KeyOn Reports Third Quarter 2010 Results

KeyOn Communications Holdings, Inc. (OTCBB: KEYO), 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 quarter ending September 30, 2010.

Jonathan Snyder, President and CEO of KeyOn Communications, commented, "In the second quarter of 2010, we had 8% sequential quarterly revenue growth. In this quarter, we received the full financial benefit of the three previously completed acquisitions and organic subscriber growth. As a result, revenues grew 20.1% on a sequential basis and 24.1% over the previous year’s quarter. Our annualized revenues are higher than either of our prior two year’s results, demonstrating that our team has been focused on rapid execution since receiving the proceeds from a $15 million convertible note in February 2010.”

Snyder continued, "Our reported Adjusted EBITDA loss increased slightly, 5.3% in the third quarter on a sequential basis as we continued to invest in growth. Our operating costs as a percent of revenue were essentially flat when normalized for one-time, non-recurring expenses. While our marketing levels were slightly up over the previous quarter, we earned a higher return on these dollars with gross subscriber additions increasing by about 259% over the previous year’s quarter and over 70% over the second quarter of 2010.”

2010 Third Quarter Consolidated Results

For the third quarter ended September 30, 2010, the Company reported revenue of $2,076,452, as compared to $1,672,730 for the third quarter ended September 30, 2009. In December 2009, we began to gradually increase our marketing expenses in an effort to grow our subscriber base at an increased rate. As a result, for the three month period ended September 30, 2010, new customer installations increased 259% compared to the same period in 2009. We expect to continue to derive the benefit of our expanded marketing efforts throughout the remainder of 2010 and continuing into 2011.

In the third quarter of 2010, operating expenses increased 23.6% over the previous year’s quarter primarily due to a 52.4% increase in payroll, bonuses and taxes. Much of this increase has to do with additional headcount in support of our expanded operations resulting from our Rural UniFi initiative and in furtherance of our organic growth efforts, as well as the non-recurring duplicate personnel associated with the relocation of our accounting function from Omaha, Nebraska, to Las Vegas, Nevada, increased non-cash stock based compensation and other compensation changes. Marketing expenses and installation expenses increased over the previous quarter consistent with the Company’s plan to increase organic subscriber growth. Network operating costs also increased with the presence of additional operating expenses from acquisitions. Professional fees increased over the previous quarter but, when normalized for one-time expenses associated with a proposed acquisition of a hosted voice over Internet protocol business and other one-time expenses, these expenses were actually down over the previous quarter.

We had net income of $1,526,402 for the three month period ended September 30, 2010, as compared to a net loss of $2,904,325 for the three month period ended September 30, 2009, representing an improvement of approximately 152.6%. The primary reason for the increase was non-cash income relating to the fair value derivative accounting of the Cal Cap Note of $4,458,953, and non-cash interest accretion expense of $542,566. During the three month period ended September 30, 2009, we incurred a non-cash beneficial ownership expense $1,188,042. If the effects of the derivative accounting were removed from other income and interest expense for the three month period ended September 30, 2010, and the effects of the beneficial ownership expense were removed for the three month period ended September 30, 2009, the results would have been a net loss of $2,389,985 as compared to a net loss of $1,716,283 for the three month period ended September 30, 2009, an increase of 39.3%

Adjusted EBITDA for the third quarter ended September 30, 2010, was negative $848,744 compared to a negative $381,309 in the third quarter of 2009. By removing stimulus-related and other non-recurring expenses and credits, adjusted EBITDA for the quarter ended September 30, 2010, would have been negative $709,299 as compared to negative $253,361 for the quarter ended September 30, 2009.

Outlook

Jonathan Snyder continued, "After closing three acquisitions during the first two quarters of 2010, we closed another two acquisitions in the third quarter. As of today, we closed our sixth 2010 acquisition in November, the results of which will be included in our fourth quarter. We believe that a strong indicator of future performance is to compare our pro forma revenues for the nine month period ended September 30, 2010 of $8.0 million, showing the impact of the five acquisitions as if completed on January 1^st, to the nine month period ended September 30, 2009 of $5.4 million, KeyOn’s revenues would be up over 48%. Our investments in growth are paying off. With the acquisitions currently in progress, we believe we make significant steps towards returning to EBITDA profitability with continued revenue growth.”

About KeyOn Communications Holdings, Inc.

KeyOn Communications Holdings Inc. (OTC BB: 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 12 Western and Midwestern states. Through a combination of organic growth and acquisitions, KeyOn has expanded its network footprint to reach approximately 55,000 square miles and cover over 2,800,000 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. 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 applications, other non-recurring expenses and the effect of derivative accounting. Adjusted EBITDA should not be construed as an alternative to operating loss as defined by GAAP.

Safe Harbor Statement

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 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, the company’s ability to secure ARRA stimulus funding, its ability to successfully complete accretive acquisitions and grow its business organically, 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/A filed on April 16, 2010. 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.