MIDDLETOWN, R.I., Aug. 4, 2010 (GLOBE NEWSWIRE) -- Towerstream (Nasdaq:TWER), a leading 4G service provider delivering high-speed wireless Internet access to businesses in 11 major metropolitan areas in the U.S., announced results for the second quarter ended June 30, 2010.
Second Quarter Operating Highlights
- Revenues increased 33% to $4.9 million during the second quarter 2010 compared to the same period last year and increased 15% compared to the first quarter 2010
- Customer churn for the second quarter 2010 was 1.15% compared to 1.29% during the first quarter 2010 and 1.90% in the second quarter 2009
- Adjusted EBITDA profitability totaled $0.05 million for the second quarter 2010 compared to an Adjusted EBITDA loss of $0.2 million and $0.7 million for the first quarter 2010 and second quarter 2009, respectively
- Adjusted Market EBITDA increased to $2.4 million in the second quarter 2010 as compared to $2.1 million for the first quarter 2010 and $1.5 million for the second quarter 2009
- Gross margin remained strong at 75% during the second quarter 2010
Management Comments
"Strong organic growth and the successful integration of Sparkplug's Chicago and Nashville business assets resulted in a 15% sequential increase in revenues," stated Jeff Thompson, Chief Executive Officer. "We will continue to seek acquisition opportunities which are synergistic with our business model and accretive to our operating results."
"Our churn rate improved for the fourth consecutive quarter," added Mr. Thompson. "While ARPU of all customers decreased in connection with the Sparkplug acquisition, we increased our customer base by 21% during the quarter. ARPU of new customers increased by 9% sequentially due to higher average prices for higher capacity links."
"We accomplished our objective of reaching Adjusted EBITDA profitability on a corporate level during the second quarter," stated Joseph Hernon, Chief Financial Officer. "We expect the strength of our monthly recurring revenue model and a continued focus on managing operating expenses will result in consistent increases in Adjusted EBITDA during the second half of 2010."
| Selected Financial Data and Key Operating Metrics | ||||||
| (All dollars are in thousands except ARPU) | ||||||
| (Unaudited) | ||||||
| Three months ended | ||||||
| 6/30/2010 | 3/31/2010 | 6/30/2009 | ||||
| Selected Financial Data | ||||||
| Revenues | $ 4,869 | $ 4,244 | $ 3,673 | |||
| Gross margin | 75% | 75% | 75% | |||
| Depreciation and amortization | 1,454 | 1,101 | 982 | |||
| Core operating expenses (1)(2)(3) | 3,893 | 3,620 | 3,665 | |||
| Operating loss (1)(2) | (1,685) | (1,552) | (1,889) | |||
| Net loss (1)(2) | (1,306) | (1,532) | (2,100) | |||
| Adjusted EBITDA (1)(3) | 46 | (234) | (660) | |||
| Capital expenditures | $ 1,778 | $ 1,374 | $ 1,071 | |||
| Key Operating Metrics | ||||||
| Churn rate (3) | 1.15% | 1.29% | 1.90% | |||
| ARPU (3) | $ 671 | $ 703 | $ 769 | |||
| ARPU of new customers (3) | 550 | 503 | 547 | |||
| (1) Includes non-recurring expenses of $245, $150 and $8, respectively. | ||||||
| (2) Includes stock-based compensation of $264, $194 and $229, respectively. | ||||||
|
(3) 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. |
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Analysis of Results of Operations and Financial Condition
Second Quarter 2010 Results of Operations
Revenues for the second quarter 2010 increased 15% from the first quarter 2010 and increased 33% compared to the second quarter 2009. These increases were driven by 56% growth in our customer base from approximately 1,600 customers at the end of the second quarter 2009 to approximately 2,500 at the end of the second quarter 2010.
ARPU of new customers increased 9% in the second quarter 2010 compared to the first quarter 2010 and increased 1% compared to the second quarter 2009. The increase in ARPU of new customers was partly attributable to increased average prices for higher capacity services.
