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TowerStream Corporation. (NASDAQ:TWER)

Q4 2007 Earnings Call

March 19, 2008 5:00 pm ET

Executives

Mr. Jeff Thompson - President and Chief Executive Officer

Maria Perry - Interim Chief Financial Officer

Analysts

David Lambert – Cannaccord Adams

Eric Kainer – Think Equity

Kevin Dede – Morgan Joseph

Richard Merrill – Corner Capital

Thomas Williams – ND Research

Operator

Good afternoon and welcome to the TowerStream Fourth Quarter and 2007 Fiscal Year earnings call. During the course of this conference call, we will discuss with you some of the estimates, assumptions and other factors that our management currently anticipates or assumes in our business and results going forward. These forward-looking statements include express and implied statements regarding our business including without limitation, our future operating results and business developments based on limited information currently available to us, which are subject to change.

Actual results may differ materially from those stated or implied by the forward-looking statements we may make today. Such statements are subject to risks and uncertainties including the risk discussed in the risk factors on file with the Securities and Exchange Commission and other reports filed with SEC from time to time. We undertake no obligations to publish, update or revise any forward-looking statement as a result of new information, future events or otherwise accept as required by law.

At this time all participants are listen-only mode. We will facilitate a question-and-answer session towards the end of this conference. (Operator Instructions). I would like to now introduce Mr. Jeff Thompson, President and Chief Executive Officer of TowerStream. Mr. Thompson will discuss the highlights of 2007. Please proceed, sir.

Jeff Thompson

It’s our pleasure to be with you today to discuss TowerStream’s fourth quarter and full year 2007 financial and operating results. As well as provide you with an update on first quarter 2008. 2007 was an important year for TowerStream, as we made significant progress in all aspects of our business. In corporate finance, we are able to secure $54 million in equity through two separate offers. We believe this will be adequate capital for the foreseeable future and there are strong balance sheet during the slowing economy will only enhance our competitive advantage.

In our sales force expansion, our first step was to hire an experience sales management team with a history of scaling and building revenue for the direct inside sales force. We completed hiring the team in the beginning of second quarter 2007. In just eight months, we ended the year with 95 sales reps up from 15 in the first quarter. During this ramp period, we also built a new 180-seat sales center with state of the art sales productivity tools. And to finish the year, we launched our eight negative products for $999, which we believe will be a stable product with continued high uptake rates. Average revenue for trained sales agent for the year was approximately $1,000. Average revenue per sales agent did dip in fourth quarter 2007 to $705. This was expected as 78% of the quarter producing sales agents have only been in TowerStream for less than 6 months. We believe this number will improve dramatically but we also believe it takes new reps longer than expected to rip and achieve full productivity status.

Let’s move on to our network expansion. We launched two NFL markets, Miami and Seattle covering approximately 87,000 small and medium businesses. This represents roughly 8.4% of the small and medium businesses in the top 20 business markets.

We also built additional coverage in New York, San Francisco, and Los Angeles and retrofitted all of our markets with new base stations to accommodate our new eight megabits products. TowerStream’s network now covers approximately 55% of the small and medium businesses in the top 20 business markets.

During fourth quarter, we also started construction on a new network operation center and was completed during February 2008. In fourth quarter 2007, TowerStream launched trails with IEEE 802.16E mobile WiMAX Technology. The performance of these trials exceeded our expectations.

Let me give you some details and why this is important to TowerStream we had successful task with self-installable customer devices, which could allow us in the future to ship preconfigured devices to customers eliminating the truck low costs with certain TowerStream products. We also had successful trials with (indiscernible) outdoor devices. This will give our existing markets and future markets improved coverage, by using mobile WiMAX technology we believe that our networks will be more valuable and future proof and eventually lower our cost structure.

TowerStream also completed two spectrum acquisitions in 2007, which now gives us control of approximately 500 Million MHz/POPs.

I would now like to give you a brief update on first quarter 2008. As we demonstrated in the fourth quarter 2007 with 21% growth year-over-year, we expect first quarter 2008, will be in the 25% plus range, we believe our churn will return to our expected levels of 1.4% to 1.8% on a monthly basis and the new installed revenue quarter-to-quarter sequentially will increase and in an accelerate rate of 20%.

I will now turn the call over to Maria Perry for more details and our continued progress.

Maria Perry

Thanks Jeff. Good afternoon everyone and thanks for joining us. I’m very pleased to report the results for the fourth quarter and for the full year ended December 31, 2007. 2007 was a pivotal year for TowerStream as we solidified our balance sheet with equity raises to create a platform from which to launch our growth plans for 2008 and beyond.

