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WIFI > SEC Filings for WIFI > Form 10-Q on 10-May-2013All Recent SEC Filings

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Form 10-Q for BOINGO WIRELESS INC


10-May-2013

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 condensed 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, 2012, filed with the Securities Exchange Commission on March 18, 2013.


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Forward-Looking Statements

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 700,000 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 March 31, 2013, we have grown our subscriber base to approximately 296,000, an increase of approximately 12.1% over the same 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 46% 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 recurring access fees so that their cellular customers may use our 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 sponsored access, promotional programs and display advertising at locations where we manage and operate the Wi-Fi network and locations where we solely provide authorized access to a partner's Wi-Fi network through sponsored access and 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.


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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 are to:

grow the installed base of our software;

leverage our neutral-host business model;

invest in our software to enhance the customer experience;

expand our network;

grow our business internationally; and

increase our brand awareness.

Reconciliation of Non-GAAP Financial Measures

We define Adjusted EBITDA as net (loss) income attributable to common stockholders plus depreciation and amortization of property and equipment, income tax (benefit) expense, amortization of intangible assets, stock-based compensation expense, non-controlling interests and interest and other 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 depreciation and amortization of property and equipment, amortization of intangible assets and stock-based compensation, 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 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.


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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 (loss) income attributable to common stockholders.

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

                                                            Three Months Ended
                                                                March 31,
                                                             2013         2012
                                                               (unaudited)
                                                              (in thousands)

Net (loss) income attributable to common stockholders     $    (1,121 )  $ 1,657
Depreciation and amortization of property and equipment         4,133      4,515
Income tax (benefit) expense                                     (467 )      658
Amortization of intangible assets                                 399        235
Stock-based compensation expense                                  602        993
Non-controlling interests                                         133        148
Interest and other income, net                                    (47 )      (56 )
Adjusted EBITDA                                           $     3,632    $ 8,150

Results of Operations



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



                                                          Three Months Ended
                                                              March 31,
                                                           2013         2012
                                                             (unaudited)
                                                            (in thousands)
Consolidated Statement of Operations Data:
Revenue                                                 $    23,134   $ 24,187
Costs and operating expenses:
Network access                                                9,670      9,855
Network operations                                            3,951      3,454
Development and technology                                    3,136      2,658
Selling and marketing                                         2,990      2,251
General and administrative                                    4,490      3,327
Amortization of intangible assets                               399        235
Total costs and operating expenses                           24,636     21,780
(Loss) income from operations                                (1,502 )    2,407
Interest and other income, net                                   47         56
(Loss) income before income taxes                            (1,455 )    2,463
Income tax (benefit) expense                                   (467 )      658
Net (loss) income                                              (988 )    1,805
Net income attributable to non-controlling interests            133        148
Net (loss) income attributable to common stockholders   $    (1,121 ) $  1,657




                                                               Three Months Ended
                                                                   March 31,
                                                              2013            2012
                                                                  (unaudited)
                                                                 (in thousands)
Depreciation and amortization expense included in the
above line items:
Network access                                            $      2,877    $      3,665
Network operations                                                 808             674
Development and technology                                         416             150
General and administrative                                          32              26
Total(1)                                                  $      4,133    $      4,515


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(1) The $0.4 million decrease in depreciation and amortization of property and equipment for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012, is primarily a result of $1.3 million from a one-time DAS build-out project during the three months ended March 31, 2012 offset by increased depreciation and amortization expenses from our increased fixed assets in 2013.

                                                               Three Months Ended
                                                                   March 31,
                                                              2013            2012
                                                                  (unaudited)
                                                                 (in thousands)
Stock-based compensation expense included in the above
line items:
Network operations                                        $        166    $          5
Development and technology                                         (43 )           200
Selling and marketing                                              118             210
General and administrative                                         361             578
Total(2)                                                  $        602    $        993



(2) The $0.4 million decrease in stock-based compensation expense for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012, is due primarily to stock-based compensation expenses for employees who left the Company during 2012.

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
                                                                     March 31,
                                                              2013               2012
                                                                    (unaudited)
                                                           (as a percentage of revenue)
Consolidated Statement of Operations Data:
Revenue                                                          100.0 %            100.0 %
Costs and operating expenses:
Network access                                                    41.8               40.7
Network operations                                                17.1               14.3
Development and technology                                        13.6               11.0
Selling and marketing                                             12.9                9.3
General and administrative                                        19.4               13.8
Amortization of intangible assets                                  1.7                1.0
Total costs and operating expenses                               106.5               90.1
(Loss) income from operations                                     (6.5 )              9.9
Interest and other income, net                                     0.2                0.2
(Loss) income before income taxes                                 (6.3 )             10.1
Income tax (benefit) expense                                      (2.0 )              2.7
Net (loss) income                                                 (4.3 )              7.4
Net income attributable to non-controlling interests              (0.6 )              0.6
Net (loss) income attributable to common stockholders             (4.8 )%             6.8 %


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Three Months ended March 31, 2013 and 2012



Revenue



                               Three Months Ended March 31,
                          2013       2012      Change     % Change
                                       (unaudited)
                            (in thousands, except churn data)
Revenue:
Retail subscription     $  8,067   $  7,846   $    221         2.8 %
Retail single-use          2,586      3,616     (1,030 )     (28.5 )%
Wholesale                 11,555     12,084       (529 )      (4.4 )%
Advertising and other        926        641        285        44.5 %
Total revenue           $ 23,134   $ 24,187   $ (1,053 )      (4.4 )%

Key business metrics:
Subscribers                  296        264         32        12.1 %
Monthly churn                9.9 %     10.0 %     (0.1 )%     (1.0 )%
Connects                   6,266      3,586      2,680        74.7 %

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 or receive sponsorship or promotional 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 decreased $1.1 million or 4.4%, for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012.

