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WIFI > SEC Filings for WIFI > Form 10-Q on 14-Nov-2012All Recent SEC Filings

Show all filings for BOINGO WIRELESS INC

Form 10-Q for BOINGO WIRELESS INC


14-Nov-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

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 September 30, 2012, we have grown our subscriber base to 292,000, an increase of 19.7% 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 in locations where we also manage and operate the Wi-Fi network. We also generate revenue from advertisers that seek to reach our users with sponsored access, display advertising, and other promotional programs.


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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 our network 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.


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The following provides a reconciliation of net income attributable to common stockholders to Adjusted EBITDA:

                                        Three Months Ended            Nine Months Ended
                                          September 30,                 September 30,
                                       2012           2011           2012           2011
                                                          (unaudited)
                                                        (in thousands)

Net income attributable to
common stockholders                 $     2,777    $     1,662    $     5,895    $    2,807
Depreciation and amortization of
property and equipment                    3,798          3,555         11,672         8,894
Accretion of convertible
preferred stock                               -              -              -         1,633
Income tax expense                        1,101          1,194          2,468         1,985
Amortization of other intangible
assets                                      296            323            778         1,392
Stock-based compensation expense            218          1,374          2,163         2,275
Non-controlling interests                   284            138            579           420
Interest expense (income), net              (33 )          (13 )         (170 )         292
Adjusted EBITDA                     $     8,441    $     8,233    $    23,385    $   19,698

Results of Operations



The following tables set forth our results of operations for the specified
periods.



                                       Three Months Ended            Nine Months Ended
                                          September 30,                September 30,
                                       2012           2011          2012           2011
                                                         (unaudited)
                                                        (in thousands)
Consolidated Statement of
Operations Data:
Revenue                             $    26,017    $   24,688    $    74,506    $   68,659
Costs and operating expenses:
Network access                           10,061         9,647         29,577        27,153
Network operations                        3,693         4,097         10,895        11,765
Development and technology                2,300         2,449          7,792         7,192
Selling and marketing                     2,567         1,955          7,237         5,410
General and administrative                2,971         3,236          9,455         8,610
Amortization of intangible
assets                                      296           323            778         1,392
Total costs and operating
expenses                                 21,888        21,707         65,734        61,522
Income from operations                    4,129         2,981          8,772         7,137
Interest and other (expense)
income, net                                  33            13            170          (292 )
Income before income taxes                4,162         2,994          8,942         6,845
Income taxes                              1,101         1,194          2,468         1,985
Net income                                3,061         1,800          6,474         4,860
Net income attributable to
non-controlling interests                   284           138            579           420
Net income attributable to
Boingo Wireless, Inc.                     2,777         1,662          5,895         4,440
Accretion of convertible
preferred stock                               -             -              -        (1,633 )
Net income attributable to
common stockholders                 $     2,777    $    1,662    $     5,895    $    2,807


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Depreciation and amortization expense included in the above line items:

                               Three Months Ended       Nine Months Ended
                                 September 30,            September 30,
                                2012         2011        2012        2011
                                              (unaudited)
                                             (in thousands)
Network access               $    2,704    $  2,637   $     8,848   $ 6,295
Network operations                  687         664         2,077     1,842
Development and technology          375         234           656       674
General and administrative           32          20            91        83
Total                        $    3,798    $  3,555   $    11,672   $ 8,894

Stock-based compensation expense included in the above line items:

                                Three Months Ended        Nine Months Ended
                                  September 30,             September 30,
                               2012          2011          2012        2011
                                               (unaudited)
                                              (in thousands)
Network operations           $    117    $        186   $      227    $   297
Development and technology       (253 )           228          168        388
Selling and marketing             (36 )           264          366        438
General and administrative        390             694        1,402      1,152
Total                        $    218    $      1,372   $    2,163    $ 2,275

The $2.8 million increase in depreciation and amortization expense of property and equipment for the nine months ended September 30, 2012 as compared to the nine months ended September 30, 2011 are due to a one-time DAS build-out project of $1.3 million and $1.5 million from other DAS build-out projects for the nine months ended.

The $1.2 million decrease in stock-based compensation expense for the three months ended September 30, 2012 as compared to the three months ended September 30, 2011, is primarily a result of the reversal of $0.7 million in stock-based compensation expense for unvested options for two senior executives who left the Company.

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        Nine Months Ended
                                        September 30,             September 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                           38.7         39.1         39.7         39.6
Network operations                       14.2         16.6         14.6         17.1
Development and technology                8.8          9.9         10.5         10.5
Selling and marketing                     9.9          7.9          9.7          7.9
General and administrative               11.4         13.1         12.7         12.5
Amortization of intangible
assets                                    1.1          1.3          1.0          2.0
Total costs and operating
expenses                                 84.1         87.9         88.2         89.6
Income from operations                   15.9         12.1         11.8         10.4
Interest and other income
(expense), net                            0.1          0.0          0.2         (0.4 )
Income before income taxes               16.0         12.1         12.0         10.0
Income taxes                              4.2          4.8          3.3          2.9
Net income                               11.8          7.3          8.7          7.1
Net income attributable to
non-controlling interests                 1.1          0.6          0.8          0.6
Net income attributable to
Boingo Wireless, Inc.                    10.7          6.7          7.9          6.5
Accretion of convertible
preferred stock                             -            -            -         (2.4 )
Net income attributable to
common stockholders                      10.7 %        6.7 %        7.9 %        4.1 %


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Three Months ended September 30, 2012 and 2011



Revenue



                             Three Months Ended September 30,
                          2012        2011     Change     % Change
                                       (unaudited)
                            (in thousands, except churn data)
Revenue:
Retail subscription     $   8,621   $  7,437   $ 1,184        15.9 %
Retail single-use           3,304      3,832      (528 )     (13.8 )%
Wholesale                  11,631     12,012      (381 )      (3.2 )%
Advertising and other       2,461      1,407     1,054        75.0 %
Total revenue           $  26,017   $ 24,688   $ 1,329         5.4 %

Key business metrics:
Subscribers                   292        244        48        19.7 %
Monthly churn                 9.0 %      9.7 %    (0.7 )%     (7.2 )%
Connects                    8,906      2,851     6,055       212.4 %

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 $1.3 million or 5.4%, for the three months ended September 30, 2012, as compared to the three months ended September 30, 2011.

