Boingo Wireless, Inc.
BOINGO WIRELESS INC (Form: 10-Q, Received: 11/10/2011 14:11:53)

Table of Contents

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2011

 

OR

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from             to            

 

Commission file number: 001-35155

 

BOINGO WIRELESS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

95-4856877

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

 

10960 Wilshire Blvd., Suite 800

 

 

Los Angeles, California

 

90024

(Address of principal executive offices)

 

(Zip Code)

 

(310) 586-5180

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer x

 

Smaller Reporting Company o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

 

As of November 7, 2011, there were 33,193,054 shares of the registrant’s common stock outstanding

 

 

 



Table of Contents

 

TABLE OF CONTENTS

 

 

 

Page

 

 

 

PART I — FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements (unaudited)

3

 

 

 

 

Condensed Consolidated Balance Sheets

3

 

 

 

 

Condensed Consolidated Statements of Operations

4

 

 

 

 

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholder’s Equity (Deficit)

5

 

 

 

 

Condensed Consolidated Statements of Cash Flows

6

 

 

 

 

Notes to Condensed Consolidated Financial Statements

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

 

 

 

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

25

 

 

 

Item 4.

Controls and Procedures

25

 

 

 

PART II — OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

25

 

 

 

Item 1A.

Risk Factors

25

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

35

 

 

 

Item 6.

Exhibits

36

 

 

SIGNATURES

37

 

 

Exhibit 31.1

 

 

 

Exhibit 31.2

 

 

 

Exhibit 32.1

 

 

 

Exhibit 101

 

 

2



Table of Contents

 

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Boingo Wireless, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except per share amounts)

 

 

 

September 30,
2011

 

December 31,
2010

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

78,854

 

$

25,721

 

Restricted cash

 

1,066

 

1,001

 

Marketable securities

 

8,373

 

9,373

 

Accounts receivable, net of allowances of $92 and $107, respectively

 

5,892

 

7,946

 

Prepaid expenses and other current assets

 

1,552

 

1,306

 

Deferred tax assets

 

3,572

 

3,572

 

Total current assets

 

99,309

 

48,919

 

Property and equipment, net

 

39,213

 

36,024

 

Goodwill

 

25,512

 

25,512

 

Other intangible assets, net

 

9,749

 

10,992

 

Deferred tax assets

 

6,697

 

6,697

 

Other assets

 

4,952

 

4,891

 

Total assets

 

$

185,432

 

$

133,035

 

 

 

 

 

 

 

Liabilities, convertible preferred stock and stockholders’ equity (deficit)

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

5,830

 

$

4,596

 

Accrued expenses and other liabilities

 

12,017

 

13,531

 

Deferred revenue

 

14,122

 

10,829

 

Current portion of capital leases

 

90

 

420

 

Total current liabilities

 

32,059

 

29,376

 

Deferred revenue, net of current portion

 

25,757

 

28,149

 

Other liabilities

 

936

 

2,181

 

Total liabilities

 

58,752

 

59,706

 

 

 

 

 

 

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

 

 

 

Convertible preferred stock:

 

 

 

 

 

Series A convertible preferred stock, $0.0001 par value; 5,053 shares authorized, issued and outstanding at December 31, 2010

 

 

22,263

 

Series A-2 convertible preferred stock, $0.0001 par value; 1,105 shares authorized, issued and outstanding at December 31, 2010

 

 

6,868

 

Series B convertible preferred stock, $0.0001 par value; 3,500 shares authorized, and 3,433 shares issued and outstanding at December 31, 2010

 

 

13,948

 

Series C convertible preferred stock, $0.0001 par value; 10,992 shares authorized, 10,983 shares issued and outstanding at December 31, 2010

 

 

79,890

 

Total convertible preferred stock

 

 

122,969

 

 

 

 

 

 

 

Stockholders’ equity (deficit):

 

 

 

 

 

Preferred stock, $0.0001 par value, 5,000 shares authorized, no shares issued and outstanding

 

 

 

Common stock, $0.0001 par value; 100,000 and 34,900 shares authorized, 34,390 and 7,092 shares issued, 33,169 and 5,835 shares outstanding at September 30, 2011 and December 31, 2010, respectively

 

3

 

 

Treasury stock at cost, 1,257 shares

 

 

(4,575

)

Note receivable from stockholder

 

 

(103

)

Additional paid-in capital

 

168,935

 

 

Accumulated deficit

 

(42,434

)

(45,159

)

Total common stockholders’ equity (deficit)

 

126,504

 

(49,837

)

Non-controlling interests

 

176

 

197

 

Total stockholders’ equity (deficit)

 

126,680

 

(49,640

)

Total liabilities, convertible preferred stock and stockholders’ equity (deficit)

 

$

185,432

 

$

133,035

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

3



Table of Contents

 

Boingo Wireless, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except per share amounts)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

24,688

 

$

20,214

 

$

68,659

 

$

59,011

 

 

 

 

 

 

 

 

 

 

 

Costs and operating expenses:

 

 

 

 

 

 

 

 

 

Network access

 

9,647

 

7,742

 

27,153

 

23,278

 

Network operations

 

4,097

 

3,236

 

11,765

 

9,725

 

Development and technology

 

2,449

 

1,978

 

7,192

 

6,194

 

Selling and marketing

 

1,955

 

1,509

 

5,410

 

4,288

 

General and administrative

 

3,236

 

2,554

 

8,610

 

7,137

 

Amortization of intangible assets

 

323

 

573

 

1,392

 

1,922

 

Total costs and operating expenses

 

21,707

 

17,592

 

61,522

 

52,544

 

Income from operations

 

2,981

 

2,622

 

7,137

 

6,467

 

Interest and other (expense) income, net

 

13

 

(75

)

(292

)

17

 

Income before income taxes

 

2,994

 

2,547

 

6,845

 

6,484

 

Income taxes

 

1,194

 

319

 

2,067

 

806

 

Net income

 

1,800

 

2,228

 

4,778

 

5,678

 

Net income attributable to non-controlling interests

 

138

 

118

 

420

 

350

 

Net income attributable to Boingo Wireless, Inc.

