LAS VEGAS--(BUSINESS WIRE)--KeyOn Communications Holdings, Inc. (OTCBB: KEYO) (“KeyOn” or the “Company”), one of the largest providers of wireless broadband, satellite video and voice over Internet protocol (VoIP) services in the United States, reported its financial results for the year ended December 31, 2010.
2010 Operating Highlights
- Raised $15 million through a convertible secured note that ultimately converted into preferred equity and warrants in March 2011
- Awarded $10.2 million, subject to certain closing conditions, from the Rural Utilities Service under the American Recovery and Reinvestment Act (ARRA) of 2009 to deliver 4G wireless broadband services to almost 40 communities throughout rural Nevada
- Fourth quarter revenues increased 33% to $2,123,418 from $1,594,959 in the first quarter of 2010
- Annual revenues grew 9% to $7,523,678 from $6,898,232 in 2009 and, based upon our revenues for the quarter ended December 31, 2010, we experienced approximately 23% growth on an annualized basis as compared to full year revenues for 2009
- Completed 6 acquisitions of wireless broadband companies under our Rural UniFi initiative
- Marketing and advertising expenses increased 353% resulting in approximately 83% growth in gross subscriber additions as compared to 2009
- Implemented a next-generation, 4G wireless networks, starting with the launch of our WiMAX network in Pahrump, Nevada which has helped to increase both subscriber growth and ARPU in that market
Management Comments
Jonathan Snyder, President and CEO of KeyOn, commented, “In 2010, we experienced considerable growth resulting from acquisitions and our continued focus on our core business. Our revenues grew 23% from the first quarter to the fourth quarter of 2010 due to contributions from acquisitions and a positive trend on net subscriber additions starting in July 2010. At the same time, we had significant participation in Round Two of the Broadband Initiatives Program and received a $10.2 million award from the Rural Utilities Service that is subject to certain closing conditions. Importantly, we raised our first relatively sizable round of capital in the form of $15 million of convertible debt that converted into preferred equity in March 2011.”
Snyder continued, “Over the past two years, we experienced a decline in our revenues, but for the year ended 2010 we reversed that trend with year over year revenue growth of 9%. While our Adjusted EBITDA loss widened by $1.6 million to $2.05 million from $440,000 in 2009, the increase comes primarily from increases in our organic marketing activities, including installation, and the drag that our previously declining revenue base had on the first half of 2010. In fact, in the fourth quarter, our average Adjusted EBITDA loss for the prior three quarters was reduced by approximately 60%. In the third and fourth quarters, we received the full benefit of the larger acquisitions we completed during first and second quarters as compared to the three smaller acquisitions we completed in the second half of 2010.”
2010 Annual Consolidated Results
For the year ended December 31, 2010, we reported revenues of $7,523,678, compared to revenues of $6,898,232 during the year ended December 31, 2009, representing an increase of approximately $625,446 or 9%. Our increased revenue was a result of the completion of six acquisitions during the year ended December 31, 2010 and increased gross subscriber additions towards the end of 2010 resulting from an expansion of our marketing efforts as compared to the general contraction in our business and reduction in our subscriber base that occurred throughout the year ended December 31, 2009 and into the first two quarters of 2010. The acquisitions and subscriber growth that we accomplished in the year ended December 31, 2010 served to reverse the decline we experienced in the year ended December 31, 2009. As a result of the increase in both the gross and net subscriber additions in the second half of 2010, we expect to receive a financial benefit throughout 2011.
The operating loss for the year ended December 31, 2010 was $7,098,103, as compared to $4,669,206 for the year ended December 31, 2009, representing an increase of approximately $2.4 million or 52%. After removing approximately $2.4 million of one-time costs associated with professional fees incurred in connection with our Round Two ARRA applications, temporary staff, non-cash stock based compensation, payroll expenses from the duplication and relocation of our accounting staff and the travel expenses related to the moving of the accounting departments, our normalized operating loss for the year ended 2010 equaled $4,708,176 as compared to our normalized operating loss for 2009 of $3,577,509, after removing $1,091,697 of similar one-time or non-recurring costs, for an increase of $1.1 million or 32%.