ARPU of all customers in the second quarter 2010 decreased 5% compared to the first quarter 2010 and decreased 13% compared to the second quarter 2009. The decrease in ARPU of all customers compared to the first quarter 2010 primarily related to the effect of the customer base acquired from Sparkplug. Customers acquired from Sparkplug had an ARPU of $463 compared to $703 for Towerstream's customers prior to the acquisition. The decrease in ARPU of all customers compared to the second quarter of 2009 also reflects the adverse effect of the long economic recession on customer purchasing decisions.
Customer churn during the second quarter 2010 was 1.15% compared to 1.29% during the first quarter 2010 and 1.90% during the second quarter 2009. The lower churn reflects our ongoing focus to improve customer retention and reduce churn.
Gross margin remained stable at 75% in the second quarter 2010 compared to 75% for both the first quarter 2010 and second quarter 2009.
Depreciation and amortization expense increased 32% in the second quarter 2010 compared to the first quarter 2010 and increased 48% compared to the second quarter 2009. The increases are consistent with a higher base of depreciable assets primarily related to our network and customer premise equipment. Gross depreciable assets totaled $29.9 million at the end of the second quarter 2010 compared to $27.6 million and $23.7 million at the end of the first quarter 2010 and second quarter 2009, respectively. Amortization expense totaled $0.3 million in the second quarter 2010 related to a customer contract based intangible asset recorded in connection with the Sparkplug acquisition which closed in April 2010.
Customer support expenses increased 16% in the second quarter 2010 compared to the first quarter 2010 and increased 39% compared to the second quarter 2009. The increases reflect staffing additions and other costs incurred to support our growing customer base which increased 21% compared to the first quarter 2010 and 56% compared to the second quarter 2009.
Sales and marketing expenses increased 7% in the second quarter 2010 compared to the first quarter 2010 and decreased 5% compared to the second quarter 2009. The sequential increase reflects higher sales commission expense. The decrease from second quarter 2009 related to lower department headcount which averaged 62 in the second quarter 2010 compared to 100 in the second quarter 2009. During 2009, the Company's sales and marketing strategy evolved towards the enhanced use of Internet-based marketing programs which has both increased qualified leads and enabled the Company to reduce headcount. Sales and marketing headcount includes marketing, direct sales which includes account executives and sales managers, and indirect sales which includes sales operations, support and administration.
General and administrative expenses increased 5% in the second quarter 2010 compared to the first quarter 2010 and increased 6% compared to the second quarter 2009. These increases were primarily attributable to approximately $245,000 of non-recurring professional services costs related to the Sparkplug acquisition.
Net loss decreased 15% in the second quarter 2010 compared to the first quarter 2010 and decreased 38% compared to the second quarter 2009. The sequential improvement during the second quarter 2010 related to a 15% increase in revenues and a gain on business acquisition of approximately $356,000, offset by a 13% increase in operating expenses. The year-over-year improvement related to a 33% increase in revenues offset by an 18% increase in operating expenses.
Capital expenditures totaled $1.8 million for the second quarter 2010 as compared to $1.4 million for the first quarter 2010 and $1.1 million for the second quarter 2009. During the second quarter 2010, we spent $0.6 million related to the construction of a smart phone offload network in New York City compared with $0.2 million in the first quarter 2010, and zero in the second quarter 2009.
