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Towerstream Announces Record Revenues for the Fourth Quarter 2008 with Sequential Growth of 12% and Year-over-Year Quarterly Growth of 68%

Posted on: Wednesday, 18 March 2009, 15:01 CDT

Company in a strong financial position with cash balance of $25 million

MIDDLETOWN, R.I., March 18 /PRNewswire-FirstCall/ -- Towerstream (Nasdaq: TWER), a leading WiMAX provider currently operating in nine major metropolitan areas, announced results for the fourth quarter and fiscal year ended December 31, 2008.

Operating Highlights:

• Fourth quarter 2008 revenues increased 12% from the third quarter 2008, above previous guidance of a 10% increase, and a 68% increase from the fourth quarter 2007
• Gross margin improved to 68% during the fourth quarter 2008 which represented a 6% increase from the third quarter 2008 and a 17% increase from the fourth quarter 2007
• Customer churn for the fourth quarter 2008 was 1.23%, compared to 1.22% for the third quarter 2008 and 1.99% for the fourth quarter 2007
• Average revenue per user (ARPU) was $828, a decrease of less than 1% from the third quarter 2008 and an increase of 13% from the fourth quarter 2007
• "Cash burn" totaled $3.3 million in the fourth quarter 2008, representing a 16% decrease from the third quarter 2008 and a 30% decrease from its peak of $4.7 million in the first quarter 2008
• EBITDA before stock based compensation improved by 27% from the third quarter 2008, decreasing from a loss of $2.2 million to a loss of $1.6 million
• Six of nine markets are now generating positive EBITDA and Market Cash Flow
• Cash and cash equivalents totaled $25 million on December 31, 2008

Management Comments:

"Our fourth quarter results complete a year of strong operating performance and execution despite the recession," said Jeff Thompson, President and Chief Executive Officer. "Strong customer demand for our unique, simple broadband products has resulted in three consecutive quarters of double digit sequential revenue growth. With six of our nine markets now generating positive EBITDA, we are well positioned for solid growth in 2009."

"Our key financial metrics continued to strengthen in the fourth quarter," stated Joseph Hernon, Chief Financial Officer. "Gross margin improved for the third consecutive quarter as additional customers were added at relatively low marginal costs. Fourth quarter operating expenses were only 1% higher than the first quarter even though fourth quarter revenues were 54% higher than first quarter revenues. As a result, EBITDA before stock based compensation improved by 27% in the fourth quarter compared to the third quarter, and our cash burn decreased by 16%. We ended 2008 in a strong financial position with approximately $25 million in cash and cash equivalents. We have the capital required to execute our business plan through this challenging economic period."

"Given the current economic environment and the significant up-front costs to expand into new markets, we presently plan to focus our resources on strengthening our presence in existing markets rather than opening new markets," stated Mr. Thompson. "With penetration rates of less than 1% in our existing markets, we have substantial opportunities for growth in 2009. We expect capital expenditures to be significantly lower in 2009 since the network build-out in our existing markets has been largely completed."

Selected Financial Data and Key Operating Metrics: (All dollars are in thousands except ARPU) (Unaudited) Three months ended 12/31/2008 9/30/2008 12/31/2007* Selected Financial Data Revenues $3,210 $2,870 $1,906 Gross profit margin 68% 64% 58% Operating expenses (1) 5,874 6,092 5,023 Operating loss (1) (2,664) (3,222) (3,117) Net loss (1) (2,823) (3,216) (2,727) EBITDA before stock-based compensation (2) (1,588) (2,189) (2,213) Capital expenditures $1,755 $2,041 $2,416 Key Operating Metrics Churn rate (2) 1.23% 1.22% 1.99% ARPU (2) $828 $831 $730 ARPU of new customers (2) $773 $733 $759 (Audited) Years ended 12/31/2008 12/31/2007* Selected Financial Data Revenues $10,656 $6,883 Gross profit margin 62% 64% Operating expenses (1) 24,020 15,695 Operating loss (1) (13,364) (8,812) Net loss (1) (13,377) (8,502) EBITDA before stock-based compensation (2) (9,324) (6,063) Capital expenditures $7,684 $6,710 Key Operating Metrics Churn rate (2) 1.24% 1.60% ARPU (2) $828 $730 ARPU of new customers (2) $806 $794 * Certain reclassifications of prior period amounts have been made to conform to current year presentation. (1) Includes stock-based compensation of $202, $188 and $307, respectively, and $899 and $1,046, respectively. (2) See Non-GAAP Measures below for a definition and reconciliation of EBITDA before stock-based compensation, Market Cash Flow, and definitions of Churn, ARPU and ARPU of new customers.

Analysis of Results of Operations and Financial Condition

Fourth Quarter 2008 Results of Operations

Revenues for the fourth quarter 2008 increased 12% compared to the third quarter 2008, and increased 68% from the fourth quarter 2007. These increases were driven by the continued growth in our customer base and improved ARPU, primarily associated with the success of our mid-range offering which is priced at $999 per month.

