Stock Preacher

FiberTower Corp. (Nasdaq: FTWR)

FiberTower Corp. (FTWR) is one of the largest alternative backhaul providers in the United States, serving six of the top eight wireless carriers, utilizing its strategic partnerships with tower operators to deploy carrier-class networks in major markets and holding near-nationwide spectrum assets in 24 and 39 GHz bands. As of June 30, 2009, the Company has deployed 3,118 sites, of which 2,795 had billing customers.

The Company offers its customers service that consist of time division multiplexing (TDM), transport at speeds starting with T-1s and scaling up to higher capacities. FTWR has designed its network architecture to accommodate other transport services, such as Ethernet-based backhaul, and other packet-based protocols. In general, the Company provides these services between a wireless carrier’s cell site and mobile switching center, or other drop locations.

The Company is headquartered in San Francisco, California.

Source: Reuters.com, SEC Filings.

Financial Summary

The Company’s revenue for the three months ended June 30, 2009, increased by $3.7 million or 31%, to $15.6 million compared to $11.9 million for the first quarter of 2008. Continuing organic growth from existing sites and the addition of 65 new billing locations drove the increase in service revenues during the second quarter of 2009. FTWR’s average monthly revenue per billing site grew 5% to $1,860 in the second quarter of 2009 from $1,767 in the first quarter of 2009. The Company reported a gross profit of $1.5 million in the second quarter of 2009 as compared to gross loss of $12.9 million for the same quarter in 2008. FTWR achieved a positive gross margin for first time in the Company’s history, being driven by higher margins generated from incremental revenue gains.

Operating expenses in the second quarter of 2009 decreased by $1.5 million or 5% compared to the first quarter of 2009. Adjusted EBITDA was a loss of $3.2 million in the second quarter of 2009 compared to an adjusted EBITDA loss of $4.9 million in the first quarter of 2009. Net income was $20.8 million for the second quarter of 2009 reflecting the recognition of a gain of $44.6 million on the early extinguishment of debt.

During the second quarter of 2009, the Company’s consolidated cash consumption was $35.6 million as compared to $29.1 million in the first quarter of 2009. Excluding the impact of repurchasing debt in the second and first quarters, the Company’s consolidated cash consumption was $4.7 million and $5.8 million, respectively, representing an improvement of $1.1 million. FTWR’s consolidated cash and cash equivalents at June 30, 2009, were $89.7 million, compared to $125.2 million at March 31, 2009. The Company’s outstanding debt, including accretion, at June 30, 2009, was $304.5 million.

Source: Yahoo! Finance, SEC Filings.

Analyst Consensus

No consensus recommendations data available.

Investment Highlights

FTWR is a backhaul and access transport provider focused primarily on the wireless carrier market. It utilizes its comprehensive wireless spectrum assets and extensive fiber service provider relationships to provide backhaul services nationally through a hybrid radio/fiber network architecture. The Company’s services allow wireless carriers to optimize their networks, enable significant improvements in their availability, reliability and scalability, and reduce costs, while providing a long-term solution for the increasing demand for backhaul capacity

The Company owns a national spectrum portfolio of 24 gigahertz (GHz) and 39 gigahertz wide-area spectrum licenses, including over 740 megahertz in the top 20 U.S. metropolitan areas and, in the aggregate, approximately 1.55 billion channel pops calculated as the number of channels in a given area multiplied by the population, as measured in the 2000 census, covered by these channels. The Company’s spectrum portfolio represents one of the largest and most comprehensive collections of millimeter wave spectrum in the United States. Its licenses extend over substantially the entire continental U.S., covering areas with a total population of approximately 300 million.

FTWR has customer agreements with nine wireless carriers in the United States and holds separate service agreements with MCI Communications, Verizon Business and Qwest Communications, as their fixed wireless partner on the General Services Administration Networx contract to provide fixed wireless government-grade primary transport and physically diverse network transport services.  The service agreement with Verizon Business also allows it to provide government-grade services for other Verizon Business-managed contracts. Currently, the Company provides services to 6,332 billing customer locations in 13 major markets, including Atlanta, Boston, Chicago, Cleveland, Dallas/Fort Worth, Denver, Detroit, Houston, NJ/NY, Pittsburgh, San Antonio/Austin/Waco, Tampa and Washington DC.