Operating Outlook and Guidance
- Revenues for the third quarter 2010 are expected to range between $5.0 million to $5.2 million
- Adjusted EBITDA profitability is expected to range between $0.2 million to $0.5 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) derivative instruments, 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, has been reconciled to Net loss as follows:
(All dollars are in thousands)
| Three months ended | |||
| 6/30/2010 | 3/31/2010 | 6/30/2009 | |
| Reconciliation of Non-GAAP to GAAP: | |||
| Adjusted EBITDA | $ 46 | $ (234) | $ (660) |
| Interest expense | -- | -- | (186) |
| Interest income | 1 | -- | 9 |
| Gain on business acquisition | 356 | -- | -- |
| Other income (expense), net | 22 | 20 | -- |
| Loss on derivative financial instruments | -- | -- | (34) |
| Loss on property and equipment | (13) | (23) | (18) |
| Depreciation and amortization | (1,454) | (1,101) | (982) |
| Stock-based compensation | (264) | (194) | (229) |
| Net loss | $ (1,306) | $ (1,532) | $ (2,100) |
| Summary Condensed Consolidated Financial Statements | ||
| (All dollars are in thousands except per share amounts) | ||
| (Unaudited) | (Audited) | |
|
Balance Sheet |
June 30, 2010 |
December 31, 2009 |
| Assets | ||
| Current Assets | ||
| Cash and cash equivalents | $ 9,666 | $ 14,041 |
| Accounts receivable, net | 492 | 403 |
| Other | 316 | 258 |
| Total Current Assets | 10,474 | 14,702 |
| Property and equipment, net | 15,055 | 13,635 |
| Other assets | 2,390 | 1,166 |
| Total Assets | 27,919 | 29,503 |
| Liabilities and Stockholders' Equity | ||
| Current Liabilities | ||
| Accounts payable | 871 | 1,056 |
| Accrued expenses | 1,492 | 1,086 |
| Deferred revenues | 1,212 | 1,029 |
| Other | 84 | 79 |
| Total Current Liabilities | 3,659 | 3,250 |
| Long-Term Liabilities | ||
| Derivative liabilities | -- | 567 |
| Other | 233 | 275 |
| Total Long-Term Liabilities | 233 | 842 |
| Total Liabilities | 3,892 | 4,092 |
| Stockholders' Equity | ||
| Common stock | 35 | 35 |
| Additional paid-in-capital | 56,581 | 55,127 |
| Accumulated deficit | (32,589) | (29,751) |
| Total Stockholders' Equity | 24,027 | 25,411 |
| Total Liabilities and Stockholders' Equity | $ 27,919 | $ 29,503 |
| Statement of Operations | ||||
| (Unaudited) |
Three months ended June 30, |
Six months ended June 30, |
||
| 2010 | 2009 | 2010 | 2009 | |
| Revenues | $ 4,869 | $ 3,673 | $ 9,113 | $ 7,090 |
| Operating Expenses | ||||
| Cost of revenues (exclusive of depreciation) | 1,207 | 915 | 2,282 | 1,741 |
| Depreciation and amortization | 1,454 | 982 | 2,555 | 1,930 |
| Customer support services | 672 | 484 | 1,250 | 1,034 |
| Sales and marketing | 1,314 | 1,385 | 2,547 | 2,961 |
| General and administrative | 1,907 | 1,796 | 3,716 | 3,518 |
| Total Operating Expenses | 6,554 | 5,562 | 12,350 | 11,184 |
| Operating Loss | (1,685) | (1,889) | (3,237) | (4,094) |
| Other Income (Expense) | ||||
| Interest income | 1 | 9 | 1 | 22 |
| Interest expense | -- | (186) | -- | (369) |
| Gain on business acquisition | 356 | -- | 356 | -- |
| Loss on derivative financial instruments | -- | (34) | -- | (75) |
| Other income (expense), net | 22 | -- | 42 | -- |
| Total Other Income (Expense) | 379 | (211) | 399 | (422) |
| Net Loss | $ (1,306) | $ (2,100) | $ (2,838) | $ (4,516) |
| Net loss per common share | $ (0.04) | $ (0.06) | $ (0.08) | $ (0.13) |
|
Net loss per common share excluding stock-based compensation |
$ (0.03) |
$ (0.05) |
$ (0.07) |
$ (0.12) |
|