As I walk through the numbers the underlying team here today is the solid foundation that we built in 2007 from the robust cash balances to the new sale center facility to the nearly 100 sale team members now in place. We’ve done a lot of the heavy lifting and what remains is the continued execution of the plan.

We ended the year with total assets of $51 million including cash balances of $41 million, which we believe is sufficient to fund our cash needs for the foreseeable future. The investments in our new sale center and our corporate infrastructure behind us now and we are ready to devote our full resources to the business of growing the business.

We are already seeing evidence of lift off in our revenue growth, the fourth quarter revenues of $1.9 million increased 21.9% over the fourth quarter of 2006. Revenues for the full year increased 9.3%. ARPU of new subscribers increased 43% in 2007 to 799. Customer churn came in at 2.03% in Q4, which is slightly over the budgeted level of 2.0% and up from the Q3 churn of 1.28%. This higher churn rate was caused by an anomaly that occurred in October. We closed out two customer contracts for projects that came to a natural conclusion and after adjusting for these two projects, our churn is within the normal range. For the full year, the churn rate average 1.62%.

Gross margins net expectation is at 58% for the quarter and 64% for the year. Cost of revenues increased due to bandwidth purchases and new tower releases for both new and unannounced market as well of the additional network staffing. Selling expenses totaled $3.6 million for the year reflecting our achievement of growing the sales force from 95 employees -- to 95 employees from 15 at the beginning of the year. Successfully executing our sales hiring plan in 2007 has positioned as well to achieve our goals for 2008.

General and administrative expenses totaled $6.8 million in 2007, up from $2.6 million in 2006. This $4.2 million increase breaks down as follows; approximately $900,000 resulted from an increase in non cash stock base compensation. Approximately $1.6 million resulted from the recurring and non recurring cost associated with becoming a public company.

The remaining $1.7 million was due primarily to our planned administrative staff. We recorded a net loss of $2.7 million or $0.08 per share for the quarter and $8.5 million or $0.29 per share for the year, which was inline with our expectation.

To summarize the foundation is in place, the cash is in the bank, the human capital and physical capital investments have been made, we are well financed and solidly positioned to move forward in 2008.

I will pass the call back to Jeff now for some closing comments.

Jeff Thompson

Well, thanks Maria. We are ready to open up the call to questions and look forward to hearing from you.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of David Lambert from Canaccord Adams. Please proceed.

David Lambert – Cannaccord Adams

Thank you. HI, Jeff. Just on churn can you break it down I assuming that something – you calculate your churn as a percentage of revenue instead of customers and I was wondering if you can break it down in terms of how much of that churn would come from re-pricing your [Sybase] with your new 8 Mbps Product and then from there can you comment on how of much of your base is in that 8 Mbps Product and how much are using sort of high capacity customers with point to point service?

Jeff Thompson

Yeah, we – turning to the first question we do not see any churn coming from because of the new 8 Mbps Products we are seeing it’s quite the up we are actually seeing upgrades, you know, the products brand new has started in December and it has been a great product for us. It was about 41% of new revenue in the fourth quarter ’07.

And the point to point revenue are in the same quarter whilst 24%, the rest was multi point, as you know we break it out most product ranges.

David Lambert – Cannaccord Adams

Okay, alright. So, how is your 2% -- I was assuming that some of the spike in the 2% churn came from maybe a customer or existing customers using a 8 Mbps product for $1,500/$1,600 dollars a month coming down to $1,000?

Jeff Thompson

I can give you the anomaly that’s pretty simple for us the anomaly was basically it was two customers, one was Raytheon with a quite a big revenue and it did a multi locations in the three year security project, which was ended a few months but the contract was done in October. That was a significant portion of the churn and another customer up there was the Big Dig that was also no longer needed the service because the project was over and we look at the churns last three months its well below the 1.5% that we are used to. So, it’s with anomaly it’s something that’s not continuing obviously we are obviously keeping an eye on our churn that’s one of the most important numbers we look at everyday but you can expect it to be back to those normal levels from now on.

David Lambert – Cannaccord Adams

Okay. Second question is you cash burn $4 million bucks in the quarter, why don’t if you can break that down in terms of new markets, customer price equipment and network?

Jeff Thompson

I can’t give you the full break out but there is lot of things in there in that burn that are one time items and they include building new sales center, you know, building new network operation center. But, you know, those things are now behind us but we do think that these rates, this burn rate will continue for the next couple of quarters and our burn rate is going to peak mid of the year. We are not giving guidance but that’s a little peak.

David Lambert – Cannaccord Adams

Okay. And you mentioned yourself as 180 sale center, you are currently at 95 sales people, is that a target that you are looking at, is a 180 sales people in I know that you head on your target of hitting 95 for 2007, which is great and I was wondering if you can comment on your efforts to further boost the sales force or you are going to maintain that at 95 for a while there?

