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| WIFI > SEC Filings for WIFI > Form 10-Q on 14-Aug-2012 | All Recent SEC Filings |
14-Aug-2012
Quarterly Report
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and notes thereto included in "Item 1. Financial Statements" of this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto and the section titled "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2011, filed with the Securities Exchange Commission on April 13, 2012.
Forward-Looking Statements
We revised previously issued financial statements to correct errors identified related to accounting for income taxes. The revisions were immaterial to the periods impacted, as disclosed in Note 2 of the condensed consolidated financial statements included in this report on Form 10-Q. All amounts in Item 2 of this filing are provided as revised.
This Quarterly Report on Form 10-Q and the documents incorporated herein by reference contain forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, as amended, based on our current expectations, estimates and projections about our operations, industry, financial condition, performance, results of operations, and liquidity. Statements containing words such as "may," "believe," "anticipate," "expect," "intend," "plan," "project," "projections," "business outlook," "estimate," or similar expressions constitute forward-looking statements. These forward-looking statements include, but are not limited to, statements about future financial performance; revenues; metrics; operating expenses; market trends, including those in the markets in which we compete; operating and marketing efficiencies; liquidity; cash flows and uses of cash; dividends; capital expenditures; depreciation and amortization; tax payments; foreign currency exchange rates; hedging arrangements; our ability to repay indebtedness, pay dividends and invest in initiatives; our products and services; pricing; competition; strategies; and new business initiatives, products, services, and features. Potential factors that could affect the matters about which the forward-looking statements are made include, among others, the factors disclosed in the section entitled "Risk Factors" in this Quarterly Report on Form 10-Q and additional factors that accompany the related forward-looking statements in this Quarterly Report on Form 10-Q and our other filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as the date hereof. Any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that may cause actual performance and results to differ materially from those predicted. Reported results should not be considered an indication of future performance. Except as required by law, we undertake no obligation to publicly release the results of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
Overview
Boingo makes it simple to connect to the mobile Internet.
We make it easy, convenient and cost effective for individuals to find and gain access to the mobile Internet through high-speed, high-bandwidth Wi-Fi networks globally. We also manage and operate a distributed antenna system infrastructure, or DAS which is a cellular extension network. Our solution includes easy-to-use software for Wi-Fi enabled devices such as smartphones, laptops and tablet computers, and our sophisticated back-end system infrastructure that detects and enables one-click access to our extensive global Wi-Fi network. Individuals use our solutions to access what we believe is the world's largest commercial Wi-Fi network, consisting of over 550,000 Wi-Fi locations, or hotspots, in over 100 countries at venues such as airports, hotels, coffee shops, shopping malls, arenas, stadiums and quick service restaurants.
We have direct customer relationships with users who have purchased our mobile Internet services, and we provide solutions to our partners, which include telecom operators, cable companies, technology companies, enterprise software and services companies, and communications companies to allow their millions of users to connect to the mobile Internet through hotspots in our network. As of June 30, 2012, we have grown our subscriber base to 287,000, an increase of 25.3% over the prior year period.
Individuals who are accustomed to the benefits of broadband performance at home and work are seeking the same applications, performance and availability on-the-go, through smartphones, laptops, tablet computers and other devices. We believe that this consumer demand has created a significant market opportunity that we are uniquely positioned to capture.
We generate revenue from individual users, partners and advertisers. Individual users provide approximately half of our revenue by purchasing month-to-month subscription plans that automatically renew, or hotspot specific single-use access to our network. In addition, our partners pay us usage-based network access and software licensing fees to allow their customers access to our network. We also generate revenue from telecom operators that pay us build-out fees and access fees so that their cellular customers may use our distributed antenna system or DAS at locations where we manage and operate the Wi-Fi network. We also generate revenue from advertisers that seek to reach our users with display advertising, sponsored access and other promotional programs.
We install, manage and operate wireless network infrastructure to provide Wi-Fi services at our managed and operated hotspots, where we generally have exclusive multi-year agreements.
The mobile Internet is a complex and constantly evolving ecosystem, comprised of over a billion mobile Internet-enabled devices from dozens of manufacturers, which are powered by many different operating systems. Devices use different network technologies and must be configured with the appropriate software to detect and optimize a connection to the mobile Internet. This complexity is amplified as new device models and operating systems are released, new categories of devices become Internet-enabled, and new network technologies emerge. The increasing number of mobile Internet-enabled devices in this ecosystem is causing an even more rapid increase in data consumption. Despite spending billions of dollars every year to expand their networks, network and telecom operators still face capacity-strained networks. Innovations in broadband technologies such as 3G and 4G will not be sufficient to relieve the strain on networks. We believe we are the leading global provider of commercial mobile Wi-Fi Internet solutions. Key elements of our strategy to extend that lead are to:
† extend footprint via our neutral-host business model;
† expand our partner relationships;
† increase the installed base of our software;
† grow our business internationally and
† drive new revenue sources.