Weighted average common shares outstanding – basic and diluted |
34,915 | 34,595 | 34,792 | 34,591 |
| Statement of Cash Flows (Unaudited) | Six months ended June 30, | |
| 2010 | 2009 | |
| Cash Flows From Operating Activities | ||
| Net loss | $ (2,838) | $ (4,516) |
| Non-cash adjustments: | ||
| Depreciation & amortization | 2,555 | 1,930 |
| Stock-based compensation | 458 | 386 |
| Gain on business acquisition | (356) | -- |
| Other | 72 | 366 |
| Changes in operating assets and liabilities | 59 | (662) |
| Net Cash Used In Operating Activities | (50) | (2,496) |
| Cash Flows From Investing Activities | ||
| Acquisitions of property and equipment | (3,152) | (2,026) |
| Acquisition of a business | (1,170) | -- |
| Other | (3) | (3) |
| Net Cash Used In Investing Activities | (4,325) | (2,029) |
| Cash Flows From Financing Activities | ||
| Repayment of capital leases | -- | (19) |
| Repayment of short-term debt | -- | (8) |
| Net Cash Used In Financing Activities | -- | (27) |
| Net Decrease In Cash and Cash Equivalents | (4,375) | (4,552) |
| Cash and Cash Equivalents – Beginning | 14,041 | 24,740 |
| Cash and Cash Equivalents – Ending | $ 9,666 | $ 20,188 |
| Market data for the three months ended June 30, 2010 | ||||||
|
(All dollars are in thousands) |
||||||
| Market | Revenues |
Cost of Revenues(1) |
Gross Margin(1) |
Operating Costs |
Adjusted Market EBITDA |
|
| New York | $ 1,459 | $ 285 | $ 1,174 | 80% | $ 353 | $ 821 |
| Boston | 1,084 | 171 | 913 | 84% | 164 | 749 |
| Los Angeles | 754 | 137 | 617 | 82% | 258 | 359 |
| Chicago | 650 | 203 | 447 | 69% | 155 | 292 |
| San Francisco | 276 | 61 | 215 | 78% | 81 | 134 |
| Miami | 255 | 85 | 170 | 67% | 89 | 81 |
| Providence/Newport | 125 | 39 | 86 | 69% | 28 | 58 |
| Seattle | 131 | 57 | 74 | 56% | 32 | 42 |
| Nashville | 21 | 14 | 7 | 33% | 7 | -- |
| Dallas-Fort Worth | 113 | 82 | 31 | 27% | 62 | (31) |
| Philadelphia | 1 | 13 | (12) | 0% | 54 | (66) |
| Total | $ 4,869 | $ 1,147 | $ 3,722 | 76% | $ 1,283 | $ 2,439 |
| Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure | ||||||
| Adjusted market EBITDA | $ 2,439 | |||||
| Centralized costs (1) | (763) | |||||
| Corporate expenses | (1,643) | |||||
| Depreciation and amortization | (1,454) | |||||
| Stock-based compensation | (264) | |||||
| Other income (expense) | 379 | |||||
| Net loss | $ (1,306) | |||||
| Market data for the three months ended June 30, 2009 | ||||||
| Market | Revenues |
Cost of Revenues(1) |
Gross Margin(1) |
Operating Costs |
Adjusted Market EBITDA (2) |
|
| New York | $ 1,322 | $ 228 | $ 1,094 | 83% | $ 279 | $ 815 |
| Boston | 1,008 | 166 | 842 | 84% | 195 | 647 |
| Los Angeles | 442 | 82 | 360 | 81% | 238 | 122 |
| San Francisco | 235 | 56 | 179 | 76% | 99 | 80 |
| Providence/Newport | 126 | 37 | 89 | 71% | 62 | 27 |
| Chicago | 220 | 87 | 133 | 60% | 116 | 17 |
| Miami | 150 | 66 | 84 | 56% | 110 | (26) |
| Seattle | 107 | 59 | 48 | 45% | 87 | (39) |
| Dallas-Fort Worth | 63 | 60 | 3 | 5% | 118 | (115) |
| Total | $ 3,673 | $ 841 | $ 2,832 | 77% | $ 1,304 | $ 1,528 |
| Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure | ||||||
| Adjusted market EBITDA | $ 1,528 | |||||
| Centralized costs (1) | (639) | |||||
| Corporate expenses | (1,567) | |||||
| Depreciation | (982) | |||||
| Stock-based compensation | (229) | |||||
| Other income (expense) | (211) | |||||
| Net loss | $ (2,100) | |||||
|
(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 $60 and $74 respectively for the three months ended June 30, 2010 and 2009. |
