Boingo Wireless, Inc.
BOINGO WIRELESS INC (Form: 10-Q, Received: 08/14/2012 15:48:07)

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 June 30, 2012

 

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 August 9, 2012, there were 35,031,475 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 Statement of Stockholders’ Equity

5

 

 

 

 

Condensed Consolidated Statements of Cash Flows

6

 

 

 

 

Notes to the Condensed Consolidated Financial Statements

7

 

 

 

Item 2.

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

15

 

 

 

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

24

 

 

 

Item 4.

Controls and Procedures

24

 

 

 

PART II — OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

25

 

 

 

Item 1A.

Risk Factors

25

 

 

 

Item 4.

Mine Safety Disclosures

26

 

 

 

Item 6.

Exhibits

26

 

 

 

SIGNATURES

27

 

 

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)

 

 

 

June 30,
2012

 

December 31,
2011

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

56,026

 

$

93,933

 

Restricted cash

 

465

 

465

 

Marketable securities

 

42,195

 

 

Accounts receivable, net

 

7,887

 

7,382

 

Prepaid expenses and other current assets

 

3,153

 

1,103

 

Deferred tax assets

 

2,366

 

2,366

 

Total current assets

 

112,092

 

105,249

 

Property and equipment, net

 

43,859

 

39,717

 

Goodwill

 

25,512

 

25,512

 

Other intangible assets, net

 

9,067

 

9,511

 

Deferred tax assets

 

4,083

 

4,083

 

Other assets

 

3,905

 

4,848

 

Total assets

 

$

198,518

 

$

188,920

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

4,920

 

$

4,573

 

Accrued expenses and other liabilities

 

11,284

 

12,759

 

Deferred revenue

 

16,281

 

13,575

 

Current portion of capital leases

 

41

 

205

 

Total current liabilities

 

32,526

 

31,112

 

Deferred revenue, net of current portion

 

26,924

 

27,754

 

Long-term portion of capital leases

 

157

 

197

 

Other liabilities

 

464

 

778

 

Total liabilities

 

60,071

 

59,841

 

 

 

 

 

 

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

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

 

 

 

Common stock, $0.0001 par value; 100,000 shares authorized, 34,991and 33,584 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively

 

4

 

3

 

Additional paid-in capital

 

176,970

 

170,721

 

Accumulated deficit

 

(38,724

)

(41,842

)

Total common stockholders’ equity

 

138,250

 

128,882

 

Non-controlling interests

 

197

 

197

 

Total stockholders’ equity

 

138,447

 

129,079

 

Total liabilities and stockholders’ equity

 

$

198,518

 

$

188,920

 

 

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
June 30,

 

Six Months Ended
June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

24,302

 

$

22,943

 

$

48,489

 

$

43,971

 

Costs and operating expenses:

 

 

 

 

 

 

 

 

 

Network access

 

9,661

 

9,169

 

19,516

 

17,506

 

Network operations

 

3,748

 

3,944

 

7,202

 

7,668

 

Development and technology

 

2,834

 

2,259

 

5,492

 

4,743

 

Selling and marketing

 

2,419

 

1,826

 

4,670

 

3,455

 

General and administrative

 

3,157

 

2,810

 

6,484

 

5,374

 

Amortization of intangible assets

 

247

 

508

 

482

 

1,069

 

Total costs and operating expenses

 

22,066

 

20,516

 

43,846

 

39,815

 

Income from operations

 

2,236

 

2,427

 

4,643

 

4,156

 

Interest and other income (expense), net

 

81

 

(239

)

137

 

(305

)

Income before income taxes

 

2,317

 

2,188

 

4,780

 

3,851

 

Income taxes

 

709

 

312

 

1,367

 

791

 

Net income

 

1,608

 

1,876

 

3,413

 

3,060

 

Net income attributable to non-controlling interests

 

147

 

145

 

295

 

282

 

Net income attributable to Boingo Wireless, Inc.

 

1,461

 

1,731

 

3,118

 

2,778

 

Accretion of convertible preferred stock

 

 

(438

)

 

(1,633

)

Net income attributable to common stockholders

 

$

1,461

 

$

1,293

 

$

3,118

 

$

1,145

 

 

 

 

 

 

 

 

 

 

 

Net income per share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.04

 

$

0.06

 

$

0.09

 

$

0.08

 

Diluted

 

$

0.04

 

$

0.05

 

$

0.08

 

$

0.06

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

Basic

 

34,799

 

23,258

 

34,384

 

14,927

 

Diluted

 

37,403

 

27,269

 

37,321

 

18,902

 

 

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 Statement of Stockholders’ Equity

(Unaudited)

(In thousands)

 

 

 

Common
Stock
Shares

 

Common
Stock
Amount

 

Additional
Paid-in
Capital

 

Accumulated
Deficit

 

Non-
Controlling
Interests

 

Total
Stockholders’
Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2011

 

33,584

 

$

3

 

$

170,721

 

$

(41,842

)

$

197

 

$

129,079

 

Issuance of common stock upon exercise of stock options

 

1,407

 

1

 

1,883

 

 

 

1,884

 

Stock-based compensation expense

 

 

 

1,945

 

 

 

1,945

 

Excess tax benefits from stock-based compensation

 

 

 

2,421

 

 

 

2,421

 

Non-controlling interests distributions

 

 

 

 

 

(295

)

(295

)

Net income

 

 

 

 

3,118

 

295

 

3,413

 

Balance at June 30, 2012

 