Jeff Thompson

I know we have continued to build the sales force since the end of the year, going along that same rate at about 10 people per month through January and February so we are right on track to continue to build that sales force. We are just happy to get those people through the door so that we can get these people through the ramp period and get them up to full part activity as soon as possible.

David Lambert – Cannaccord Adams

Okay. And I confine the customer information, I was just wondering if you can comment on, I know you released a press, you had a press release saying that you added 100 customers in December, can you give us an idea of the customers locations that you are adding now versus the Q4 and what was the total now in Q4?

Jeff Thompson

Well, those were contracts which turned into and give us our backlog which we haven’t been out there, giving guidance on our backlog going forward but it was good to get that type of a backlog at the end of the year to start the year off. But, the contracts have been progressing quarter-to-quarter well over 20% to 30% every quarter for new contracts, which obviously turns in the revenue and pretty quickly with our install rates.

David Lambert – Cannaccord Adams

Okay, 20% to 30% that’s the quarter-to-quarter sequential?

Jeff Thompson

Correct, sequential.

David Lambert – Cannaccord Adams

So, your sequential revenue growth is about 8?

Jeff Thompson

That was just a contract, they are not exactly the same.

David Lambert – Cannaccord Adams

Right. So, by assuming that your sequential revenue is going to catch up with the growth in contracts, does that make sense?

Jeff Thompson

It does, but it does take a little bit time.

David Lambert – Cannaccord Adams

Okay. So, when you think that spread starts to narrow?

Jeff Thompson

Well, like I said before we are not giving guidance for the full year, as you can see the revenue is starting to accelerate this is our first double digit year-over-year growth with fourth quarter in the guidance that I gave you or the update that I gave you for the first quarter is going to give again more accelerate growth year-over-year and also start to give us more accelerated growth sequential. And I think, first quarter, this year you will see one of the bigger jumps, your first big jump in sequential growth but that’s going to continue. It’s going to continue to happen every quarter that’s where the investment of getting a 100 sales reps through the door, getting them trained, getting them full productivity that investment will start paying off throughout ’08.

David Lambert – Cannaccord Adams

Okay, great thank you.

Jeff Thompson

Thank you.

Operator

Your next question comes from the line of Eric Kainer with Think Equity. Please proceed.

Eric Kainer – Think Equity

Thank you for taking my call. First question is what’s the number of sales reps that you have now, is it basically 115 or so as of the end of February something along those line?

Jeff Thompson

Yeah, you’re about right, yes.

Eric Kainer – Think Equity

Okay. And you said that you know, the sales reps are coming up to speed or coming up to full productivity a little bit more slowly than you had previously expected. How should we think about how quickly those guys come up to full productivity? I think obviously you were talking about 45 days or something along those lines, what should we be looking at now?

Jeff Thompson

Yeah. Let me kind of backup and give you a little bit of, I know that most of the models that are out there are from data that came from us. So, we are out there raising the money last year we were basing it on data of only 15 sales reps most of them are with us quite some time so we didn’t new sales rep ramp data that we could – they basically did not pan out we started doing 100s. There is two sides to this coin, we used to use 90 days for a ramp cycle, which is just too quick the industry standard is about 9 to 12 months so we think we are about that industry standard around the nine month mark to get them to productivity. So, that’s one side of the coin. The other side of the coin is that once people are here past 270 days and 12 months and beyond they were seeing that they ramp and the revenue ramp is significantly higher than we have ever seen. So, it does take them a little bit longer to get up to full productivity but once they pass with our productivity they pass pretty quickly and they generate even more revenue than we expected. So, its flower on side of the coin but its much higher revenue on the other side of the coin.

Eric Kainer – Think Equity

I wonder if you can kind of give us help to understand that from the perspective of how many sales reps do you think, not fully trained but maybe a little bit higher than that, that is you know, kind of like sales specialist, how many top tier sales reps you have? And what’s the kind of productivity of those folks?

Jeff Thompson

The productivity of the Vcall and veteran, some Mel calls and there are T1 reps they are hired on 1,600 average per month. So, that’s the much higher number than we have used or seen in the past. So, that’s a pretty good number for them and we do have about 20 veterans that have been here past 270 days.

Eric Kainer – Think Equity

Okay, great that’s very helpful. When we look kind of the macro economy you mentioned in your opening remarks a little bit about that, I wonder if you can kind of give us a little bit color around the economic impact. Are you seeing differences between different markets that you are in and are you seeing kind of customers that you have had take off the network for a non payment or have you seen changes in customers going burst or anything along those line?