The Company reported a net profit of $ 2,042,884, or $0.10 earnings per common share, for the year ended December 31, 2010, compared to a net loss of $6,595,702, or $(0.49) loss per common share, for the year ended December 31, 2009, representing an increase of $8,638,586 or approximately 131%. The major contributing factor of the improved net income was income recognized totaling $12,609,485 for the net change in fair value of a derivative instrument.
Adjusted EBITDA for the year ended December 31, 2010 was negative $2,046,978 as compared to negative $440,692 for the year ended December 31, 2009, a change of 364%. The significant contributing factor in the widened EBITDA loss related to the Company’s increased marketing and sales activities.
Outlook
Jonathan Snyder continued, “2010 was an important year in establishing the foundation for future and sustained growth. Already in 2011, we have acquired two additional businesses that, when their annual revenues are added to our annualized 2010 fourth quarter revenues, would project a pro forma revenue run rate for the company of $11 million from a reported $7.5 million in 2010. With the contribution from these acquisitions and the benefit of the growth we experienced in the second half of 2011, we expect to see improvements in our EBITDA. We believe that the way to create shareholder value is through growth – this is why we invested in our core business, completed a total of nine acquisitions since the fourth quarter of 2009, launched 4G WiMAX markets and participated in the government stimulus program. We expect our growth initiatives to continue with our first quarter of 2011 showing additional growth and a narrowed EBITDA loss.”
| KEYON COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY | ||||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||
| For the Year Ended December 31, | ||||||||||
| 2010 | 2009 | |||||||||
| REVENUES: | ||||||||||
| Total revenues | 7,523,678 | 6,898,232 | ||||||||
| OPERATING COSTS AND EXPENSES: | ||||||||||
| Payroll, bonuses and taxes | 5,129,802 | 3,505,812 | ||||||||
| Network operating costs | 3,342,913 | 2,804,905 | ||||||||
| Professional fees | 1,901,117 | 1,022,631 | ||||||||
| Depreciation and amortization | 2,080,303 | 2,423,657 | ||||||||
| General and administrative expense | 1,509,843 | 1,256,141 | ||||||||
| Installation expense | 267,427 | 168,761 | ||||||||
| Marketing and advertising | 390,376 | 86,209 | ||||||||
| Goodwill asset impairment | - | 299,322 | ||||||||
| Total operating costs and expenses | 14,621,781 | 11,567,438 | ||||||||
| LOSS FROM OPERATIONS | (7,098,103 | ) | (4,669,206 | ) | ||||||
| OTHER INCOME (EXPENSE): | ||||||||||
| Gain on acquisition | - | 21,686 | ||||||||
| Other income | 145,804 | 1,495,928 | ||||||||
| Interest income | 6,114 | 3 | ||||||||
| Interest expense | (3,454,945 | ) | (2,256,071 | ) | ||||||
| Loss on note repaid in common stock |
- |
(1,188,042 | ) | |||||||
| Fair value of derivative in excess of | ||||||||||
| debt proceeds | (29,792,150 | ) |
- |
|||||||
| Change in fair value of derivative | 42,401,635 | - | ||||||||
| Total other income (expense) | 9,306,458 | (1,926,496 | ) | |||||||
| NET INCOME (LOSS) BEFORE INCOME TAXES | $ | 2,208,355 | $ | (6,595,702 | ) | |||||
| Income Taxes | (165,471 | ) | - | |||||||
| NET INCOME (loss) | $ | 2,042,884 | $ | (6,595,702 | ) | |||||
| Net income (loss) per common share, basic | $ | 0.10 | $ | (0.49 | ) | |||||
| Net income (loss) per common share, diluted | $ | (0.17 | ) | $ | (0.49 | ) | ||||
About KeyOn Communications Holdings, Inc.
