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WIFI > SEC Filings for WIFI > Form 10-Q on 12-Nov-2013All Recent SEC Filings

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Form 10-Q for BOINGO WIRELESS INC


12-Nov-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 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.

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 ("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 September 30, 2013, we have grown our subscriber base to approximately 313,000, an increase of approximately 7.2% 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.


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We generate revenue from individual users, partners and advertisers. Individual users provide approximately 43% 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 a 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 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 income (loss) attributable to common stockholders plus depreciation and amortization of property and equipment, income tax expense (benefit), amortization of intangible assets, stock-based compensation expense, non-controlling interests 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 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.


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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 (loss) attributable to common stockholders.

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

                                        Three Months Ended            Nine Months Ended
                                          September 30,                 September 30,
                                       2013           2012           2013           2012
                                                          (unaudited)
                                                        (in thousands)

Net income (loss) attributable
to common stockholders              $       354    $     2,777    $    (1,166 )  $    5,895
Depreciation and amortization of
property and equipment                    4,744          3,798         13,611        11,672
Income tax expense (benefit)                258          1,101           (382 )       2,468
Amortization of intangible
assets                                      541            296          1,456           778
Stock-based compensation expense          1,352            218          3,199         2,163
Non-controlling interests                   170            284            476           579
Interest and other expense
(income), net                                 2            (33 )          (70 )        (170 )
Adjusted EBITDA                     $     7,421    $     8,441    $    17,124    $   23,385

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,
                                        2013          2012         2013          2012
                                                         (unaudited)
                                                       (in thousands)
Consolidated Statement of
Operations Data:
Revenue                              $    28,607   $   26,017   $    77,980   $   74,506
Costs and operating expenses:
Network access                            13,670       10,061        34,375       29,577
Network operations                         4,495        3,693        13,199       10,895
Development and technology                 2,622        2,300         8,484        7,792
Selling and marketing                      3,294        2,567        10,106        7,237
General and administrative                 3,201        2,971        11,502        9,455
Amortization of intangible assets            541          296         1,456          778
Total costs and operating expenses        27,823       21,888        79,122       65,734
Income (loss) from operations                784        4,129        (1,142 )      8,772
Interest and other (expense)
income, net                                   (2 )         33            70          170
Income (loss) before income taxes            782        4,162        (1,072 )      8,942
Income tax expense (benefit)                 258        1,101          (382 )      2,468
Net income (loss)                            524        3,061          (690 )      6,474
Net income attributable to
non-controlling interests                    170          284           476          579
Net income (loss) attributable to
common stockholders                  $       354   $    2,777   $    (1,166 ) $    5,895


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Depreciation and amortization expense included in costs and operating expenses:

                               Three Months Ended       Nine Months Ended
                                 September 30,            September 30,
                                2013         2012        2013        2012
                                              (unaudited)
                                             (in thousands)
Network access               $    3,058    $  2,704   $    9,140   $  8,848
Network operations                1,116         687        2,932      2,077
Development and technology          507         375        1,395        656
General and administrative           63          32          144         91
Total (1)                    $    4,744    $  3,798   $   13,611   $ 11,672



(1) The $0.9 million and $1.9 million increase in depreciation and amortization expense of property and equipment for the three and nine months ended September 30, 2013 as compared to the three and nine months ended September 30, 2012, respectively, is primarily due to increased depreciation and amortization expense from our increased fixed assets in 2013. The increase for the nine months ended September 30, 2013 was offset by $1.3 million from a short term DAS build-out project during the nine months ended September 30, 2012.

Stock-based compensation expense included in costs and operating expenses:

                               Three Months Ended       Nine Months Ended
                                 September 30,            September 30,
                                 2013         2012       2013        2012
                                              (unaudited)
                                             (in thousands)
Network operations           $        241    $  117   $      638    $   227
Development and technology            143      (253 )        242        168
Selling and marketing                 301       (36 )        759        366
General and administrative            667       390        1,560      1,402
Total (1)                    $      1,352    $  218   $    3,199    $ 2,163



(1) The $1.1 million and $1.0 million increase in stock-based compensation expense for the three and nine months ended September 30, 2013 as compared to the three and nine months ended September 30, 2012, respectively, is primarily due to the reversal of $0.7 million in stock-based compensation expense for unvested options for two senior executives who left the Company during the three months ended September 30, 2012 and stock-based compensation expenses for new stock options and restricted stock units ("RSU") granted to our employees and directors in 2013.

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,
                                      2013         2012         2013          2012
                                                       (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                           47.8         38.7         44.1          39.7
Network operations                       15.7         14.2         16.9          14.6
Development and technology                9.2          8.8         10.9          10.5
Selling and marketing                    11.5          9.9         13.0           9.7
General and administrative               11.2         11.4         14.7          12.7
Amortization of intangible
assets                                    1.9          1.1          1.9           1.0
Total costs and operating
expenses                                 97.3         84.1        101.5          88.2
Income (loss) from operations             2.7         15.9         (1.5 )        11.8
Interest and other (expense)
income, net                               0.0          0.1          0.1           0.2
Income (loss) before income
taxes                                     2.7         16.0         (1.4 )        12.0
Income tax expense (benefit)              0.9          4.2         (0.5 )         3.3
Net income (loss)                         1.8         11.8         (0.9 )         8.7
Net income attributable to
non-controlling interests                 0.6          1.1          0.6           0.8
Net income (loss) attributable
to common stockholders                    1.2 %       10.7 %       (1.5 )%        7.9 %