Jeff Thompson

I guess you are probably talking about the economic conditions. Let me give you a little bit background about TowerStream because that you will be presently surprised by this. When we started the company years ago in 2001 and 2002 during that downturn we had no brand, we were not financed, we have no referenced customer and never even heard of WiMAX. And we probably survived during that downturn as a startup company because people want to save a few thousand dollars. So, to give a first answer to that question we haven’t seen any significant out of business in our churn rates as we look at our daily churn rates. It is occasional but we have not seen raise because of the economy and we don’t expect it to in first quarter and it might be just the opposite because people are trying to save money and we are well financed mow. WiMAX technology is everywhere we have hundreds of referenced customers. During this slowdown we might actually do pretty well.

Eric Kainer – Think Equity

And just I guess along those same line you know, with your new even more aggressive pressing for the 8 Mbps product can you give us a feel for how much of customer base is upgraded to at least the 8 Meg product if not above that?

Jeff Thompson

We don’t have that broken out by complete customer base. But it is on the new customers, it’s really churning into the stellar product for us. As I mentioned in Q4 ’07 it was 41% of the customers that came on to the network. And then, so far in ’08 its been 63%. So, it’s an incredible product for us and we think it’s priced currently and the margins are extremely high.

Eric Kainer – Think Equity

Okay. Well, that’s very interesting, very and surely cost for optimism. Are you still seeing customers upgrading to that products from your existing customer base or is that kind of period out you think you already have most of the install base that you already have upgraded?

Jeff Thompson

Yeah, you are pretty on with that. We had a large influx in December when we launched it followed by January the same thing and now most of these people even though it’s a huge part of first quarter these are all new customers coming on with this product.

Eric Kainer – Think Equity

And then, last question then I will finally feed (ph) the floor to someone else. And that is when we look at this 8 MIG product, what kind of usage are you seeing as I assume in general your customers are using a small fraction but they might as well take the 8 MIG because its so cheap?

Jeff Thompson

Yeah, that’s a great question. And when we look at it we analyze this quite a bit because we can actually even leverage it more as we look at the efficiencies of pure IP and hand off. Out of our customers that we take off the lower 5% and the higher 5% we have about 1.5 megabit usage pattern for these customers, megabit is there for them they enjoy that when they need it and get really excited about the speed but on average they are only using 1.5 megabits and if you can put the higher customers in there it still only under 2 megabits of usage. So, as you can see it’s a very good product for us.

Eric Kainer – Think Equity

Okay, great. Congratulations and good luck.

Jeff Thompson

Thank you.

Operator

Your next question comes from the line of Mr. Kevin Dede with Morgan Joseph. Please proceed.

Kevin Dede – Morgan Joseph

Hi, Jeff.

Jeff Thompson

How are you?

Kevin Dede – Morgan Joseph

Okay. Nice job on the top line. I was just hoping you wouldn’t mind going through some of the cost items on P&L like first of all just like I said around network cost seem to be a little bit higher and margin as a result was little lower. I was wondering how you might expect that to trend into margin through the balance of the year?

Jeff Thompson

Yeah, first I will go through little bit of margin side of the business and then I will Maria break out a little bit of the costs for fourth quarter. The margins dipped down to 58% and that’s basically because we are adding new bay stations, we are adding markets, we have some markets up and running, I mean some bay stations up and running and some markets that are unannounced. We have leases that we are acquiring and paying for in market that aren’t launched yet. So, those will drag down the gross margins. And its going to be the – it will continue to be lumpy as we build out throughout the year. I will give you an example we typically don’t go through market-by-market metrics but these will be a great example. In third quarter ’07 Boston and New York had a gross margin of about 65% and as we added customers and started to fill up those networks they actually rapidly expanded, we had some margin expansion to approximately 75% in both of those markets in Q4. But, we do expect them (indiscernible) some capacity and some more sales folks and things of that nature to kind of maybe dip down again.

So, we will see kind of see saw action as we are filling up these networks and building these networks, but right now it’s kind of build the head of the curve and then we fill these networks up with customers. So, as these networks mature you can expect to see those higher margins like New York and Boston.

Kevin Dede – Morgan Joseph

Okay. So, how many new locations are you planning to open this year?

Jeff Thompson

Well, we are going to do it when the team is ready and we have a sales force ready to take on a new market most importantly we are trying to get the strategic locations and get the leases locked up because those the most amount of time. And they are very strategic force. So, we are acquiring those so you will start hearing us announce markets very quickly starting next month but we do have to be little bit prudent, we have to pay attention to the economy. We are not just going to run out and open up a bunch of markets with the economy the way it is. We will pay attention to it, we have the money to grow, but you will see some market announcements from us soon. We are not going to quite give up the month-by-month market layout quite yet.

Kevin Dede – Morgan Joseph

Okay. I apologize but I think I missed some of the comments you made with regard to the March quarter I can’t monthly churn turn back to the 1.4, 1.8 range and a Q to Q new revenue of 20% but I missed the first comment you made?

