2012 compared to the fourth quarter 2011 and increased 78% compared to the first quarter 2011. Costs associated with the Wi-Fi network totaled approximately $0.6 million in the first quarter 2012 compared to approximately $0.4 million in the fourth quarter 2011 and approximately $0.1 million in the first quarter 2011. The year-over-year increase also relates to higher employee stock-based compensation, acquisition costs and information technology spending.

 

Capital expenditures totaled $5.9 million for the first quarter 2012 as compared to $4.1 million for the fourth quarter 2011 and $2.6 million for the first quarter 2011. The Company spent $2.0 million in the first quarter 2012 related to the construction of its Wi-Fi network, and $1.1 million in the fourth quarter 2011 and $1.1 million in the first quarter 2011.

 

Balance Sheet (All dollars are in thousands)
		(Unaudited) March 31, 2012				(Audited) December 31, 2011
Assets
Current Assets
Cash and cash equivalents		$	38,675			$	44,672
Other			1,767				1,216
Total Current Assets			40,442				45,888
Property and equipment, net			31,148				27,531
Other assets			9,345				10,218
Total Assets			80,935				83,637
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable and accrued expenses			5,057				3,564
Deferred revenues and other			1,999				2,277
Total Current Liabilities			7,056				5,841
Long-Term Liabilities			522				651
Total Liabilities			7,578				6,492
Stockholders’ Equity
Common stock			54				54
Additional paid-in-capital			120,062				119,470
Accumulated deficit			(46,759	)			(42,379	)
Total Stockholders’ Equity			73,357				77,145
Total Liabilities and Stockholders’ Equity		$	80,935			$	83,637

 

 

Statement of Cash Flows  (Unaudited)		Three months ended March 31,
		2012				2011
Cash Flows From Operating Activities
Net loss		$	(4,380	)		$	(1,513	)
Non-cash adjustments:
Depreciation & amortization			3,281				1,975
Stock-based compensation			524				106
Other			21				25
Changes in operating assets and liabilities			(636	)			684
Net Cash Provided (Used in) By Operating Activities			(1,190	)			1,277
Cash Flows From Investing Activities
Acquisitions of property and equipment			(4,618	)			(2,620	)
Other			(126	)			(9	)
Net Cash Used In Investing Activities			(4,744	)			(2,629	)
Cash Flows From Financing Activities
Repayment of capital leases			(131	)			(20	)
Proceeds from stock issuances			68				205
Net Cash (Used in) Provided By Financing Activities			(63	)			185
Net Decrease In Cash and Cash Equivalents			(5,997	)			(1,167	)
Cash and Cash Equivalents – Beginning			44,672				23,173
Cash and Cash Equivalents – Ending		$	38,675			$	22,006

 

Market data for the three months ended March 31, 2012

(All dollars are in thousands)

Market		Revenues				Cost of Revenues				Gross Margin (1)								Operating Costs				Adjusted Market EBITDA
Los Angeles		$	1,967			$	580			$	1,387				71	%		$	351			$	1,036
Boston			1,689				394				1,295				77	%			266				1,029
New York			1,648				1,102				546				33	%			353				193
Chicago			861				274				587				68	%			158				429
Las Vegas-Reno			432				153				279				65	%			40				239
Miami			419				88				331				79	%			102				229
San Francisco			377				176				201				53	%			84				117
Providence-Newport			108				40				68				63	%			30				38
Seattle			116				63				53				46	%			27				26
Dallas-Fort Worth			169				83				86				51	%			78				8
Nashville			9				13				(4	)			0	%			9				(13	)
Philadelphia			24				16				8				33	%			22				(14	)
Total		$	7,819			$	2,982			$	4,837				62	%		$	1,520			$	3,317
Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure
Adjusted market EBITDA																						$	3,317
Centralized costs																							(1,064	)
Corporate expenses																							(2,818	)
Depreciation and amortization																							(3,281	)
Stock-based compensation																							(524	)
Other income (expense)																							(10	)
Net loss																						$	(4,380	)

 

 

Market data for the three months ended March 31, 2011

(All dollars are in thousands)

Market		Revenues				Cost of Revenues(1)				Gross Margin(1)								Operating Costs				Adjusted Market EBITDA
Boston		$	1,653			$	394			$	1,259				76	%		$	222			$	1,037
New York			1,448				340				1,108				77	%			332				776
Los Angeles			950				174				776				82	%			261				515
Chicago			817				227				590				72	%			185				405
San Francisco			349				60				289				83	%			93				196
Miami			301				69				232				77	%			103				129
Seattle			136				53				83				61	%			29				54
Providence/Newport			119				41				78				66	%			27				51
Dallas-Fort Worth			144				81				63				44	%			65				(2	)
Nashville			16				8				8				50	%			12				(4	)
Philadelphia			20				13				7				35	%			28				(21	)
Total		$	5,953			$	1,460			$	4,493				75	%		$	1,357			$	3,136
Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure
Adjusted market EBITDA																						$	3,136
Centralized costs (1)																							(799	)
Corporate expenses																							(1,770	)
Depreciation and amortization																							(1,975	)
Stock-based compensation																							(106	)
Other income (expense)																							1
Net loss																						$	(1,513	)

 

(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 $86 and $46 respectively for the three months ended March 31, 2012 and 2011.

 

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 10, 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 May 17, 2012 at 11:59 p.m. ET by dialing 800-585-8367 or 404-537-3406 (for international callers) using pass code 72701708.

 

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=112334.

 

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. 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.

 

INVESTOR CONTACT:

Terry McGovern

Vision Advisors

415-902-3001

mcgovern@visionadvisors.net

 

MEDIA CONTACT:

Todd Barrish

Indicate Media
646-396-6090

todd@indicatemedia.com