 

1,662

 

2,110

 

4,358

 

5,328

 

Accretion of convertible preferred stock

 

 

(1,194

)

(1,633

)

(3,826

)

Net income attributable to common stockholders, basic

 

$

1,662

 

$

916

 

$

2,725

 

$

1,502

 

 

 

 

 

 

 

 

 

 

 

Net income per share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.05

 

$

0.16

 

$

0.13

 

$

0.26

 

Diluted

 

$

0.05

 

$

0.07

 

$

0.12

 

$

0.17

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares used in computing net income per share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

Basic

 

33,139

 

5,835

 

20,865

 

5,834

 

Diluted

 

36,678

 

31,408

 

24,470

 

31,133

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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Table of Contents

 

Boingo Wireless, Inc.

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(Unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible preferred stock

 

 

 

 

 

 

 

 

 

Note

 

 

 

 

 

 

 

 

 

Series A
Shares

 

Series A
Amount

 

Series A-2
Shares

 

Series A-2
Amount

 

Series B
Shares

 

Series B
Amount

 

Series C
Shares

 

Series C
Amount

 

Total
Convertible
Preferred Stock

 

Common
Stock
Shares

 

Common
Stock
Amount

 

Additional
Paid-in
Capital

 

Treasury
Stock

 

Receivable
from
Stockholder

 

Accumulated
Deficit

 

Non-
controlling

Interests

 

Total
Stockholders’
Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2010

 

5,053

 

$

22,263

 

1,105

 

$

6,868

 

3,433

 

$

13,948

 

10,983

 

$

79,890

 

$

122,969

 

5,835

 

$

 

$

 

$

(4,575

)

$

(103

)

$

(45,159

)

$

197

 

$

(49,640

)

Accretion of convertible preferred stock

 

 

258

 

 

82

 

 

176

 

 

1,117

 

1,633

 

 

 

 

 

 

(1,633

)

 

(1,633

)

Issuance of common stock upon conversion of preferred stock

 

(5,053

)

(22,521

)

(1,105

)

(6,950

)

(3,433

)

(14,124

)

(10,983

)

(81,007

)

(124,602

)

22,846

 

2

 

124,600

 

 

 

 

 

124,602

 

Issuance of common stock upon initial public offering

 

 

 

 

 

 

 

 

 

 

3,847

 

1

 

48,296

 

 

 

 

 

48,297

 

Issuance of common stock upon exercise and conversion of preferred stock warrants

 

 

 

 

 

 

 

 

 

 

20

 

 

271

 

 

 

 

 

271

 

Issuance of common stock upon exercise of common stock warrants

 

 

 

 

 

 

 

 

 

 

21

 

 

 

 

 

 

 

 

Issuance of common stock upon exercise of stock options

 

 

 

 

 

 

 

 

 

 

600

 

 

602

 

 

 

 

 

602

 

Offering costs

 

 

 

 

 

 

 

 

 

 

 

 

(2,534

)

 

 

 

 

(2,534

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

2,275

 

 

 

 

 

2,275

 

Retirement of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

(4,575

)

4,575

 

 

 

 

 

Forgiveness of note receivable from stockholder

 

 

 

 

 

 

 

 

 

 

 

 

 

 

103

 

 

 

103

 

Non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(441

)

(441

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,358

 

420

 

4,778

 

Balance at September 30, 2011

 

 

$

 

 

$

 

 

$

 

 

$

 

$

 

33,169

 

$

3

 

$

168,935

 

$

 

$

 

$

(42,434

)

$

176

 

$

126,680

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5



Table of Contents

 

Boingo Wireless, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Nine Months Ended
September 30,

 

 

 

2011

 

2010

 

Cash flows from operating activities

 

 

 

 

 

Net income

 

$

4,778

 

$

5,678

 

Adjustments to reconcile net income including non-controlling interests to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization of property and equipment

 

8,894

 

5,401

 

Amortization of intangible assets

 

1,392

 

1,922

 

Stock-based compensation

 

2,275

 

684

 

Forgiveness of notes receivable from stockholder

 

103

 

 

Unbilled receivables

 

(304

)

739

 

Change in fair value of preferred stock warrants

 

140

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

2,054

 

1,017

 

Prepaid expenses and other assets

 

54

 

(1,562

)

Accounts payable

 

55

 

421

 

Accrued expenses and other liabilities

 

(356

)

(1,687

)

Deferred revenue

 

901

 

5,578

 

Net cash provided by operating activities

 

19,986

 

18,191

 

Cash flows from investing activities

 

 

 

 

 

(Increase) decrease in restricted cash

 

(65

)

848

 

Sales of short-term marketable securities

 

1,000

 

 

Purchases of property and equipment

 

(13,154

)

(5,896

)

Contractual payments related to business acquisition

 

(127

)

(138

)

Net cash used in investing activities

 

(12,346

)

(5,186

)

Cash flows from financing activities

 

 

 

 

 

Payments of capital leases

 

(330

)

(505

)

Payments to non-controlling interests

 

(547

)

(399

)

Proceeds from exercise of stock options

 

602

 

1

 

Proceeds from issuance of common stock upon initial public offering

 

48,297

 

 

Offering costs

 

(2,529

)

 

Net cash provided by (used in) financing activities

 

45,493

 

(903

)

Net increase in cash and cash equivalents

 

53,133

 

12,102

 

Cash and cash equivalents at beginning of period

 

25,721

 

22,629

 

Cash and cash equivalents at end of period

 

$

78,854

 

$

34,731

 

Supplemental disclosure of cash flow information

 

 

 

 

 

Cash paid for interest

 

$

11

 

$

23

 

Cash paid for taxes

 

1,194

 

1,027

 

Supplemental disclosure of non-cash investing and financing activities

 

 

 

 

 

Conversion of convertible preferred stock into common stock

 

124,602

 

 

Retirement of treasury stock

 

4,575

 

 

Property and equipment and software maintenance costs in accounts payable, accrued expenses and other liabilities

 

2,247

 

2,011

 

Accretion of convertible preferred stock

 

1,633

 

3,826

 

Exercise and conversion of preferred stock warrants into common stock

 

272

 

 

Contractual obligation related to business acquisition in accrued expenses and other liabilities

 

43

 

57

 

Acquisition of software and equipment under capital leases

 

 

73

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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Table of Contents

 

Boingo Wireless, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

 

1. The business

 

Boingo Wireless, Inc. (collectively “we, us or our”) is a leading global provider of mobile Wi-Fi Internet solutions.  Our services make it easy, convenient and cost-effective for people to enjoy Wi-Fi access on their laptop or mobile device at more than 400,000 hotspots worldwide. With a single account, Boingo users can access the mobile internet via Boingo Network locations that include the top airports around the world, major hotel chains, cafés and coffee shops, restaurants, convention centers and metropolitan hot zones. Boingo and its Concourse Communications Group subsidiary operate wired and wireless networks at large-scale venues worldwide such as airports, major sporting arenas, malls, and convention centers, as well as quick serve restaurants.