KeyOn Communications Holdings Inc. (OTCBB: KEYO) is one of the largest providers of wireless broadband, satellite and voice over Internet protocol (VoIP) services in the United States, primarily targeting underserved markets with populations generally less than 50,000. KeyOn offers broadband services with VoIP and satellite video services to both residential and business subscribers across 11 Western and Midwestern states. Through a combination of organic growth and acquisitions, KeyOn has expanded its network footprint to reach approximately 62,000 square miles and cover over 2,700,000 people, as well as small-to-medium businesses. With its successful track record of acquiring companies through its Rural UniFi initiative and growth of its overall subscriber base, KeyOn is one of the leading wireless broadband companies in the United States in terms of subscribers. Management intends to drive subscriber growth through additional acquisitions as well as organic growth across the company’s expanding footprint by offering bundled services including broadband, video, VoIP and related valuable services such as the Bullseye Club. The company also intends to opportunistically build mobile and/or nomadic WiMAX networks in and around its market footprint. More information on KeyOn can be found at http://www.keyon.com. Companies interested in participating in Rural UniFi can visit www.keyon.com/ruralunifi.html.
Non-GAAP Measures
This press release includes disclosure regarding “Adjusted EBITDA” which is a measurement used by KeyOn Communications to monitor business performance and is not recognized under GAAP (generally accepted accounting principles). Accordingly, investors are cautioned in using or relying upon these measures as alternatives to recognized GAAP measures.
“Adjusted EBITDA” is defined as earnings or loss from operations adjusted for depreciation, amortization, goodwill impairment, non-cash stock-based compensation, broadband stimulus application expenses and other non-recurring expenses, including the duplication of accounting personnel, temporary employees, and travel and moving expenses in connection with the relocation of our accounting department. Adjusted EBITDA should not be construed as an alternative to operating loss as defined by GAAP.
The Non-GAAP measure, Adjusted EBITDA, including non-recurring expenses, has been reconciled to Net Income/(Loss) as follows:
| For the Year Ended December 31, | ||||||||
| 2010 | 2009 | |||||||
| Reconciliation of Non GAAP to GAAP | ||||||||
| Adjusted EBITDA | (2,046,978 | ) | (440,692 | ) | ||||
| Depreciation and amortization | (2,080,303 | ) | (2,423,657 | ) | ||||
| Non recurring expenses | (309,983 | ) | - | |||||
| Stimulus related expenses | (1,012,176 | ) | (409,453 | ) | ||||
| Stock-based compensation in salaries and benefits | (1,067,768 | ) | (682,244 | ) | ||||
| Stock based compensation in professional fees | (598,352 | ) | (413,120 | ) | ||||
| Interest expense | (3,454,945 | ) | (2,256,071 | ) | ||||
| Interest income | 6,114 | 3 | ||||||
| Other income | 145,804 | 307,886 | ||||||
| Income Taxes | (165,471 | ) | - | |||||
| Gain on acquisition | - | 21,686 | ||||||
| Gain on disposal of assets | 17,457 | (88 | ) | |||||
| Goodwill asset impairment | - | (299,322 | ) | |||||
| Fair value of derivative in excess of | ||||||||
| debt proceeds | (29,792,150 | ) | - | |||||
| Change in fair value of derivative | 42,401,635 | - | ||||||
| Net Income/Loss | 2,042,884 | (6,595,072 | ) | |||||
Safe Harbor Statement
This press release contains forward-looking statements, 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 may include, without limitation, the company’s expectations regarding: future financial and operating performance and financial condition; plans, objectives and strategies; product development; industry conditions; the strength of its balance sheet; and liquidity and financing needs. Readers are cautioned not to put undue reliance on such forward-looking statements, which are not a guarantee of performance and are subject to a number of uncertainties and other factors, many of which are outside of the company’s control, which could cause actual results to differ materially from such statements, including, without limitation, its ability to successfully complete accretive acquisitions and grow its business organically, maintain the health of the Company’s networks to minimize losses to the Company’s subscriber base, the Company’s reliance on multi-user unlicensed spectrum to service subscribers, competition from larger and better financed providers, the Company’s reliance on third party sales representatives and new and more burdensome telecommunications’ regulations. For a more detailed description of the factors that could cause such a difference, please refer to the company’s filings with the Securities and Exchange Commission, including the information under the headings “Risk Factors” and “Forward-Looking Statements” in our Form 10-K filed on March 30, 2011. 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 update or supplement such forward-looking statements.