Jeff Thompson

Yeah, year-over-year will be in the 25% plus range.

Kevin Dede – Morgan Joseph

Revenue growth?

Jeff Thompson

Correct.

Kevin Dede – Morgan Joseph

So, the Q to Q new revenue is that from 1.9 level up about 20% is that what you are telling?

Jeff Thompson

So, that’s the accelerations from the new installed revenue that starting to accelerate as now seem starts to ramp. The sequential we have been growing at about 8% sequentially for last two quarters even though it’s a bigger number every quarter, we open the next couple of quarters that you will start seeing us some double digit sequential quarter-to-quarter growth.

Kevin Dede – Morgan Joseph

Okay. I guess what you are suggesting is that it would be better to look at the March quarter being up somewhere in the 25% range year-over-year?

Jeff Thompson

Correct.

Kevin Dede – Morgan Joseph

Okay, got it. Why do you think you missed the estimation of productivity of the new sales guys? What do you think threw you often in your first reps (ph)?

Jeff Thompson

Yeah, its because we had a very small sample of reps and because a lot of those reps were there for quite some time and we didn’t have the data there first. So, if you got 13 veterans that have been there for a few years you bring a few new people on and they are quite a bit attention from those folks, they are going to ramp very quickly as an average, as we are bringing them up. So, it’s --

Kevin Dede – Morgan Joseph

So, basically what you are saying is because through TowerStream history only a few new guys came in and they got lot of a special attention and because of that they were able to get up to speed faster as opposed to through the mass churn of 10 to 15 and classes you are moving through each months? Is that fair to say?

Jeff Thompson

Not quite, because now its just a lot of small numbers if you get a couple of fantastic people they might give you some skewed numbers. Now we have hundreds of people in that sale center now, you get real data that’s actually has value. Now when people come through the door they actually have a full on training program, we have a training facility, we have lease management, we have also it’s of this new tools that they didn’t have before. What’s really regardless of our back our history what we are finding out the thing to get these people to ramp quicker is filling their pipeline with sales. So, the quicker we get them in here the quicker they start dialing their phones, they get the opportunity to fill up their pipeline which basically just can’t happen in three months. They are almost – first months they are almost in training the whole time. So, they come out of that training they only have two months to get to full productivity that’s very rapid ramp compared to the rest of the industry. To get on the plus side as they get through that ramp and they become more mature we can expect some great from these guys.

Kevin Dede – Morgan Joseph

Okay. So, what was your total CapEx in ’07 and what you expect it to be in ’08?

Maria Perry

I will jump in this is Maria. Our 2007 CapEx was about $6.7 million and included in that number is about $2.2 million for the employee growth related expenses. We are now --

Kevin Dede – Morgan Joseph

The balance you are saying Maria was network development?

Maria Perry

Network expansion we capitalized our customer premise equipment and installation cost. So, that’s included there as well and new point of presence.

Kevin Dede – Morgan Joseph

Right, okay. And how about expectations for ’08?

Jeff Thompson

We are not giving guidance yet on that, Kevin we are not ready to do that.

Kevin Dede – Morgan Joseph

Okay. Can you talk a little bit more about your pressing programs, the 8 megabit service and then the new service that you are trailing or at least promoting in three markets that what is that $400?

Jeff Thompson

Yeah, 499 for the negative product. Basically our sales force does lot of things as you call test and learn. And what we did learn from the 8 megabit product is that we were selling all year long at about $1,650 and we had some decent uptake on it by having a niche product that nobody else could do, it should have been selling like the way it is selling now. So, by testing a price point like we did in December, we found a great price point for that. So, what we did is we tested the product taking the lower end of the market because that’s the bigger part of the market, the T1 replacement market is the larger portion. We want to see that same type of traction with our lower end products. So, we try market-by-market to see what it’s like and we tried it in Seattle and we brought it to other as we had success with it.

Kevin Dede – Morgan Joseph

And can you give us a little more insight on your plans with mobile WiMAX?

Jeff Thompson

Yeah, that’s a great question. The reason that we tested mobile WiMAX is because the economies of scale are in the mobile WiMAX platform. The D version which is the fixed version will never get to those economies of scale that Intel and everybody is talking about we get paid (ph) eventually $50 or its free inside your notebook. So, as we are building out these markets throughout the next couple of years we want to make sure that we build a network that’s had extra value by bearing those tax to those devices.

More importantly in the short term it gives us better link budgets, better coverage, better non line of site installations. It can enable us to have self installable devices which can get rid of a $600 truck load and these devices are working very well so they can really lower the cost structure of the business going forward. We are not saying that we are going to use it as a – we are not going to become a mobile company but the mobile WiMAX standard has all the features of D and more that are link budgets and can be installed with self installable devices.