Reconciliation of Non-GAAP Financial Measures
We define Adjusted EBITDA as net income (loss) attributable to common stockholders plus depreciation and amortization of property and equipment, accretion of convertible preferred stock, income taxes, amortization of other intangible assets, stock-based compensation expense, non-controlling interests' expense and interest and other (expense) income, net.
We believe that Adjusted EBITDA is useful to investors and other users of our financial statements in evaluating our operating performance because it provides them with an additional tool to compare business performance across companies and across periods. We believe that:
† Adjusted EBITDA provides investors and other users of our financial information consistency and comparability with our past financial performance, facilitates period-to-period comparisons of operations and facilitates comparisons with other companies, many of which use similar non-GAAP financial measures to supplement their GAAP results; and
† it is useful to exclude non-cash charges, such as accretion of convertible preferred stock, depreciation and amortization of property and equipment and asset impairment, amortization of other intangible assets and stock-based compensation, and non-core operational charges such as acquisition-related expense, from Adjusted EBITDA because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations, and these expenses can vary significantly between periods as a result of acquisitions, full amortization of previously acquired tangible and intangible assets or the timing of new stock-based awards.
We use Adjusted EBITDA in conjunction with traditional GAAP measures as part of our overall assessment of our performance, for planning purposes, including the preparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies and to communicate with our board of directors concerning our financial performance.
We do not place undue reliance on Adjusted EBITDA as our only measure of operating performance. Adjusted EBITDA should not be considered as a substitute for other measures of financial performance reported in accordance with GAAP. There are limitations to using non-GAAP financial measures, including that other companies may calculate these measures differently than we do.
We compensate for the inherent limitations associated with using Adjusted EBITDA through disclosure of these limitations, presentation of our financial statements in accordance with GAAP and reconciliation of Adjusted EBITDA to the most directly comparable GAAP measure, net income attributable to common stockholders.
The following provides a reconciliation of net income attributable to common stockholders to Adjusted EBITDA:
Three Months Ended Six Months Ended
June 30, June 30,
2012 2011 2012 2011
(unaudited)
(in thousands)
Net income attributable
to common stockholders $ 1,461 $ 1,293 $ 3,118 $ 1,145
Depreciation and
amortization of property
and equipment 3,358 2,810 7,873 5,339
Accretion of convertible
preferred stock - 438 - 1,633
Income tax expense 709 312 1,367 791
Amortization of other
intangible assets 247 508 482 1,069
Stock-based compensation
expense 952 695 1,945 901
Non-controlling interests 147 145 295 282
Interest expense
(income), net (81 ) 239 (137 ) 305
Adjusted EBITDA $ 6,793 $ 6,440 $ 14,943 $ 11,465
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Results of Operations
The following tables set forth our results of operations for the specified
periods.
Three Months Ended Six Months Ended
June 30, June 30,
2012 2011 2012 2011
(unaudited)
(in thousands)
Consolidated Statement of
Operations Data:
Revenue $ 24,302 $ 22,943 $ 48,489 $ 43,971
Costs and operating
expenses:
Network access 9,661 9,169 19,516 17,506
Network operations 3,748 3,944 7,202 7,668
Development and
technology 2,834 2,259 5,492 4,743
Selling and marketing 2,419 1,826 4,670 3,455
General and
administrative 3,157 2,810 6,484 5,374
Amortization of
intangible assets 247 508 482 1,069
Total costs and operating
expenses 22,066 20,516 43,846 39,815
Income from operations 2,236 2,427 4,643 4,156
Interest and other
(expense) income, net 81 (239 ) 137 (305 )
Income before income
taxes 2,317 2,188 4,780 3,851
Income taxes 709 312 1,367 791
Net income 1,608 1,876 3,413 3,060
Net income attributable
to non-controlling
interests 147 145 295 282
Net income attributable
to Boingo Wireless, Inc. 1,461 1,731 3,118 2,778
Accretion of convertible
preferred stock - (438 ) - (1,633 )
Net income attributable
to common stockholders $ 1,461 $ 1,293 $ 3,118 $ 1,145
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Depreciation and amortization expense included in the above line items:
Three Months Ended Six Months Ended
June 30, June 30,
2012 2011 2012 2011
(unaudited)
(in thousands)
Network access $ 2,479 $ 1,927 $ 6,144 $ 3,659
Network operations 716 620 1,390 1,178
Development and technology 130 237 280 439
General and administrative 33 26 59 63
Total $ 3,358 $ 2,810 $ 7,873 $ 5,339
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Stock-based compensation expense included in the above line items:
Three Months Ended Six Months Ended
June 30, June 30,
2012 2011 2012 2011
(unaudited)
(in thousands)
Network operations $ 105 $ 92 $ 111 $ 110
Development and technology 222 125 421 161
Selling and marketing 191 134 401 174
General and administrative 434 344 1,012 456
Total $ 952 $ 695 $ 1,945 $ 901
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The $0.5 million increase in depreciation and amortization expense of property and equipment for the three months ended June 30, 2012 compared to June 30, 2011 is primarily due to DAS build-out projects.