ARPU of new customers in the fourth quarter 2008 increased 5% compared to the third quarter 2008, and increased 2% compared to the fourth quarter 2007. ARPU of all customers in the fourth quarter 2008 decreased less than 1% compared to the third quarter 2008, and increased 13% compared to the fourth quarter 2007. Customer churn for the fourth quarter 2008 of 1.23% remained essentially flat compared to 1.22% for the third quarter 2008 and decreased from 1.99% for the fourth quarter 2007.

Gross margin increased by 6% in the fourth quarter 2008 compared to the third quarter 2008, and increased by 17% compared to the fourth quarter 2007. 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 fourth quarter 2008 increased 10% compared to the third quarter 2008, and increased 55% compared to the fourth quarter 2007. These increases reflect staffing additions and other costs incurred to support our growing customer base. The number of customers increased 12% during the fourth quarter 2008.

Sales and marketing expenses in the fourth quarter 2008 decreased 14% compared to the third quarter 2008, and increased 22% compared to the fourth quarter 2007. The sequential decline related to a decrease in average department headcount from 135 in the third quarter 2008 to 106 in the fourth quarter 2008, as the Company increased its focus on cost controls in response to the recession. The increase in the fourth quarter 2008 compared to the fourth quarter 2007 reflects higher payroll costs associated with the overall expansion of our sales and marketing team in 2008. 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 decreased 3% in the fourth quarter 2008 compared to the third quarter 2008, and decreased 12% compared to the fourth quarter 2007. During the fourth quarter 2007, the Company incurred higher professional services fees related to recruiting activities and investor relations services, as compared to the fourth quarter 2008.

Net loss decreased 12% in the fourth quarter 2008 compared to the third quarter 2008, and increased 4% compared to the fourth quarter 2007. The 12% improvement on a sequential basis reflects the positive effect of a 12% increase in revenues and a 4% decrease in operating expenses.

2008 Full Year Results of Operations

Revenues for 2008 increased 55% compared to 2007. This increase was driven by continued growth in our customer base and higher ARPU, primarily associated with the success of our mid-range offering which is priced at $999 per month.

ARPU of new customers in 2008 increased 2% compared to 2007. ARPU of all customers for 2008 increased 13% compared to 2007, related to strong sales of our mid-range offering which has a selling price higher than our ARPU. Customer churn for 2008 of 1.24% decreased 23% compared to 1.60% for 2007. During 2008, we invested approximately $3.8 million to strengthen our network in existing markets and establish a network presence in new markets. In addition, we added personnel in our customer care and engineering departments. These efforts resulted in higher levels of customer satisfaction and reduced churn.

Gross margin decreased by 4% for 2008 compared to 2007. The Company launched service in Miami at the end of first quarter 2007 and in Dallas-Fort Worth in the second quarter of 2008. During 2008, the Company also expanded its network in a number of existing markets. These activities increased network operating expenses by approximately $1.3 million. Towerstream's gross margin can fluctuate from period to period due to the timing of when the Company expands into new markets or adds network capacity to existing markets. The effect of entering new markets can be substantial because the Company is required to incur significant costs to establish a market presence before generating new customer revenues.

Customer support expenses for 2008 increased 95% compared to 2007. This increase reflects staffing additions and other costs incurred to support our growing customer base. The number of customers increased 51% during 2008. Average headcount increased from 23 to 35 in 2008.

Sales and marketing expenses for 2008 increased 114% compared to 2007, primarily related to higher payroll costs associated with the expansion of our sales and marketing department. The average number of department personnel totaled 123 in 2008 compared to 54 in 2007.

General and administrative expenses for 2008 increased 6% compared to 2007. Payroll costs increased by approximately $700,000 related to higher employee headcount which also resulted in an increase of approximately $718,000 in indirect personnel related costs. These increases were offset by a decrease in professional services fees of approximately $976,000 related to merger and financing transactions completed in 2007.

Net loss increased 57% in 2008 compared to 2007. Approximately $4.1 million, or 84%, of the increase related to higher sales and marketing expenses, primarily associated with the expansion of our sales and marketing department.

Cash and cash equivalents totaled $24.7 million at December 31, 2008 compared to $40.8 million at December 31, 2007 representing a "cash burn" of approximately $16 million for 2008. Capital expenditures totaled approximately $7.7 million during 2008 primarily related to network, base station, and customer premise equipment associated with installations for new customers and increases in our network capabilities. Net cash used in operating activities totaled approximately $7.9 million for 2008 with a significant portion attributable to a substantial increase in the Company's sales and marketing department.

Operating Outlook and Guidance:

• Revenues for the first quarter 2009 are expected to increase by approximately 60% to 65% on a year-over-year basis.
• Operating focus will remain on increasing penetration in our existing markets and reaching EBITDA break-even before expanding into new markets.

Non-GAAP Measures

The terms "EBITDA before stock-based compensation", "Churn", "Churn rate" and "ARPU" 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.