Kevin Dede – Morgan Joseph

So, your plan long term is to migrate all of your subscribers to mobile?

Jeff Thompson

All the new locations that go up and we are looking at adding some of these new mobile bay stations to existing networks to give us some non line of site or self installable.

Kevin Dede – Morgan Joseph

Last question from me, just a little more color on your spectrum holdings where they are and how you plan to leverage them and maybe I think the 700 auctions done and we were kind of curious how you fared in that?

Jeff Thompson

We cannot mention anything about 700 megahertz for another 10 days after the closing of the auction which was yesterday. But, the $500 million megahertz POPS that we have is a very strategic spectrum for us that we have in two major markets currently and we have more opportunities in that. So, we are not going to say much more about this spectrum.

Kevin Dede – Morgan Joseph

Okay. So, you are – I guess I was hoping just to get sort of a strategic direction, is it your hope to use that in developing your network or for some other purpose?

Jeff Thompson

There is two things that we can do with this spectrum with this licensed spectrum, our business model does not require licensed spectrum and there are opportunities to monetize that by letting other companies rent it, use it in many other different options that we can monetize it.

Kevin Dede – Morgan Joseph

Okay. Thanks for taking all the questions Jeff.

Jeff Thompson

Right, thanks Kevin.

Operator

(Operator Instructions). And your next question comes from the line of Mr. Richard Merrill (ph) with Corner Capital (ph). Please proceed.

Richard Merrill – Corner Capital (ph)

Hi, Jeff.

Jeff Thompson

Hi, Rich.

Richard Merrill – Corner Capital (ph)

Just one point of clarification. I was looking at the release and you are talking about the ARPU for new subscribers and I am looking at my notes from prior quarter that looks like you are using different numbers. Is that you are calculating that differently?

Jeff Thompson

Yes, we actually had some adjustments. You want to have Maria will walk you through that.

Richard Merrill – Corner Capital (ph)

Sure.

Maria Perry

Yeah. I can explain we were looking our total new MRR which was including upgrades and we realized that it didn’t make sense to include upgrades because that wasn’t related to new customers. So, we have adjusted that calculation to pick up the revenue just for new customers and divide into that, that total number of new customers in the period.

Richard Merrill – Corner Capital (ph)

Okay, thanks. And then, just kind of going back to the discussion on margins and you talked about New York and Boston in particular having very good margins in the fourth quarter, if you look at your, the eight markets that you are in now New York and Boston being the most mature from a business mile standpoint are you hitting EBITDA positive with those markets?

Jeff Thompson

Yeah. As we mentioned in last call those markets are EBITDA positive and you know, other markets are getting close.

Richard Merrill – Corner Capital (ph)

And then, how should we think about the incremental margin as you, I think you talked in the past about approximately 250 businesses per market to breakeven and I am sure depends on how much extra network you build out but are you seeing that incremental margin in the first quarter so to improve?

Jeff Thompson

Yeah, to walk through those market metrics you can still use that 250 customer point to get to EBITDA positive. It’s just two variable that you got to look at one is that with the – we have been putting a lot more higher ARPU customers on over the last few quarters so that could help get those markets to EBITDA positive little quicker. From the other hand with the ramp for the sales people being a little bit slow than expected that could affect in the other direction. So, I think it’s pretty much wash but you know, as soon as these people mature with these higher margin products it does depend like you mentioned on how POPs and how many things we have there in the market. But, you can still use that 250 customer.

Richard Merrill – Corner Capital (ph)

Okay. And then, going back to spectrum, I know you don’t want too much about it but do you – can you tell us what spectrum band its in and how that might compare valuation wise to what we have seen in the 700 megahertz?

Jeff Thompson

Well, I won’t be specific with the band I can tell you there is WiMAX profile, it’s below five gigs or its very valuable for performance for our network which is important to TowerStream.

Richard Merrill – Corner Capital (ph)

Okay. And then, just to clarify you answered that question before, one of the things you can use due to monetize it is to essentially run it or lease to someone will that to on mobile WiMAX player?

Jeff Thompson

Yeah, there is certain people there, you know, lot of people out there don’t have the last mile and would want to use this type spectrum to use it for the last mile or for mobile WiMAX profile that is definitely possible, I don’t want to speculate what you might use the spectrum for. But it can definitely used for that, yes.

Richard Merrill – Corner Capital (ph)

Okay. And then, last point of clarification on churn, I think you mentioned if you take the two anomalies out of the equation it would be in the normal rate and I just wondered normal between 1.4 and 1.8 or is normal simply under 2?

Jeff Thompson

They would be back to that normal rate between 1.4 and 1.8.