The $2.5 million increase in depreciation and amortization expense of property and equipment for the six months ended June 30, 2012 as compared to the six months ended June 30, 2011 are due to a one-time DAS build-out project of $1.3 million and $1.2 million from other DAS build-out projects for the six months ended.
The $0.3 million and $1.0 million increase in stock-based compensation expense for the three months and six months ended June 30, 2012 respectively, as compared to the three and six months ended June 30, 2011, are primarily a result of the May 3, 2011 option grants to employees and directors in which 2.2 million shares were granted.
The following table sets forth our results of operations for the specified periods as a percentage of our revenue for those periods.
Three Months Ended Six Months Ended
June 30, June 30,
2012 2011 2012 2011
(unaudited)
(as a percentage of revenue)
Consolidated Statement of
Operations Data:
Revenue 100.0 % 100.0 % 100.0 % 100.0 %
Costs and operating expenses:
Network access 39.8 40.0 40.2 39.8
Network operations 15.4 17.2 14.9 17.4
Development and technology 11.7 9.8 11.3 10.8
Selling and marketing 9.9 8.0 9.6 7.9
General and administrative 13.0 12.2 13.4 12.2
Amortization of intangible
assets 1.0 2.2 1.0 2.4
Total costs and operating
expenses 90.8 89.4 90.4 90.5
Income from operations 9.2 10.6 9.6 9.5
Interest and other income
(expense), net 0.3 (1.1 ) 0.3 (0.7 )
Income before income taxes 9.5 9.5 9.9 8.8
Income taxes 2.9 1.4 2.8 1.8
Net income 6.6 8.1 7.1 7.0
Net income attributable to
non-controlling interests 0.6 0.6 0.6 0.6
Net income attributable to
Boingo Wireless, Inc. 6.0 7.5 6.5 6.4
Accretion of convertible
preferred stock - (1.9 ) - (3.7 )
Net income attributable to
common stockholders 6.0 % 5.6 % 6.5 % 2.7 %
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Three Months ended June 30, 2012 and 2011
Revenue
Three Months Ended June 30,
2012 2011 Change % Change
(unaudited)
(in thousands, except churn data)
Revenue:
Retail subscription $ 8,017 $ 6,976 $ 1,041 14.9 %
Retail single-use 3,877 4,417 (540 ) (12.2 )%
Wholesale 11,122 10,284 838 8.2 %
Advertising and other 1,286 1,266 20 1.5 %
Total revenue $ 24,302 $ 22,943 $ 1,359 5.9 %
Key business metrics:
Subscribers 287 229 58 25.3 %
Monthly churn 9.1 % 9.9 % (0.8 )% (8.1 )%
Connects 4,132 3,222 910 28.2 %
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There are three key metrics that we use to monitor results and activity in the business as follows:
Subscribers. This metric represents the number of paying retail customers who are on a month-to-month subscription plan at a given period end.
Monthly churn. This metric shows the number of subscribers who canceled their subscriptions in a given month, expressed as a percentage of the average subscribers in that month. The churn in a given period is the average monthly churn in that period. This measure is one indicator of the longevity of our subscribers. Some of our customers who cancel subscriptions maintain accounts for single-use access.
Connects. This metric shows how often individuals connect to our global Wi-Fi network in a given period. The connects include retail and wholesale customers in both customer pay locations and customer free locations where we are a paid service provider and/or sponsorship and/or promotion fees. We count each connect as a single connect regardless of how many times the individual accesses the network at a given venue during their 24 hour period. This measure is an indicator of paid activity throughout our network.
Total revenue. Total revenue increased $1.4 million or 5.9%, for the three months ended June 30, 2012, as compared to the three months ended June 30, 2011.
Retail subscription. Retail subscription revenue increased $1.0 million, or 14.9%, for the three months ended June 30, 2012, as compared to the three months ended June 30, 2011, due to a 25.3% increase in subscribers. This increase in subscribers was partially offset by a decrease in our revenue per subscriber from the growing mix of lower-priced smartphone and tablet subscriptions compared to unlimited subscriptions, and sales promotions in the current quarter.