The term "EBITDA before stock-based compensation" refers to income before deducting interest, taxes, depreciation, amortization and stock-based compensation. The terms "Churn" and "Churn rate" refer to the percent of revenue lost on a monthly basis from customers disconnecting from our network. 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, EBITDA before stock-based compensation, has been reconciled to Net loss as follows:

All amounts are in thousands except per share amounts Three months ended 12/31/2008 9/30/2008 *12/31/2007 Reconciliation of Non-GAAP to GAAP: EBITDA before stock-based compensation $(1,588) $(2,189) $(2,213) Interest expense (115) (106) (133) Interest income 18 124 527 Depreciation (936) (857) (601) Stock-based compensation (202) (188) (307) Net loss $(2,823) $(3,216) $(2,727) Years ended 12/31/2008 *12/31/2007 Reconciliation of Non-GAAP to GAAP: EBITDA before stock-based compensation $(9,324) $(6,063) Interest expense (509) (975) Interest income 578 1,461 Depreciation (3,223) (1,879) Stock-based compensation (899) (1,046) Net loss $(13,377) $(8,502) * Certain reclassifications of prior period amounts have been made to conform to current year presentation. Summary Condensed Consolidated Financial Statements (Audited) December 31, December 31, 2008 2007 Assets Current Assets Cash and cash equivalents $24,740 $40,757 Accounts receivable, net 280 185 Other 319 736 Total Current Assets 25,339 41,678 Property and equipment, net 12,891 8,519 Other assets 1,058 758 Total Assets 39,288 50,955 Liabilities and Stockholders' Equity Current Liabilities Accounts payable 1,395 1,414 Accrued expenses 861 686 Deferred revenues 986 632 Short-term debt, net of discount 2,607 - Other 78 47 Total Current Liabilities 5,927 2,779 Other Liabilities Long-term debt, net of discount - 3,143 Other 354 298 Total Other Liabilities 354 3,441 Total Liabilities 6,281 6,220 Stockholders' Equity Common stock 34 34 Additional paid-in-capital 54,852 53,223 Deferred consulting costs - (20) Accumulated deficit (21,879) (8,502) Total Stockholders' Equity 33,007 44,735 Total Liabilities and Stockholders' Equity $39,288 $50,955 ======= ======= (Unaudited) (Audited) Three months ended Years ended December 31, December 31, 2008 2007 2008 2007 Revenues $3,210 $1,906 $10,656 $6,883 Operating Expenses Cost of revenues (exclusive of depreciation) 1,031 799 4,076 2,469 Depreciation 936 601 3,223 1,879 Customer support services 498 322 1,820 932 Sales and marketing 1,766 1,442 7,692 3,588 General and administrative 1,643 1,859 7,209 6,827 Total Operating Expenses 5,874 5,023 24,020 15,695 Operating Loss (2,664) (3,117) (13,364) (8,812) Other Income (Expense) Interest income 18 527 578 1,461 Interest expense (115) (133) (509) (975) Other expense, net (62) (4) (82) (176) Total Other Income (Expense) (159) 390 (13) 310 Net Loss $(2,823) $(2,727) $(13,377) $(8,502) Net loss per common share $(0.08) $(0.08) $(0.39) $(0.29) Net loss per common share excluding stock-based compensation $(0.08) $(0.07) $(0.36) $(0.25) Weighted average common shares outstanding - basic and diluted 34,567 34,080 34,544 29,244 (Audited) Years ended December 31, 2008 2007 Cash Flows From Operating Activities Net loss $(13,377) $(8,502) Non-cash adjustments: Depreciation 3,223 1,879 Stock-based compensation 899 1,046 Other 555 1,069 Changes in operating assets and liabilities 827 534 Net Cash Used in Operating Activities (7,873) (3,974) Cash Flows From Investing Activities Acquisitions of property and equipment (7,684) (6,710) Acquisition of FCC licenses (400) (125) Other (12) (60) Net Cash Used In Investing Activities (8,096) (6,895) Cash Flows From Financing Activities Net proceeds from sale of common stock - 48,251 Net proceeds from sale of debentures - 3,360 Proceeds from exercise of warrants/options - 127 Repayment of notes - (209) Repayment of capital leases (48) (63) Net Cash (Used In) Provided By Financing Activities (48) 51,466 Net (Decrease) Increase In Cash and Cash Equivalents (16,017) 40,597 Cash and Cash Equivalents - Beginning 40,757 160 Cash and Cash Equivalents - Ending $24,740 $40,757

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 19, 2009 at 8:30 a.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 two hours after the call through March 26, 2009 at 11:59 p.m. EDT by dialing 888-286-8010 or 617-801-6888 (for international callers) using pass code 91002308.

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 MEDIA CONTACT: Amanda Lordy / Todd Barrish Dukas Public Relations 212-704-7385 amanda@dukaspr.com / todd@dukaspr.com

SOURCE Towerstream

Source: PR Newswire

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