 

Initial public offering

 

On May 3, 2011, our registration statement on Form S-1 registering 3,846,800 shares of common stocks offered by us and 1,923,200 shares offered by certain selling stockholders was declared effective by the United States Securities and Exchange Commission (“SEC”), and the shares began trading on the NASDAQ Global Market on May 4, 2011 under the symbol “WIFI.”  The proceeds from the sale of these shares are used primarily for working capital and other general corporate purposes.  As a result of the initial public offering (“IPO”), we raised a total of $45.8 million in net proceeds after deducting underwriting discounts and commissions of $3.6 million and offering expenses of $2.5 million. In connection with the IPO, all of the shares of our convertible preferred stock were converted into 22,845,764 shares of common stock and all of the warrants to purchase preferred stock were exercised and converted into 20,172 shares of common stock.

 

Reverse Stock Split

 

On April 7, 2011, our board of directors approved a 5 for 1 reverse stock split of our outstanding common stock which was effected on May 3, 2011. Fractional shares are to be settled in cash totaling approximately $2,000 for common and preferred stockholders. No fractional shares were settled for option holders, and they were rounded down as a result of the reverse stock split. Shares of common stock underlying outstanding stock options and warrants and shares of our preferred stock and warrants were proportionately reduced and the respective exercise prices were proportionately increased in accordance with the terms of the agreements governing such securities. Shares of common stock reserved for issuance upon the conversion of our convertible preferred stock were proportionately reduced and the respective conversion prices were proportionately increased. All references to shares in the unaudited condensed consolidated financial statements and the accompanying notes, including but not limited to the number of shares and per share amounts, unless otherwise noted, have been adjusted to reflect the reverse stock split retroactively. Previously awarded options and warrants to purchase shares of our common and preferred stock have also been retroactively adjusted to reflect the reverse stock split.

 

Basis of presentation

 

The accompanying interim unaudited condensed consolidated financial statements and related notes for the three and nine months ended September 30, 2011 and 2010 are unaudited. The unaudited interim condensed consolidated financial information has been prepared with the rules and regulations of the SEC for interim financial information.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles (“GAAP”) in the United States of America (“U.S.”) for complete financial statements. These financial statements should be read in conjunction with the audited consolidated financial statements and the accompanying notes for the year ended December 31, 2010 contained in the final prospectus filed by us with the SEC on May 3, 2011 related to our registration statement on Form S-1 (File No. 333-171719). The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and in the opinion of management, reflects all adjustments, consisting of normal recurring adjustments, necessary to present fairly our results of operations for the three and nine months ended September 30, 2011 and 2010, our results of cash flows for the nine months ended September 30, 2011 and 2010, and our financial position as of September 30, 2011. The year-end balance sheet data was derived from audited consolidated financial statements, but does not include all disclosures required by GAAP.  Interim results are not necessarily indicative of the results to be expected for an entire year or any other future year or interim period.

 

Principles of consolidation

 

The unaudited condensed consolidated financial statements include our accounts and our majority owned subsidiaries. We consolidate our 70% ownership of Concourse Communications Detroit, LLC and our 70% ownership of Chicago Concourse Development Group, LLC in accordance with FASB Accounting Standards Codification (“ASC”) 810, Consolidation . Other parties’

 

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interests in consolidated entities are reported as non-controlling interests. The results of operations for the acquisition of companies accounted for under the purchase method have been included in the consolidated statements of operations beginning on the closing date of the acquisition. All intercompany balances and transactions have been eliminated in consolidation.

 

2. Summary of significant accounting policies

 

Segment information

 

We operate in one reporting unit, one operating and reportable segment; a service provider of mobile Wi-Fi solutions across our managed and operated network and aggregated network for mobile devices such as laptops, smartphones and tablets. This single segment is consistent with the internal organization structure and the manner in which operations are reviewed and managed by our Chief Executive Officer, the chief operating decision maker. We do not disclose sales by geographic area because to do so would be impracticable.

 

Revenue recognition

 

We generate revenue from several sources including: (i) retail customers under subscription plans for month-to-month network access that automatically renew, and retail single-use access from sales of hourly, daily or other single-use access plans, (ii) platform service arrangements with wholesale customers that provide software licensing, network access, and professional services fees and (iii) wholesale customers that are telecom operators under long-term contracts for access to our distributed antenna system (‘‘DAS’’) at our managed and operated locations. Software licensed by our wholesale platform services customers can only be used during the term of the service arrangements and has no utility to them upon termination of the service arrangement.

 

We recognize revenue when an arrangement exists, services are delivered, fees are fixed or determinable, no significant obligations remain related to the earned fees and collection of the related receivable is reasonably assured. On January 1, 2011, we adopted the provisions of FASB Accounting Standards Update (“ASU”) 2009-13, Revenue Recognition (Topic 605) -Multiple-Deliverable Revenue Arrangements (“ASU 2009-13”) on a prospective basis. ASU 2009-13 amends and replaces the criteria for separating consideration in multiple-deliverable arrangements by establishing a selling price hierarchy. The selling price used for each deliverable will be based on vendor specific objective evidence (“VSOE”) of fair value if available, third-party evidence if VSOE is not available, or estimated selling price if neither VSOE nor third-party evidence is available. ASU 2009-13 also eliminates the residual method of allocation and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method.  For deliverables with a multiple element arrangement that are determined to be separate units of accounting at the inception of the arrangement, we allocate the value to each element based on the relative selling price method.  The adoption of ASU 2009-13 did not have a material impact on our financial position, results of operations or cash flows as we had no new or significantly modified arrangements during the nine months ended September 30, 2011. Additionally, for the corresponding nine month period ended September 30, 2010, we had no new or significantly modified multiple element arrangements that would impact earnings, if we had adopted ASU 2009-13 on January 1, 2010.