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Three Months ended September 30, 2013 and 2012



Revenue



                             Three Months Ended September 30,
                           2013        2012     Change    % Change
                                       (unaudited)
                            (in thousands, except churn data)
Revenue:
Retail subscription     $    8,860   $  8,621   $   239        2.8 %
Retail single-use            2,386      3,304      (918 )    (27.8 )%
Wholesale                   14,328     11,631     2,697       23.2 %
Advertising and other        3,033      2,461       572       23.2 %
Total revenue           $   28,607   $ 26,017   $ 2,590       10.0 %

Key business metrics:
Subscribers                    313        292        21        7.2 %
Monthly churn                 10.2 %      9.0 %     1.2 %     13.3 %
Connects                    10,895      8,906     1,989       22.3 %

There are three key metrics that we use to monitor results and activity in the business:

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 increased $2.6 million or 10.0%, for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012.

Retail subscription. Retail subscription revenue increased $0.2 million, or 2.8%, for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012, due to an increase in subscribers. The impact of the increase in subscribers was partially offset by a decrease in our average monthly revenue per subscriber of 4.3% from promotional offers and the growing mix of lower-priced smartphone subscriptions compared to unlimited subscriptions.

Retail single-use. Retail single-use revenue decreased $0.9 million, or 27.8%, for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012. The decrease in retail single-use revenue was due primarily to the transition of certain paid managed and operated locations to a tiered or free pricing model, the loss of certain paid managed and operated locations, and an increase in new customers that opted for subscriptions.


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Wholesale. Wholesale revenue increased $2.7 million, or 23.2%, for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012, due to a $3.9 million increase in new DAS build-out projects in our managed and operated locations, which includes a $2.5 million short term build-out project that included the sale of equipment and was completed during the three months ended September 30, 2013, and a $0.5 million increase in wholesale service provider revenues. The increases were offset by a $1.7 million decrease in partner usage based fees.

Advertising and other. Advertising and other revenue increased $0.6 million, or 23.2% for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012, due to a $0.3 million increase in advertising revenues from our advertising business that resulted from the assets acquired from Cloud 9 Wireless, Inc. ("Cloud 9") in August 2012 and a $0.3 million increase in other revenues.

Costs and Operating Expenses



                                          Three Months Ended September 30,
                                        2013         2012     Change    % Change
                                                     (unaudited)
                                         (in thousands, except percentages)
Costs and operating expenses:
Network access                       $    13,670   $ 10,061   $ 3,609       35.9 %
Network operations                         4,495      3,693       802       21.7 %
Development and technology                 2,622      2,300       322       14.0 %
Selling and marketing                      3,294      2,567       727       28.3 %
General and administrative                 3,201      2,971       230        7.7 %
Amortization of intangible assets            541        296       245       82.8 %
Total costs and operating expenses   $    27,823   $ 21,888   $ 5,935       27.1 %

Network access. Network access costs increased $3.6 million, or 35.9%, for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012. The increase is primarily attributable to a $2.9 million increase in costs associated with the sale of equipment for build-out projects for wholesale service providers and our short term build-out projects, a $0.5 million increase in other cost of sales and bandwidth, and a $0.4 million increase in depreciation expense. The increases were offset by a $0.1 million decrease in revenue share paid to venues in our managed and operated locations.

Network operations. Network operations expenses increased $0.8 million, or 21.7%, for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012, due primarily to a $0.4 million increase in depreciation expense and a $0.4 million increase in personnel and other expenses.

Development and technology. Development and technology expenses increased $0.3 million, or 14.0%, for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012, due primarily to a $0.2 million increase in personnel related expenses and a $0.1 million increase in depreciation expense.

Selling and marketing. Selling and marketing expenses increased $0.7 million, or 28.3%, for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012, due primarily to a $0.7 million increase in personnel related expenses.

General and administrative. General and administrative expenses increased $0.2 million, or 7.7%, for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012, due primarily to a $0.2 million increase in professional fees and a $0.2 million increase in personnel related expenses. The increases were offset by a $0.1 million decrease in other consulting expenses.

Amortization of intangible assets. Amortization of intangible assets expense increased $0.2 million, or 82.8%, for the three months ended September 30, 2013 as compared to the three months ended September 30, 2012, due to our acquisitions of Cloud 9 and Endeka in August 2012 and February 2013, respectively.

Interest and Other (Expense) Income, Net

Interest and other (expense) income, net remained relatively unchanged for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012.


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Income Tax Expense

Income tax expense decreased $0.8 million or 76.6% for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012. Our effective tax rate increased to 33.1% for the three months ended September 30, 2013 as compared to 26.5% for the three months ended September 30, 2012. The increase in our effective tax rate is primarily due to decreased income tax deductions from the sale of stock related to employee incentive stock options.

Non-controlling Interests

Non-controlling interests relates to our non-controlling owners interests in the net income (loss) generated by Concourse Communications Detroit, LLC, Chicago Concourse Development Group, LLC and Boingo Holding Participacoes Ltda. Non-controlling interests remained relatively unchanged for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012.

Net Income Attributable to Common Stockholders

Our net income decreased primarily as a result of the $6.0 million increase in . . .

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