Retail single-use. Retail single-use revenue decreased $0.5 million, or 12.2%, for the three months ended June 30, 2012, as compared to the three months ended June 30, 2011. The decrease in single-use revenue was due to the increase in new customers that opted for subscriptions, increased usage from wholesale partner customers that use our service on a wholesale basis rather than purchase single-use access and greater hourly use access than day pass access.
Wholesale. Wholesale revenue increased $0.8 million, or 8.2%, for the three months ended June 30, 2012, as compared to the three months ended June 30, 2011, due to $0.6 million from new DAS build-out projects in our managed and operated locations and $0.2 million from increased partner usage-based fees.
Advertising and other. Advertising and other revenue remained relatively unchanged for the three months ended June 30, 2012, as compared to the three months ended June 30, 2011.
Costs and Operating Expenses
Three Months Ended June 30,
2012 2011 Change % Change
(unaudited)
(in thousands, except percentages)
Costs and operating expenses:
Network access $ 9,661 $ 9,169 $ 492 5.4 %
Network operations 3,748 3,944 (196 ) (5.0 )%
Development and technology 2,834 2,259 575 25.5 %
Selling and marketing 2,419 1,826 593 32.5 %
General and administrative 3,157 2,810 347 12.3 %
Amortization of intangible assets 247 508 (261 ) (51.4 )%
Total costs and operating expenses $ 22,066 $ 20,516 $ 1,550 7.6 %
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Network access. Network access costs increased $0.5 million, or 5.4%, for the three months ended June 30, 2012, as compared to the three months ended June 30, 2011. The change reflects increases of $0.5 million in depreciation expense, $0.3 million from revenue share paid to venues in our managed and operated locations, $0.2 million from sale of equipment for mall build-out projects and $0.2 million from bandwidth and other cost of sales. The increase was partially offset by decreases of $0.7 million from customer usage at partner venues.
Network operations. Network operations expenses decreased $0.2 million, or 5.0%, for the three months ended June 30, 2012, as compared to the three months ended June 30, 2011 due to a decrease of $0.2 million in personnel related expenses from employees transferred from network operations into the development and technology and selling and marketing departments.
Development and technology. Development and technology expenses increased $0.6 million, or 25.5% for the three months ended June 30, 2012, as compared to the three months ended June 30, 2011 due to a $0.3 million increase in personnel related expenses, inclusive of $0.1 million in stock-based compensation expenses and $0.1 million due to employees transferred in from network operations, $0.2 million increase in hardware and software maintenance expense and $0.1 million in consulting expenses.
Selling and marketing. Selling and marketing expenses increased $0.6 million, or 32.5%, for the three months ended June 30, 2012, as compared to the three months ended June 30, 2011, due to a $0.4 million increase in personnel related expenses, inclusive of $0.1 million in stock-based compensation expenses and $0.1 million due to employees transferred in from network operations, and a $0.2 million increase in marketing expenses.
General and administrative. General and administrative expenses increased $0.3 million, or 12.3% for the three months ended June 30, 2012, as compared to the three months ended June 30, 2011 primarily due to increase in franchise taxes and stock-based compensation.
Amortization of intangible assets. Amortization of intangible assets expense decreased $0.3 million, or 51.4%, for the three months ended June 30, 2012, as compared to the three months ended June 30, 2011. The decrease was due to certain acquired assets being fully amortized in the second half of 2011.
Interest and Other Income (Expense), Net
Interest and other income (expense), net, increased $0.3 million for the three months ended June 30, 2012 compared to June 30, 2011 due to $0.2 million in gains from foreign currency transactions and having a mark to market adjustment for preferred warrants in the prior year of $0.1 million.
Income Taxes
Income taxes increased $0.4 million or 127.2% in the three months ended June 30, 2012, as compared to the three months ended June 30, 2011. In the prior quarter ended June 30, 2011 we concluded it was more likely than not that certain of our state deferred tax assets would be realizable, and therefore we received a $0.2 million benefit from the reduction of our valuation allowance. For the three months ended June 30, 2012 we also had decreased deductions from the exercise and sale of incentive stock options and increased income before income taxes of $0.1 million. Our effective tax rate also increased to 30.6% for the three months ended June 30, 2012 as compared to 14.3% for three months ended June 30, 2011.
Non-controlling Interests
Non-controlling interests remained relatively unchanged for the three months ended June 30, 2012, as compared to the three months ended June 30, 2011.
Adjusted EBITDA
. . .
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