 

Subscription fees from retail customers are paid monthly in advance by charge card and revenue is deferred for the portions of monthly recurring subscription fees collected in advance. Our charge card processor withholds three percent of our sales for future refunds, which is recognized as revenue at the time of sale because, to date, the reserve balance has not been used to provide refunds to customers. We do not have a stated or published refund policy for our Wi-Fi service, although our customer service representatives will provide a refund on a case-by-case basis. These amounts are not significant and are recorded as contra revenue in the period the refunds are made. Subscription fee revenue is recognized ratably over the subscription period. Revenue generated from retail single-use access is recognized when earned.

 

Services provided to wholesale partners under platform service arrangements generally contain several elements including: (i) a term license to use our software to access our Wi-Fi network, (ii) access fees for network usage, and (iii) professional services for software integration and customization and to maintain the Wi-Fi service. The term license, monthly minimum network access fees and professional services are billed on a monthly basis based upon predetermined fixed rates. Once the term license for integration and customization are delivered, the fees from the arrangement are recognized ratably over the remaining term of the platform service arrangement, which is generally between two to five years. Revenue for network access fees in excess of the monthly minimum amounts is recognized when earned. All elements within existing platform service arrangements are generally delivered and earned concurrently throughout the term of the respective service arrangement.

 

Revenue generated from access to our DAS networks consists of build-out fees and recurring access fees under certain long-term contracts with telecom operators. Build-out fees paid upfront are deferred and recognized ratably over the term of the respective service arrangement, once the build-out is complete. Minimum monthly access fees for usage of the DAS networks are non-cancellable and generally escalate on an annual basis. These minimum monthly access fees are recognized ratably over the term of the

 

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wholesale partner arrangement which generally range from five to ten years. Revenue from network access fees in excess of the monthly minimums is recognized when earned.

 

In instances where the minimum monthly network access fees escalate over the term of the wholesale service arrangement, an unbilled receivable is recognized when performance is within our control and when we have reasonable assurance that the unbilled receivable balance will be collected.

 

We may provide professional services for initial implementation services for certain platform and DAS arrangements. For our existing arrangements that are accounted for under ASC 605-25, Revenue Recognition - Multiple-Deliverable Revenue Arrangements , we defer recognition of the full arrangement consideration including the initial implementation activities, and recognize all revenue ratably over the wholesale service period, as we do not have  evidence of fair value for the undelivered elements in the arrangement.  Upon the adoption of ASU 2009-13 on January 1, 2011, certain of our platform service or DAS arrangements may require the initial implementation services to be accounted for as a separate unit of accounting.  For such arrangements entered into or materially modified after January 1, 2011, we allocate arrangement consideration at the inception of the arrangement to all units of accounting based on the relative selling price method.  We recognize the revenue associated with any implementation services that qualify for separate units of accounting upon completion of such services and all other revenue will be recognized ratably over the remaining term of the wholesale service agreement.

 

Advertising and other revenue is recognized when the services are performed.

 

Recent accounting pronouncements

 

In September 2011, the FASB issued ASU 2011-08,  Intangibles—Goodwill and Other: Testing Goodwill for Impairment (“ASU 2011-08”) . This ASU is intended to simplify how entities test goodwill for impairment.  It permits an entity to first assess qualitative factors to determine whether it is “more likely than not” that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350,  Intangibles-Goodwill and Other. The more-likely-than-not threshold is defined as having a likelihood of more than 50%.  ASU 2011-08 will be effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued.  We perform our impairment tests on December 31 of each year.  We do not expect the adoption of this standard to have a material impact on our financial position, results of operations or cash flows.

 

In June 2011, the FASB issued ASU 2011-05, Comprehensive Income: Presentation of Comprehensive Income , which amends current comprehensive income guidance. This ASU eliminates the option to present the components of other comprehensive income (“OCI”) as part of the statement of shareholders’ equity.  Instead, it requires entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements.  Under the two-statement approach, the first statement would include components of net income, which is consistent with the income statement format used today, and the second statement would include components of OCI. The ASU does not change the items that must be reported in OCI.  ASU 2011-05 will be effective for public companies during the interim and annual periods beginning after December 15, 2011 with early adoption permitted.  We do not expect the adoption of this standard to have a material impact on our financial position, results of operations or cash flows.

 

In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S.GAAP and IFRSs, that amends the wording used to describe many of the requirements in GAAP for measuring fair value and disclosing information about fair value measurements. The amendments in this ASU achieve the objectives of developing common fair value measurement and disclosure requirements in U.S. GAAP and International Financial Reporting Standards (“IFRS”) and improving their understandability. Some of the requirements clarify the FASB’s intent about the application of existing fair value measurement requirements while other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The amendments in this ASU are effective prospectively for interim and annual periods beginning after December 15, 2011, with no early adoption permitted. This standard will be effective for us January 1, 2012. We do not expect the adoption of this standard to have a material impact on our financial position, results of operations or cash flows.

 

In December 2010, the FASB issued ASU 2010-29, Business Combinations: Disclosure of Supplementary Pro Forma Information for Business Combinations (“ASU 2010-29”) .   The amendments in this update affect any public entity that enters into business combinations that are material on an individual or aggregate basis. The amendments specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period

 

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only. The update also expands the supplemental pro forma disclosures to include a description of the nature and amount of material, non-recurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The update is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010.  The adoption of this guidance had no material impact on our financial position, results of operations or cash flows.