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|
(2) Certain accounts have been reclassified for comparative purposes to conform to current year presentation. These reclassifications have no effect on the previously reported total Adjusted Market EBITDA. |
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| Market data for the six months ended June 30, 2010 | ||||||
| (All dollars are in thousands) | ||||||
| Market | Revenues |
Cost of Revenues(3) |
Gross Margin(3) |
Operating Costs |
Adjusted Market EBITDA |
|
| New York | $ 2,853 | $ 557 | $ 2,296 | 80% | $ 643 | $ 1,653 |
| Boston | 2,136 | 346 | 1,790 | 84% | 338 | 1,452 |
| Los Angeles | 1,429 | 270 | 1,159 | 81% | 547 | 612 |
| Chicago | 942 | 315 | 627 | 67% | 250 | 377 |
| San Francisco | 545 | 118 | 427 | 78% | 146 | 281 |
| Miami | 455 | 155 | 300 | 66% | 176 | 124 |
| Providence/Newport | 253 | 83 | 170 | 67% | 63 | 107 |
| Seattle | 253 | 109 | 144 | 57% | 63 | 81 |
| Nashville | 21 | 14 | 7 | 33% | 7 | -- |
| Dallas-Fort Worth | 225 | 164 | 61 | 27% | 116 | (55) |
| Philadelphia | 1 | 28 | (27) | 0% | 105 | (132) |
| Total | $ 9,113 | $ 2,159 | $ 6,954 | 76% | $ 2,454 | $ 4,500 |
| Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure | ||||||
| Adjusted market EBITDA | $ 4,500 | |||||
| Centralized costs (3) | (1,466) | |||||
| Corporate expenses | (3,258) | |||||
| Depreciation and amortization | (2,555) | |||||
| Stock-based compensation | (458) | |||||
| Other income (expense) | 399 | |||||
| Net loss | $ (2,838) | |||||
|
Market data for the six months ended June 30, 2009 |
||||||
| Market | Revenues |
Cost of Revenues(3) |
Gross Margin(3) |
Operating Costs |
Adjusted Market EBITDA (2) |
|
| New York | $ 2,559 | $ 426 | $ 2,133 | 83% | $ 626 | $ 1,507 |
| Boston | 1,969 | 335 | 1,634 | 83% | 398 | 1,236 |
| Los Angeles | 848 | 149 | 699 | 82% | 510 | 189 |
| San Francisco | 459 | 100 | 359 | 78% | 228 | 131 |
| Providence/Newport | 267 | 74 | 193 | 72% | 114 | 79 |
| Chicago | 422 | 168 | 254 | 60% | 243 | 11 |
| Miami | 260 | 126 | 134 | 52% | 217 | (83) |
| Seattle | 204 | 126 | 78 | 38% | 187 | (109) |
| Dallas-Fort Worth | 102 | 114 | (12) | (12)% | 243 | (255) |
| Total | $ 7,090 | $ 1,618 | $ 5,472 | 77% | $ 2,766 | $ 2,706 |
| Reconciliation of Non-GAAP Financial Measure to GAAP Financial Measure | ||||||
| Adjusted market EBITDA | $ 2,706 | |||||
| Centralized costs (3) | (1,352) | |||||
| Corporate expenses | (3,132) | |||||
| Depreciation | (1,930) | |||||
| Stock-based compensation | (386) | |||||
| Other income (expense) | (422) | |||||
| Net loss | $ (4,516) | |||||
|
(3) 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 $123 for both the six months ended June 30, 2010 and 2009. |
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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 4, 2010 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 11, 2010 at 11:59 p.m. ET by dialing 800-642-1687 or 706-645-9291 (for international callers) using pass code 87769181.
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=83667.
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 11 markets including New York City, Boston, Los Angeles, Chicago, the San Francisco Bay area, Miami, Seattle, Dallas-Fort Worth, Philadelphia, Nashville and the greater Providence area where the Company is based. 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 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. 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.