Retail subscription. Retail subscription revenue increased $0.2 million, or 2.8%, for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012, due to a 12.1% increase in subscribers. The impact of the increase in subscribers was partially offset by a decrease in our average monthly revenue per subscriber of 9.4% from promotional offers and the growing mix of lower-priced smartphone subscriptions compared to unlimited subscriptions.

Retail single-use. Retail single-use revenue decreased $1.0 million, or 28.5%, for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012. The decrease in single-use was due primarily to the transition of certain paid managed and operated locations to a tiered or free pricing model and an increase in new customers that opted for subscriptions.

Wholesale. Wholesale revenue decreased $0.5 million, or 4.4%, for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012, due to a $1.4 million decrease from a one-time DAS build-out project for an airport location during the three months ended March 31, 2012 and a $0.4 million decrease in partner usage-based fees. The decreases were partially offset by an increase of $0.7 million in new DAS build-out projects in our managed and operated locations and a $0.6 million increase in wholesale service provider revenues.

Advertising and other. Advertising and other revenue increased $0.3 million, or 44.5%, for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012, due primarily to revenues from our advertising business built from the assets acquired from Cloud 9 Wireless, Inc. ("Cloud 9") in August 2012.


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Costs and Operating Expenses



                                           Three Months Ended March 31,
                                       2013       2012     Change    % Change
                                                   (unaudited)
                                                  (in thousands)
Costs and operating expenses:
Network access                       $  9,670   $  9,855   $  (185 )     (1.9 )%
Network operations                      3,951      3,454       497       14.4 %
Development and technology              3,136      2,658       478       18.0 %
Selling and marketing                   2,990      2,251       739       32.8 %
General and administrative              4,490      3,327     1,163       35.0 %
Amortization of intangible assets         399        235       164       69.8 %
Total costs and operating expenses   $ 24,636   $ 21,780   $ 2,856       13.1 %

Network access. Network access costs decreased $0.2 million, or 1.9%, for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012. The decrease is due to a $1.3 million decrease from a one-time airport DAS build-out project during the three months ended March 31, 2012 and a $0.4 million decrease from customer usage at partner venues. These decreases were partially offset by a $0.5 million increase in depreciation expense, $0.6 million increase in other direct costs and a $0.4 million increase from revenue share paid to venues in our managed and operated locations.

Network operations. Network operations expenses increased $0.5 million, or 14.4%, for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012, due to increases of $0.2 million in personnel related expenses, $0.1 million in depreciation expense and $0.1 million in internet connectivity expenses.

Development and technology. Development and technology expenses increased $0.5 million, or 18.0% for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012, due to increases of $0.3 million in depreciation expense, $0.1 million in consulting expenses and $0.1 million in hardware and software maintenance expenses.

Selling and marketing. Selling and marketing expenses increased $0.7 million, or 32.8%, for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012, due to increases of $0.5 million in personnel related expenses, $0.1 million in promotional expenses and $0.1 million in travel and entertainment expenses.

General and administrative. General and administrative expenses increased $1.2 million, or 35.0%, for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012, due to increases of $1.2 million in professional fees and $0.1 million in recruiting expenses. These increases were offset by a $0.2 million decrease in personnel related expenses.

Amortization of intangible assets. Amortization of intangible assets expense increased $0.2 million, or 69.8%, for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012, due to our acquisitions of Cloud 9 and Endeka in August 2012 and February 2013, respectively.

Interest and Other Income, Net

Interest and other income, net, remained essentially unchanged for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012.

Income Tax (Benefit) Expense

We had an income tax benefit of $(0.5) million for the three months ended March 31, 2013 compared to an income tax expense of $0.7 million for the three months ended March 31, 2012 due to the operating loss generated during the period. Our effective tax rate increased to 32.1% for the three months ended March 31, 2013 compared to 26.7% for the three months ended March 31, 2012 due primarily to a higher amount of disqualifying dispositions of incentive stock options during the three months ended March 31, 2012.

Non-controlling Interests

Non-controlling interests remained relatively unchanged for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012.


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Net (Loss) Income Attributable to Common Stockholders

Our net income decreased primarily as a result of the $1.1 million decrease in revenues and $2.9 million increase in costs and operating expenses in the current period compared to the comparative prior year period. Our diluted earnings per share decreased primarily as a result of the decrease in net income.

Adjusted EBITDA

Adjusted EBITDA was $3.6 million, down 55.4% from the $8.2 million recorded in the comparable 2012 quarter. As a percent of revenue, Adjusted EBITDA was 15.7%, down from 33.7% of revenue in the comparable 2012 quarter. The Adjusted EBITDA decrease was due primarily to the net loss generated during the three months ended March 31, 2013, which was driven by the $1.1 million decrease in revenues and $2.9 million increase in costs and operating expenses in the current period compared to the comparative prior year period.

Liquidity and Capital Resources

We have financed our operations primarily through cash provided by operating activities. Our primary sources of liquidity as of March 31, 2013 consisted of . . .

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