Since the beginning of the year, the Company has executed six contracts with wholesale customers. These contracts cover a wide range of services including DS3s, OC3s and Ethernet. FTWR also made progress in its government business during the second quarter. The Company has agreements in place with two major carriers that are pursuing business under the General Services Administration Networx contract. These agreements identify FTWR as the fixed wireless partner for delivering bandwidth to the 185 federal agencies covered by the networks procurement vehicle.

The U.S. Recovery Act of 2009 authorizes the FCC to create a $7.2 billion National Broadband Plan that shall seek to ensure that all people of the United States have access to broadband capability and shall establish benchmarks for meeting that goal. The Broadband Initiatives funded in the Act are intended to accelerate broadband deployment in unserved, underserved, and rural areas and to strategic institutions that are likely to create jobs or provide significant public benefits. To date, FTWR filed seveb applications covering 19 states and requesting approximately $267 million in grant funding. This is a promising environment for FTWR because it provides numerous opportunities for the Company to capitalize on the backhaul of networks that it has been designing, building and operating for over six years. In addition to the National Broadband Plan, there are many other broadband programs ongoing at FCC, NTIA, USDA, and other Federal agencies.

Carriers aggressively enhance their network to better serve their customers. Both AT&T and Verizon recently provided updates on how they plan to upgrade their networks. AT&T announced a rollout of an HSPA network later this year, while Verizon announced that they will conduct LTE trials in several markets this year with a commercial launch in 30 markets in 2010. In 2009, the U.S. wireless data revenues expected to be $42 billion. Consumer data usage is continuing to grow rapidly. According to ABI research, about 1.3 exabytes (10¹⁸) of data were transferred from mobile devices in 2008. Cisco Systems estimates that by 2013, 1.6 exabytes of data will be transferred per month. Meanwhile, smartphone sales are expected to increase 95% to more than 300 million by 2013.

In the first quarter of 2009, the Company began to repurchase its debt in the open market. During the first quarter of 2009, FTWR repurchased $71.3 million par value of its Notes in the open market. These repurchases were at a weighted average price of approximately $30 per $100 of par value, for $21.4 million in cash plus accrued but unpaid interest. During the second quarter of 2009, the Company repurchased $70.9 million par value of its Notes in the open market. These repurchases were at a weighted average price of approximately $43 per $100 of par value, for $30.8 million in cash plus accrued but unpaid interest.  FTWR anticipates using between $15 million to $20 million of cash for capital expenditures throughout the remainder of the year.

Technical Analysis

Source: http://stockcharts.com/h-sc/ui

FTWR is trading above its 13-day moving average. This is considered to be the sign of a bullish trend. There is added weight to this indication because the moving average is rising and suggests that there has been buying interest in this stock.

The MACD for the Company currently indicates a strong bullish signal for two reasons. First, the MACD is above the signal line, a 9-day moving average. Second, the MACD is above 0, which implies that the underlying moving averages are trending higher.

FTWR is trading within its Bollinger Bands. This is a normal condition and suggests that the stock is neither overbought nor oversold relative to the recent price action.

Comparative Analysis

FTWR is traded with premium to peer P/S multiples.

The Company’s growth is being driven by continued success of 2G services, the rapid rollout of 3G networks, and the beginning of 4G. Thus, over the past several quarters, the Company has improved its operational flexibility through continued high margin incremental revenue growth at its sites and aggressive cost management. While, FTWR has never made a profit, it could get a boost from national broadband programs directly and indirectly. The Company is expected to achieve solid earnings for the next four-five years.

Source: Thomson Financial, Yahoo! Finance, Analyst estimates.

Insider Trading Activity

Net Share Purchase Activity

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