Fourth quarter revenue was $3.3M up 12% from the third quarter and up 68% from
the year prior. Full year revenue was $10.6M, up 56% from the year prior.
The company also reported continued improvements in gross margins and EBITDA
cash flow. A few weeks back we had the opportunity to sit down and talk
with Towerstream’s CEO Jeff Thompson.
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.
The company provides service to a wide range of business customers. "Every
vertical has bought from Towerstream," says Thompson. "We have financial,
health-cares, large brands, small brands and start-ups."
Ask Thompson what is driving increased demand for higher bandwidth services and
you will likely get the same three word reply – "Video, video & video.
With the increased use of video, T1s are no longer enough and some customers may
not need or be able to afford the additional cost of a T3," says Thompson.
"Wireless technologies provide the flexibility to dial-in the amount of capacity
that the customer needs."
"If you are a business and you are trying to use the internet to save money, you
have to have a high-quality bandwidth connection," says Thompson. "A lot
of these business applications require a lot of upstream capability which means
DSL is out the question and cable as well. It really gives us a
competitive edge."
Towerstream provides 3 tiers of service using a variety of technologies over
both licensed and unlicensed frequencies depending on the customers needs.
For customers requiring T1 type service, Towerstream offers a 5Mbs service
utilizing standard WiMAX equipment. For customers that need more than a
T1, but less than the 45Mbs of a T3, Towerstream offers a mid-tier 5-15Mbs
service using radios from Alvarion and Redline over different channel sizes.
For customers with even higher bandwidth requirements, the company utilizes P2P
(point to point radios) at higher frequencies.
In addition to the flexibility in the type of service plans allowed by wireless
broadband, WiMAX also offer the advantage of being able to be provisioned
quickly to the customer. Customers requesting changes to their fixed line
services must often have to wait weeks, while WiMAX services can typically be
provisioned in a few days depending on the operator.
For the most part, customers seem to be satisfied with the service.
Towerstream’s churn is reportedly less than 1.3% and is able to offer guarantee
throughput with its contracts. "We have these service-level capabilities
and that is what our customers like about the service. Our churn rate is
low and is a reflection of that," says Thompson.
Towerstream also appears to be making some head-way on its profitability
targets. Just last month, Towerstream announced that their Los Angeles
market had reached EBITDA profitability (earnings before interest, tax and
depreciation/amortization – a non-GAPP approximation of operational cash flow).
"Six of our nine markets are now EBITDA profitable, including the three largest
markets in the U.S., said Thompson. "Our continued progress demonstrates
the leverage of our business model and the predictability of our revenue
stream."
Thompson comments that the company has learned much as it has built out its
markets – putting in a few POPs (points of presence) and then building out from
there based on customer demand. "It’s a very physical business.
Coverage is key and you have to be smart in how you cover a market and continue
to execute," says Thompson.
In NYC for example, the third market entered, Towerstream reportedly has
coverage in 90% of the city. "You never have enough coverage. We try
to get to over 90% of coverage in each market – that is out goal. Is
almost impossible to get to 100% based on certain limitations of the city, such
as limitations with a small section of a town."
"What is great about WiMAX is that I can take this base station and put it
anywhere. I can put in a Rural base station and will make a certain
amount," says Thompson. I can then take that same base station and put it
up on the Empire State building. You want to make sure you put those base
station where they are going to get filled up on customers. Eventually you
get good coverage with the more you build out. We have a controlled
roll-out – each market is different."
When asked about other technologies such as LTE, Thompson takes a pragmatic
approach. "There are real deployments with WiMAX and the equipment is
shipping today. LTE and WiMAX are different business models. WiMAX
is more of an open model and not controlled by who operates the network.
As for deployments, It took Wi-Fi 5 years to get the adoption and WiMAX is just
in the first year."
Needless to say, being able to execute in the current economic environment is an
accomplishment and Towerstream appears focused on its model. The company
also has the resources to grow and ended 2008 with $25M in cash on its balance
sheet. "We are well financed and have the money we need to execute our
business model and get the overall company profitable," says Thompson.
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