Richard Merrill – Corner Capital (ph)

Great. Okay, thanks Jeff.

Jeff Thompson

Thank you.

Operator

And your next question comes from the line of Thomas Williams of ND Research. Please proceed.

Thomas Williams – ND Research

Hi, Jeff. How are you doing?

Jeff Thompson

Well.

Thomas Williams – ND Research

First off on revenue growth, you were saying 25% year-over-year but you qualified that as new customer?

Jeff Thompson

NO, there is two different numbers I don’t want to confuse people here. The top line will be at the 25% plus range.

Thomas Williams – ND Research

Okay. For?

Jeff Thompson

’08.

Thomas Williams – ND Research

Okay, that would imply about $2million?

Jeff Thompson

Correct. year-over-year now it would be higher than that. For the first quarter of ’08.

Thomas Williams – ND Research

Okay. Are you sure Q1 ’07 1.581, is that incorrect?

Jeff Thompson

No that’s correct. Plus we are not down with the quarter yet Bob. So, 25% plus range.

Thomas Williams – ND Research

Got you, okay. Sequentially you said 20?

Jeff Thompson

20% is the new installed revenue.

Thomas Williams – ND Research

Okay.

Jeff Thompson

We track daily.

Thomas Williams – ND Research

Got you, sure. And then, you said you would begin to the sequential double digits quite likely this quarter and next?

Jeff Thompson

We are not going to give guidance, but I think you will start to see that. Correct.

Thomas Williams – ND Research

Okay. So, something around 2.1 might a good number to set a site zone for Q1?

Jeff Thompson

I think that you are going to have to go over that number yourself, but, yeah that’s the number you want to look at yeah.

Thomas Williams – ND Research

Okay. Very good. I just need a bit of finer line on that. Okay, going over to mobile I think I understand your strategy very well, but the minute you mentioned mobile and people aren’t quite as familiar with what your strategy is. They might presume that you are going after mobile customers, that’s not the case is it?

Jeff Thompson

You are completely correct. We are just taking advantages of all the features and the better link budget that you get from using the mobile product but we are still laser focused on business to business, high APRU broadband customers.

Thomas Williams – ND Research

Very good, very good and the mobile just makes things easier, it gives you a broader customer base and makes things potentially less costly in your installations?

Jeff Thompson

Correct. And also adds value to the network for future devices that might to be able to attach to our network.

Thomas Williams – ND Research

If you wouldn’t mind taking just a second to explain what is meant by 500 million megahertz POPs?

Jeff Thompson

Its just a simple calculation that when people are valuing or trying to measure how much spectrum that company has in certain markets, its basically taking population times the size of the channel and just simply multiplication.

Thomas Williams – ND Research

Got you. Okay, I am sure that question would come to me if I didn’t ask it with you. Are you actively selling all eight markets?

Jeff Thompson

Yes we are.

Thomas Williams – ND Research

Okay, and what sort of competition if any do you have at 8 megabits?

Jeff Thompson

We are really not pumping in anyone in that range, again its in that niche area, we are, you know, once you get passed 3 megabits or 2Q1s put together there is really not a quality broadband solution that has reliable upstream bandwidth and to get to DS3 which is 45 megabits, which is very expensive. So, even in the R-box we don’t see competition with them in this 8 megabit region and that’s probably why we are having the success with this product.

Thomas Williams – ND Research

So, as the extension of the promotion that we read about is that more you find in your price point for this then actually just a promotional price, (indiscernible) promotional price?

Jeff Thompson

Yeah, it’s the product.

Thomas Williams – ND Research

Okay. I kind of thought that might have been the case. Do you have an idea as to what sort of revenue you would have hit for cash flow breakeven?

Jeff Thompson

We are not giving guidance on that number yet. I can just tell you that when we run our forecast, when we run our model and our plan, we are very well funded with the very large cushion even as we are growing in these – either in the slowing economy that we will be able to continue the grow as we dealt with originally and we are very well financed.

Thomas Williams – ND Research

And you mentioned that slowing economy could be beneficial to you, yet you were a little bit reserve when talking about opening markets and said it was because this slowing economy?

Jeff Thompson

I wouldn’t say it was because of the slowing economy. We can’t ignore this environment. So, we are just going to be very cautions with our capital. So, really tightening up when we launch and when we have a sales force. I think we mentioned this in last call but we had Miami up and running lowering our gross margins for a month without a sales force ready to go into that market. So, we were basically just wasting money in that market without having it launched. Now, you will us hopefully when we launch market that it will be less than two weeks apart with good quality teams already trained, leave less loaded, ready to start dialing the date of those markets are open and also we want to make sure we have adequate coverage in each market before we open them to the sales team.