 

In December 2010, the FASB issued ASU 2010-28, When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts, which amends ASC 350 , Intangibles - Goodwill and Other.   ASU 2010-28 requires entities that have a reporting unit with a negative carrying value to assess whether qualitative factors indicate that it is more likely than not that an impairment of goodwill exists, and if an entity concludes that it is more likely than not that an impairment exists, the entity must measure the goodwill impairment.  We adopted this guidance on January 1, 2011, and we currently have no negative carrying amount as of December 31, 2010 for purposes of the annual goodwill impairment test.

 

3. Cash and cash equivalents and marketable securities

 

Cash and cash equivalents, and marketable securities consisted of the following:

 

 

 

September 30,
2011

 

December 31,
2010

 

 

 

(in thousands)

 

Cash and cash equivalents:

 

 

 

 

 

Cash

 

$

9,150

 

$

10,931

 

Money market securities

 

69,704

 

14,790

 

Total cash and cash equivalents

 

$

78,854

 

$

25,721

 

 

 

 

 

 

 

Short-term marketable securities—available-for-sale:

 

 

 

 

 

United States government securities

 

$

8,373

 

$

9,373

 

Total short-term marketable securities

 

$

8,373

 

$

9,373

 

 

All contractual maturities of U.S. government marketable securities are less than one year at September 30, 2011 and are fully guaranteed. For the nine months ended September 30, 2011 and 2010, interest income was $29,000 and $26,000 respectively, which is included in interest and other (expense) income, net in the accompanying condensed consolidated statements of operations.

 

4. Accrued expenses and other liabilities

 

Accrued expenses and other liabilities consisted of the following:

 

 

 

September 30,
2011

 

December 31,
2010

 

 

 

(in thousands)

 

Revenue share

 

$

3,701

 

$

3,879

 

Salaries and wages

 

2,991

 

3,579

 

Accrued taxes

 

1,821

 

395

 

Deferred roaming credits

 

846

 

846

 

Accrued partner network

 

822

 

945

 

Deferred rent

 

421

 

738

 

Accrued for construction in progress

 

405

 

2,523

 

Other

 

1,010

 

626

 

Total accrued expenses and other liabilities

 

$

12,017

 

$

13,531

 

 

5. Property and equipment

 

Property and equipment consisted of the following:

 

 

 

September 30,
2011

 

December 31,
2010

 

 

 

(in thousands)

 

Leasehold improvements

 

$

57,189

 

$

45,187

 

Construction in progress

 

6,952

 

9,098

 

Computer equipment

 

6,077

 

5,112

 

Software

 

5,463

 

4,303

 

Office equipment

 

391

 

289

 

Total property and equipment

 

76,072

 

63,989

 

Less: accumulated depreciation and amortization

 

(36,859

)

(27,965

)

Total property and equipment, net

 

$

39,213

 

$

36,024

 

 

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We had $489,000 of internally developed software costs, less $28,000 of accumulated amortization at September 30, 2011 and none at December 31, 2010.  Amortization expense was $3,000 for the three months ended September 30, 2011.

 

Depreciation and amortization expense is allocated as follows on the accompanying unaudited condensed consolidated statements of operations:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Network access

 

$

2,637

 

$

1,103

 

$

6,295

 

$

3,309

 

Network operations

 

664

 

395

 

1,842

 

1,044

 

Development and technology

 

234

 

242

 

674

 

786

 

General and administrative

 

20

 

93

 

83

 

262

 

Total depreciation and amortization of property and equipment

 

$

3,555

 

$

1,833

 

$

8,894

 

$

5,401

 

 

6. Fair value measurement

 

ASC 820, Fair Value Measurements and Disclosures , establishes a three-tiered hierarchy that draws a distinction between market participant assumptions based on (i) quoted prices (unadjusted) in active markets for identical assets and liabilities (Level 1); (ii) inputs other than quoted prices in active markets that are observable either directly or indirectly (Level 2); and (iii) unobservable inputs that require us to use present value and other valuation techniques in the determination of fair value (Level 3). We did not make any transfers in and out of the Level 1 fair value tier.

 

The following table sets forth our financial assets and financial liabilities that are measured at fair value on a recurring basis:

 

At September 30, 2011 (unaudited)

 

Level 1

 

Level 3

 

Total

 

 

 

(in thousands)

 

Assets:

 

 

 

 

 

 

 

Cash equivalents

 

$

69,704

 

$

 

$

69,704

 

Marketable securities

 

8,373

 

 

8,373

 

Restricted cash

 

1,066

 

 

1,066

 

Total assets

 

$

79,143

 

$

 

$

79,143

 

 

At December 31, 2010

 

Level 1

 

Level 3

 

Total

 

 

 

(in thousands)

 

Assets:

 

 

 

 

 

 

 

Cash equivalents

 

$

14,790

 

$

 

$

14,790

 

Marketable securities

 

9,373

 

 

9,373

 

Restricted cash

 

1,001

 

 

1,001

 

Total assets

 

$

25,164

 

$

 

$

25,164

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

Preferred stock warrants

 

$

 

$

140

 

$

140

 

Total liabilities

 

$

 

$

140

 

$

140

 

 

Our Level 3 financial liabilities, accounted for at fair value on a recurring basis, consisted of warrants to purchase shares of our Series B convertible preferred stock, which are recorded at fair value in other liabilities on the accompanying unaudited condensed consolidated balance sheets. The increase in the fair value of the warrants is included in interest and other (expense) income in the condensed statement of operations for the three and nine months ended September 30, 2011.  The following table provides reconciliation between the beginning and ending balances of preferred stock warrants in the tables above that used significant unobservable inputs (Level 3) for the nine months ended September 30, 2011:

 

Balance at December 31, 2010

 

$

140

 

Increase in the fair value of the liability

 

132

 

Warrants to purchase preferred stock that were exercised and converted

 

(272

)

Balance at September 30, 2011

 

$

 

 

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7. Stockholders’ equity

 

Reserve for unissued shares

 

At September 30, 2011 and December 31, 2010, we are authorized to issue up to 100,000 and 34,900 shares of common stock, respectively. We are required to reserve and keep available out of our authorized but unissued shares of common stock such number of shares sufficient to effect the exercise of all outstanding common stock warrants, plus shares granted and available for grant under our Amended and Restated 2001 Stock Incentive Plan (the “2001 Plan”) and 2011 Equity Incentive Plan (the “2011 Plan”).