Retail subscription. Retail subscription revenue increased $1.2 million, or 15.9%, for the three months ended September 30, 2012, as compared to the three months ended September 30, 2011, due to a 19.7% increase in subscribers. This increase in subscribers was partially offset by a decrease in our revenue per subscriber from the mix of lower-priced smartphone and tablet subscriptions compared to unlimited subscriptions.

Retail single-use. Retail single-use revenue decreased $0.5 million, or 13.8%, for the three months ended September 30, 2012, as compared to the three months ended September 30, 2011. The decrease in single-use revenue was due to the increase in new customers that opted for subscriptions and the impact of increased sponsorship promotions in the quarter.

Wholesale. Wholesale revenue decreased $0.4 million, or 3.2%, for the three months ended September 30, 2012, as compared to the three months ended September 30, 2011, due to a decrease of $0.4 million from DAS access and usage fees and $0.2 million from a decrease in partner usage-based fees which were partially offset by an increase of $0.2 million in new DAS build-out projects in our managed and operated locations.

Advertising and other. Advertising and other revenue increased $1.1 million, or 75.0% for the three months ended September 30, 2012, as compared to the three months ended September 30, 2011, due primarily to $0.8 million in revenues earned from the assets acquired from Cloud 9 Wireless, Inc., and a $0.3 increase in other sponsorship revenues.


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Costs and Operating Expenses



                                           Three Months Ended September 30,
                                        2012         2011      Change    % Change
                                                     (unaudited)
                                          (in thousands, except percentages)
Costs and operating expenses:
Network access                       $   10,061    $  9,647   $    414        4.3 %
Network operations                        3,693       4,097       (404 )     (9.9 )%
Development and technology                2,300       2,449       (149 )     (6.1 )%
Selling and marketing                     2,567       1,955        612       31.3 %
General and administrative                2,971       3,236       (265 )     (8.2 )%
Amortization of intangible assets           296         323        (27 )     (8.4 )%
Total costs and operating expenses   $   21,888    $ 21,707   $    181        0.8 %

Network access. Network access costs increased $0.4 million, or 4.3%, for the three months ended September 30, 2012, as compared to the three months ended September 30, 2011 due to an increase of $0.4 million in a revenue share cost related to the assets acquired from Cloud 9 Wireless, Inc., an increase of $0.2 million from revenue share paid for sponsorship revenue, and $0.1 million increase in depreciation expense offset by a decrease of $0.3 million from customer usage at partner venues.

Network operations. Network operations expenses decreased $0.4 million, or 9.9%, for the three months ended September 30, 2012, as compared to the three months ended September 30, 2011 due to a decrease of $0.3 million in personnel related expenses, $0.1million decrease in stock-based compensation expenses, $0.1 million decrease in consulting expenses and $0.1 million decrease in hardware and software maintenance expenses partially offset by $0.2 million increase in internet connectivity expenses.

Development and technology. Development and technology expenses decreased $0.1 million, or 6.1% for the three months ended September 30, 2012, as compared to the three months ended September 30, 2011 due to $0.5 million decrease in stock-based compensation expense, $0.2 million decrease in personnel related expenses partially offset by a $0.2 million increase in consulting expenses, $0.2 million increase in hardware and software maintenance expenses and a $0.2 million increase in depreciation expenses.

Selling and marketing. Selling and marketing expenses increased $0.6 million, or 31.3%, for the three months ended September 30, 2012, as compared to the three months ended September 30, 2011, due to a $0.4 million increase in promotional marketing and other expenses, a $0.5 million increase in personnel related expenses offset by a $0.3 million decrease in stock-based compensation expenses.

General and administrative. General and administrative expenses decreased $0.3 million, or 8.2% for the three months ended September 30, 2012, as compared to the three months ended September 30, 2011 primarily due to a $0.3 million decrease in stock-based compensation expenses, and $0.1 million decrease in other expenses offset partially by a $0.4 million increase in consulting, and other expenses.

Amortization of intangible assets. Amortization of intangible assets expense remained relatively unchanged for the three months ended September 30, 2012, as compared to the three months ended September 30, 2011.

Interest and Other Income (Expense), Net

Interest and other income (expense), net, remained relatively unchanged for the three months ended September 30, 2012, as compared to the three months ended September 30, 2011.

Income Taxes

Income taxes decreased $0.1 million or 7.8% for the three months ended September 30, 2012, as compared to the three months ended September 30, 2011. For the three months ended September 30, 2012, the effective tax rate was 26%, which differs from the statutory rate primarily due to benefits from disqualifying dispositions of incentive stock options and adjustments realized upon filing our 2011 federal income tax returns. The effective tax rate in the prior quarter ended September 30, 2011 was 40%, which was consistent with the statutory tax rates.


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Non-controlling Interests

Non-controlling interests increased $0.1 million for the three months ended September 30, 2012, as compared to the three months ended September 30, 2011.

Adjusted EBITDA

Adjusted EBITDA was $8.4 million for the three months ended September 30, 2012, up 2.5% from the $8.2 million recorded in the three months ended September 30, . . .

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