So, basically we are just tightening up our operating metrics and just want to be really tight and learn every time we open a market to do it better than next time we open one.

Thomas Williams – ND Research

Sounds like you learnt a lot of good lessons this year?

Jeff Thompson

Yes, we have. Construction cost only.

Thomas Williams – ND Research

I am going through that here in home, it’s ridiculous here. How many markets do you think you’re going to have opened by the end of this year?

Jeff Thompson

It’s really going to depend on the team and the ramp and once we fill up a sales center here of 149, we are not going to just run and open Phoenix sale center until with the metrics getting to a full ramp being a little bit slower than we expected. We are going to make sure that all of these people that are in this sale center are selling it at acceptable levels before we go and open the new sale center. So, it will really be – we are going to look at data drive us to each market but we are continuing to grab the lease, which is the difficult part in the long process for getting these markets up and running.

Thomas Williams – ND Research

Very good. One last question this was a subjective question. Are you more less or the same as far as your level of optimism goes in your business model when you will say six months or a year ago?

Jeff Thompson

I would say completely bullish knowing that we have great products, our churn is down year-over-year, we think that’s going to continue, we have done, we have really spent the last year of (indiscernible) in remodeling stage, we had to move our sales force. We were out on two road shows raising money. We had build our network operation center, we had to move people to build the network operation center and now all those things are behind us so we can focus on building the business on building revenue, getting churn even lower. So, I think that if our customer uptake was going away I’d be concerned, but its growing every quarter, it’s going to continue to accelerate from so it’s a more bullish than I have ever been in the last couple of months.

Thomas Williams – ND Research

Excellent. I was wrong, I do have one more little one here. Any new very bandwidth customers of 100 megahertz or 1 gigabit?

Jeff Thompson

That product is also, it’s kind of the negative praxis (ph) taking over the spotlight. We are continuing to get very large customers with 100 megabit product as I walked into the sale center today at 9:00 am the bell rang for 100 megabit product, which is very exciting and it’s not a big deal and they commit anymore. So, it’s continuing to be also a great product with us because the R-box no longer have to sell that at a discount to the Celac (ph) industry so its also a place where its either us or the RBOCs competing for that business and we can start in a week.

Thomas Williams – ND Research

Very good, good results and then thank you for your hard work.

Jeff Thompson

No problem, thanks Bob.

Operator

Your next question comes from the line of (indiscernible) Management. Please proceed.

Unidentified Analyst

Hi, Jeff.

Jeff Thompson

How are you?

Unidentified Analyst

Good. Going through my notes from our last conference call and were the veterans averaging 2,200 last time you guys reported?

Jeff Thompson

Yeah, that’s a correct number. We are down to about four veterans as some of them are migrating into management positions and being in-charge of teams that’s correct.

Unidentified Analyst

Okay. So, what do you attribute the drop to the $1,600?

Jeff Thompson

A couple of things, some of those veterans moving on and much larger pool of veterans now.

Unidentified Analyst

Okay. How was the Miami, Seattle roll out going in, what kind of steps have you guys taken to let people know that you guys are off for a phenomenal services to a prices?

Jeff Thompson

Miami – it’s funny that you mentioned those two markets because those markets are ramping very well even better than our Boston started out, even though it is our home market. And basically what we are doing is we usually start a market up with direct mail and we take that direct mail and those zip codes and we load our dialers with those same places that the direct mails want you and try to ping those people as they just saw some direct TowerStream and hopefully get some connectivity between what they saw in the mail when they get over the phone. But, basically when we are going to a market we have at least one full team of 10 sales reps with one manager.

Unidentified Analyst

And you are happy with the results so far?

Jeff Thompson

Yeah, we are satisfied with that. Miami we do want to get more coverage there because we are getting a lot of inbound activity kind of on the fringes of our existing network so we are looking at ways to leverage our existing network to bring all those customers in.

Unidentified Analyst

I understand you guys are not ready to give guidance, is that possible that it will change next quarter?

Jeff Thompson

I will let you know next quarter.

Unidentified Analyst

Thanks for the wait.

Operator

Now, I would like to turn the call back over to Mr. Jeff Thompson for closing remarks.

Jeff Thompson

Well, thanks everybody for joining us today. I also want to thank TowerStream employees that worked so hard in the last year doing all the construction, the hiring, the new website, building up new markets. I want to let people know on the call that we are very exited about 2008. We are well financed. We have great people, a great get it done culture. We have innovative products that businesses want at an affordable prices and that we will strive to give customers the best possible experience and most of all the model is working. Thanks again everybody.

Operator

Thank you for your participation in today’s conference and this concludes the presentation. You may now disconnect.

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Source: TowerStream Corporation Q4 2007 Earnings Call Transcript
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