 

The amount of such shares of common stock reserved for these purposes is as follows:

 

 

 

Number of Shares

 

 

 

September 30,
2011

 

December 31,
2010

 

 

 

(in thousands)

 

Conversion of Series C convertible preferred stock

 

 

13,180

 

Outstanding stock options under the 2001 Plan

 

4,750

 

5,288

 

Outstanding stock options under the 2011 Plan

 

2,225

 

 

Conversion of Series A convertible preferred stock

 

 

5,053

 

Conversion of Series B convertible preferred stock

 

 

3,433

 

Conversion of Series A-2 convertible preferred stock

 

 

1,180

 

Shares available for grant under the 2011 stock option plan

 

1,775

 

 

Additional shares available for grant under the 2001 stock option plan

 

 

210

 

Outstanding common stock warrants

 

 

26

 

Outstanding Series B preferred stock warrants

 

 

26

 

Total

 

8,750

 

28,396

 

 

Note receivable from stockholder

 

During 2002, we granted 290,000 shares of restricted common stock to an officer at the deemed fair value of $0.30 per share in exchange for cash proceeds of approximately $9,000 and issuance of a partial recourse note (the “note”) of approximately $78,000 payable with an interest rate equal to the applicable federal rate. The note was classified as contra equity on our unaudited condensed consolidated balance sheet at December 31, 2010 in accordance with guidance provided by FASB ASC 505, Equity . On January 11, 2011, we forgave the note and the principal and interest outstanding of approximately $103,000 were expensed as compensation. Interest was accrued on the note, and was included in interest and other income (expense), net in the accompanying unaudited condensed consolidated statements of operations.

 

Treasury stock

 

On July 29, 2011, the Company approved the retirement of all 1,256,608 outstanding shares of treasury stock.  The treasury stock of $4,575,000 was transferred to additional paid-in capital in the accompanying condensed consolidated statements of convertible preferred stock and stockholder’s equity (deficit).

 

8. Income taxes

 

We calculate our interim income tax provision in accordance with ASC 270,  Interim Reporting, and ASC 740, Accounting for Income Taxes . At the end of each interim period, we estimate the annual effective tax rate and apply that rate to our ordinary quarterly earnings. The tax expense or benefit related to significant, unusual, or extraordinary items is recognized in the interim period in which those items occur. In addition, the effect of changes in enacted tax laws, rates, or tax status is recognized in the interim period in which the change occurs.

 

The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment, including the expected operating income for the year, projections of the proportion of income earned and taxed in various states, permanent and temporary differences as a result of differences between amounts measured and recognized in accordance with tax laws and financial accounting standards, and the likelihood of recovering deferred tax assets generated in the current year. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained, or as the tax environment changes.

 

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Income tax expense of $2,067,000 and $806,000 reflects an effective tax rate of 30.2% and 12.4% for the nine months ended September 30, 2011 and 2010, respectively.  The 2011 increase was due to a $12.3 million reduction of the valuation allowance at year-end 2010, which resulted in an estimate for federal income taxes in the 2011 provision for income taxes.  This increase was partially offset by a one-time $1.7 million deduction for incentive stock options that were exercised and sold upon the IPO. At September 30, 2011, we have deferred tax assets of $10.3 million, which includes net operating loss carry-forwards and other losses. Deferred tax assets and liabilities result from temporary differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are anticipated to be in effect at the time the differences are expected to reverse. The realization of the deferred tax assets, including loss and credit carry-forwards, is subject to us generating sufficient taxable income during the periods in which the temporary differences become realizable.  We maintain a valuation allowance for a deferred tax asset when it is more likely than not that some or all of the deferred tax asset will not be realized.  In evaluating whether a valuation allowance is required, we consider all available positive and negative evidence, including prior operating results, the nature and reason for any losses, its forecast of future taxable income, and the dates on which any deferred tax assets are expected to expire. These assumptions require a significant amount of judgment, including estimates of future taxable income.  These estimates are based on our best judgment at the time made based on current and projected circumstances and conditions.  As of September 30, 2011, we have recorded no liability for income taxes associated with uncertain tax positions.

 

We are subject to taxation in the United States and in various states. Our tax years 2007 and forward are subject to examination by the IRS and our tax years 2006 and forward are subject to examination by material state jurisdictions.  However, due to prior year loss carryovers, the IRS and state tax authorities may examine any tax years for which the carryovers are used to offset future taxable income.

 

9. Commitments and contingencies

 

Litigation

 

From time to time, we may be subject to claims arising out of the operations in the normal course of business. We are not a party to any such other litigation that we believe would have a material adverse effect on our business, financial position, results of operations or cash flows.

 

10. Stock incentive plans:

 

In March, 2011, our board of directors approved the 2011 Plan under which 4,000,000 shares of common stock are reserved for issuance.  The 2011 Plan provides for the grant of incentive and nonstatutory stock options, stock appreciation rights, restricted shares of our common stock, stock units, and performance cash awards.  As of January 1 of each year commencing in 2012, the number of shares of common stock reserved for issuance under the 2011 Plan shall automatically be increased by a number equal to the lesser of (a) 4.5% of the total number of shares of common stock then outstanding, (b) 3,000,000 shares of common stock and (c) as determined by our board of directors. As of September 30, 2011, options to purchase 2,224,835 shares of common stock have been granted under the 2011 Plan.

 

No further awards will be made under our 2001 Plan, and it was terminated following the completion of our IPO (Note 1).  Options outstanding under the 2001 Plan will continue to be governed by their existing terms.

 

We recognized stock-based compensation expense as follows:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

(in thousands)

 

Network operations

 

$

186

 

$

22

 

$

297

 

$

106

 

Development and technology

 

228

 

28

 

388

 

91

 

Selling and marketing

 

264

 

41

 

438

 

130

 

General and administrative

 

694

 

115

 

1,152

 

357

 

Total stock-based compensation expense

 

$

1,372

 

$

206

 

$

2,275

 

$

684

 

 

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The following weighted average assumptions were used for stock options granted during these periods:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

Dividend yield

 

None

 

None

 

None

 

None

 

Volatility rate

 

49.9

%

66.7

%

49.8

%

67.6

%

Expected term

 

5.7

 

6.0

 

6.4

 

6.1

 

Risk free interest rate

 

1.6

%

2.0

%

2.4

%

2.5

%

 

A summary of the stock option activity under the two plans is as follows:

 

 

 

Number of
Options

 

Weighted
Average
Exercise
Price

 

Weighted-
Average
Remaining
Contract
Life (years)

 

Aggregate
Intrinsic
Value

 

 

 

(in thousands, except years)

 

Outstanding at December 31, 2010

 

5,288

 

$

1.25

 

6.3

 

$

38,279

 

Granted

 

2,329

 

$

13.15

 

9.6

 

 

 

Exercised

 

(600

)

$

1.00

 

3.6

 

 

 

Cancelled/forfeited

 

(42

)

$

5.98

 

 

 

 

 

Outstanding at September 30, 2011

 

6,975

 

$

5.22

 

7.1

 

$

27,311

 

Vested and expected to vest at September 30, 2011

 

6,840

 

$

5.13

 

7.0

 

$

27,098

 

Exercisable at September 30, 2011

 

3,876

 

$

1.28

 

5.4

 

$

22,771

 

 

11. Net income per share attributable to common stockholders:

 

The following table sets forth the computation of basic and diluted net income per share attributable to common stockholders:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

(in thousands, except per share amounts)

 

Numerator:

 

 

 

 

 

 

 

 

 

Net income attributable to common stockholders, basic

 

$

1,662

 

$

916

 

$

2,725

 

$

1,502

 

Accretion of convertible preferred stock

 

 

1,194

 

 

3,826

 

Change in fair value of Series B preferred stock warrant liability

 

 

 

132

 

 

Net income attributable to Boingo Wireless, Inc., diluted

 

$

1,662

 

$

2,110

 

$

2,857

 

$

5,328

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

Weighted average common shares, basic

 

33,139

 

5,835

 

20,865

 

5,834

 

Effect of dilutive convertible preferred stock

 

 

22,846

 

 

22,846

 

Effect of dilutive stock options

 

3,539

 

2,712

 

3,567

 

2,441

 

Effect of dilutive common stock warrants

 

 

13

 

21

 

12

 

Effect of dilutive preferred stock warrants

 

 

2

 

17

 

 

Weighted average common shares, dilutive

 

36,678

 

31,408

 

24,470

 

31,133

 

 

 

 

 

 

 

 

 

 

 

Net income per share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.05

 

$

0.16

 

$

0.13

 

$

0.26

 

Diluted

 

$

0.05

 

$

0.07

 

$

0.12

 

$

0.17

 

 

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The following outstanding securities were not included in the computation of diluted net income per share as the inclusion would have been anti-dilutive:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

(in thousands)

 

Convertible preferred stocks through the IPO date

 

 

 

10,293

 

 

Out of the money stock options

 

2,174

 

 

2,174

 

 

Total

 

2,174

 

 

12,467

 

 

 

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

 

Forward-Looking Statements

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our prospectus filed pursuant to Rule 424(b) under the Securities Act of 1933, as amended, with the Securities and Exchange Commission on May 5, 2011.

 

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 Wireless, Inc. (collectively, “we,” “us,” or “our”) is a leading global provider of mobile Wi-Fi Internet solutions.  Our services make it easy, convenient and cost-effective for people to enjoy Wi-Fi access on their laptop or mobile device at more than 400,000 hotspots worldwide. With a single account, Boingo users can access the mobile internet via Boingo Network locations that include the top airports around the world, major hotel chains, cafés and coffee shops, restaurants, convention centers and metropolitan hot zones. Boingo and its Concourse Communications Group subsidiary operate wired and wireless networks at large-scale venues worldwide such as airports, major sporting arenas, malls, and convention centers, as well as quick serve restaurants.

 

Our company was formed in 2001 with the vision of making it easy to connect to the mobile Internet. We initially built our roaming network through agreements with Wi-Fi venue operators and other Wi-Fi networks, enabling individuals to roam across a larger Wi-Fi network. We developed our software client and retail customer offering, which included subscription and single-use access. In 2006, we acquired Concourse Communications, which managed and operated Wi-Fi services at 12 airports, including Chicago O’Hare International Airport and John F. Kennedy International Airport. By leveraging these strategic locations, we were able to rapidly expand our network footprint to other locations because other network operators wanted to establish roaming agreements to access our network. These developments allowed us to build both a consumer retail business and a wholesale business, which has grown to over 125 partners, enabling our customers to access their networks and enabling other companies to provide our services to their customers. In 2007, we acquired Sprint Spectrum’s Wi-Fi network of seven managed and operated airports and one non-exclusive airport, and in 2008 we acquired Opti-Fi Networks’ Wi-Fi network of 25 managed and operated airports and the Washington State Ferries. We continue to enhance our software client and expand our network and global reach.

 

We generate revenue primarily from our retail customers and wholesale partners. Our retail customers purchase month-to-month subscription plans that automatically renew, or single-use access to our network. We acquire our retail customers primarily from mobile Internet users passing through our managed and operated locations, where we generally have exclusive multi-year agreements. Some of our wholesale partners license our software and pay usage-based network access fees to allow their customers access to our global Wi-Fi network. Other wholesale partners, that are telecom operators, pay us build-out fees and access fees for our distributed antenna system, or DAS, enabling their cellular customers to access these networks. Some of our wholesale partners pay us to provide Wi-Fi services in their venue locations under a service provider arrangement. Our wholesale partner relationships are generally governed by multi-year contracts. We acquire our wholesale partners through our business development efforts. We also

 

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generate revenue from advertisers that seek to reach visitors to the landing pages at our managed and operated network locations with online advertising, promotional and sponsored programs.

 

We grew revenue from $20.2 million for the three months ended September 30, 2010 to $24.7 million for the three months ended September 30, 2011, an increase of 22.1%.  Net income attributable to common stockholders increased from $0.9 million for the three months ended September 30, 2010 to $1.7 million for the three months ended September 30, 2011, an increase of 78.2%.

 

We grew revenue from $59.0 million for the nine months ended September 30, 2010 to $68.7 million for the nine months ended September 30, 2011, an increase of 16.3%.  Net income attributable to common stockholders increased from $1.5 million for the nine months ended September 30, 2010 to $2.7 million for the nine months ended September 30, 2011, an increase of 79.4%.

 

Additionally, our cash and cash equivalents and marketable securities on September 30, 2011 of $87.2 million is significantly higher than December 31, 2010 due primarily to the proceeds received in May from the IPO.

 

We believe that the market for our solution is growing.  Many online consumer and business activities, such as streaming media, social networking, downloading large email attachments and video calling, require high-speed, high-bandwidth Internet access. In addition, the proliferation of smartphones, laptops, tablet computers and other Wi-Fi enabled devices has led users to expect access to the same content and information while on-the-go, with the same performance quality they are accustomed to in the home or office setting. These data intensive activities are driving a global surge in mobile Internet data traffic that is expected to increase 27 times between 2010 and 2015, according to Cisco’s Visual Networking Index We believe these trends present us with opportunities to generate significant growth in revenue and profitability. Key elements of our strategy towards this growth 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, accretion of convertible preferred stock, income taxes, amortization of 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 asset impairment, amortization of 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.

 

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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

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

(unaudited)

 

(unaudited)

 

 

 

(in thousands)

 

(in thousands)

 

Net income attributable to common stockholders

 

$

1,662

 

$

916

 

$

2,725

 

$

1,502

 

Depreciation and amortization of property and equipment

 

3,555

 

1,833

 

8,894

 

5,401

 

Accretion of convertible preferred stock

 

 

1,194

 

1,633

 

3,826

 

Income taxes

 

1,194

 

319

 

2,067

 

806

 

Amortization of intangible assets

 

323

 

573

 

1,392

 

1,922

 

Stock-based compensation expense

 

1,372

 

206

 

2,275

 

684

 

Non-controlling interests

 

138

 

118

 

420

 

350

 

Interest and other expense (income), net

 

(13

)

75

 

292

 

(17

)

Adjusted EBITDA

 

$

8,231

 

$

5,234

 

$

19,698

 

$

14,474

 

 

Results of Operations

 

The following tables set forth our Consolidated Statement of Operations data for the specified periods.

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

(unaudited)

 

(unaudited)

 

 

 

(in thousands)

 

(in thousands)

 

Consolidated Statement of Operations Data:

 

 

 

 

 

 

 

 

 

Revenue

 

$

24,688

 

$

20,214

 

$

68,659

 

$

59,011

 

Costs and operating expenses:

 

 

 

 

 

 

 

 

 

Network access

 

9,647

 

7,742

 

27,153

 

23,278

 

Network operations

 

4,097

 

3,236

 

11,765

 

9,725

 

Development and technology

 

2,449

 

1,978

 

7,192

 

6,194

 

Selling and marketing

 

1,955

 

1,509

 

5,410

 

4,288

 

General and administrative

 

3,236

 

2,554

 

8,610

 

7,137

 

Amortization of intangible assets

 

323

 

573

 

1,392

 

1,922

 

Total costs and operating expenses

 

21,707

 

17,592

 

61,522

 

52,544

 

Income from operations

 

2,981

 

2,622

 

7,137

 

6,467

 

Interest and other (expense) income, net

 

13

 

(75

)

(292

)

17

 

Income before income taxes

 

2,994

 

2,547

 

6,845

 

6,484

 

Income taxes

 

1,194

 

319

 

2,067

 

806

 

Net income

 

1,800

 

2,228

 

4,778

 

5,678

 

Net income attributable to non-controlling interests

 

138

 

118

 

420

 

350

 

Net income attributable to Boingo Wireless, Inc.

 

1,662

 

2,110

 

4,358

 

5,328

 

Accretion of convertible preferred stock

 

 

(1,194

)

(1,633

)

(3,826

)

Net income attributable to common stockholders

 

$

1,662

 

$

916

 

$

2,725

 

$

1,502

 

 

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Depreciation and amortization of property and equipment expense included in the above line items:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

(unaudited)

 

(unaudited)

 

 

 

(in thousands)

 

(in thousands)

 

Network access

 

$

2,637

 

$

1,103

 

$

6,295

 

$

3,309

 

Network operations

 

664

 

395

 

1,842

 

1,044

 

Development and technology

 

234

 

242

 

674

 

786

 

General and administrative

 

20

 

93

 

83

 

262

 

 

 

$

3,555

 

$

1,833

 

$

8,894

 

$

5,401

 

 

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

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

(unaudited)

 

(unaudited)

 

 

 

(in thousands)

 

(in thousands)

 

Network operations

 

$

186

 

$

22

 

$

297

 

$

106

 

Development and technology

 

228

 

28

 

388

 

91

 

Selling and marketing

 

264

 

41

 

438

 

130

 

General and administrative

 

694

 

115

 

1,152

 

357

 

 

 

$

1,372

 

$

206

 

$

2,275

 

$

684

 

 

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,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

(unaudited)

 

(unaudited)

 

 

 

(as a percentage of revenue)

 

(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

 

39.1

 

38.3

 

39.5

 

39.4

 

Network operations

 

16.6

 

16.0

 

17.1

 

16.5

 

Development and technology

 

9.9

 

9.8

 

10.5

 

10.5

 

Selling and marketing

 

7.9

 

7.5

 

7.9

 

7.3

 

General and administrative

 

13.1

 

12.6

 

12.5

 

12.1

 

Amortization of intangible assets

 

1.3

 

2.8

 

2.0

 

3.3

 

Total costs and operating expenses

 

87.9

 

87.0

 

89.5

 

89.1

 

Income from operations

 

12.1

 

13.0

 

10.5

 

10.9

 

Interest and other (expense) income, net

 

0.1

 

(0.4

)

(0.4

)

0.0

 

Income before income taxes

 

12.2

 

12.6

 

10.1

 

10.9

 

Income taxes

 

4.8

 

1.6

 

3.0

 

1.4

 

Net income

 

7.4

 

11.0

 

7.1

 

9.5

 

Net income attributable to non-controlling interests

 

0.6

 

0.6

 

0.6