34,991

 

$

4

 

$

176,970

 

$

(38,724

)

$

197

 

$

138,447

 

 

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 Cash Flows

(Unaudited)

(In thousands)

 

 

 

Six Months Ended
June 30,

 

 

 

2012

 

2011

 

Cash flows from operating activities

 

 

 

 

 

Net income

 

$

3,413

 

$

3,060

 

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

 

 

 

 

 

Depreciation and amortization of property and equipment

 

7,873

 

5,339

 

Amortization of intangible assets

 

482

 

1,069

 

Stock-based compensation

 

1,945

 

930

 

Forgiveness of note receivable from stockholder

 

 

103

 

Excess tax benefits from stock-based compensation

 

(588

)

 

Change in fair value of preferred stock warrants

 

 

140

 

Change in deferred income taxes

 

 

234

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(505

)

461

 

Unbilled receivables

 

 

(266

)

Prepaid expenses and other assets

 

1,616

 

470

 

Accounts payable

 

214

 

(2,273

)

Accrued expenses and other liabilities

 

(3,006

)

(1,790

)

Deferred revenue

 

1,876

 

2,423

 

Net cash provided by operating activities

 

13,320

 

9,900

 

Cash flows from investing activities

 

 

 

 

 

Increase in restricted cash

 

 

(52

)

Purchases of marketable securities available-for-sale

 

(42,195

)

 

Purchases of property and equipment

 

(10,675

)

(9,793

)

Contractual payments related to business acquisition

 

(14

)

(81

)

Net cash used in investing activities

 

(52,884

)

(9,926

)

Cash flows from financing activities

 

 

 

 

 

Excess tax benefits from stock-based compensation

 

588

 

 

Proceeds from exercise of stock options

 

1,885

 

558

 

Payments of capital leases

 

(174

)

(237

)

Payments to non-controlling interests

 

(642

)

(547

)

Proceeds from issuance of common stock upon initial public offering

 

 

48,297

 

Offering costs

 

 

(2,073

)

Net cash provided by financing activities

 

1,657

 

45,998

 

Net decrease in cash and cash equivalents

 

(37,907

)

45,972

 

Cash and cash equivalents at beginning of year

 

93,933

 

25,721

 

Cash and cash equivalents at end of year

 

$

56,026

 

$

71,693

 

Supplemental disclosure of cash flow information

 

 

 

 

 

Cash paid for taxes

 

$

279

 

$

1,173

 

Supplemental disclosure of non-cash investing and financing activities

 

 

 

 

 

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

 

3,363

 

2,093

 

Offering costs in accounts payable, accrued expenses and other liabilities

 

 

456

 

Accretion of convertible preferred stock

 

 

1,633

 

Conversion of convertible preferred stock into common stock

 

 

124,602

 

Exercise and conversion of preferred stock warrants into common stock

 

 

272

 

 

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)

(In thousands, except shares and per share amounts)

 

1. The business

 

Boingo Wireless, Inc. and its subsidiaries (collectively “we, us or our”) is a leading global provider of mobile Wi-Fi Internet solutions. Our solutions enable individuals to access our extensive global Wi-Fi network with devices such as smartphones, laptops and tablet computers. Boingo Wireless, Inc. was incorporated on April 16, 2001 in the State of Delaware. 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.

 

2. Summary of significant accounting policies

 

Basis of presentation

 

The accompanying interim unaudited condensed consolidated financial statements and related notes for the three and six months ended June 30, 2012 and 2011 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, 2011 contained in our annual report on Form 10-K filed with the SEC on April 13, 2012. 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 for a fair presentation of our results of operations for the three and six months ended June 30, 2012 and 2011, our results of cash flows for the six months ended June 30, 2012 and 2011, and our financial position as of June 30, 2012. 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 Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation . Other parties’ 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.

 

Segment and geographical information

 

We operate as one 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.

 

Revenue is predominately generated and all significant long-lived tangible assets are held in the United States of America. We do not disclose sales by geographic area because to do so would be impracticable.

 

Marketable securities

 

Our marketable securities consist of available-for-sale securities with original maturities exceeding three months. In accordance with FASB ASC 320,  Investments—Debt and Equity Securities, we have classified securities, which have readily determinable fair values and are highly liquid, as short-term because such securities are expected to be realized within our normal operating cycle. At June 30, 2012 and December 31, 2011, we had $42,195 and $0 in short-term marketable securities, respectively, and no long-term marketable securities.

 

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Marketable securities are reported at fair value with the related unrealized gains and losses reported as other comprehensive income (loss) until realized or until a determination is made that an other-than-temporary decline in market value has occurred. No significant unrealized gains and losses have been reported during the periods presented. Factors considered by us in assessing whether an other-than-temporary impairment has occurred include the nature of the investment, whether the decline in fair value is attributable to specific adverse conditions affecting the investment, the financial condition of the investee, the severity and the duration of the impairment and whether we have the ability to hold the investment to maturity. When it is determined that an other-than-temporary impairment has occurred, the investment is written down to its market value at the end of the period in which it is determined that an other-than-temporary decline has occurred. The cost of marketable securities sold is based upon the specific identification method. Any realized gains or losses on the sale of investments are reflected as a component of interest and other income (expense), net.

 

For the six months ended June 30, 2012, we had no significant realized or unrealized gains or losses from investments in marketable securities classified as available-for-sale.

 

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 have been rendered, fees are fixed or determinable, no significant obligations remain related to the earned fees and collection of the related receivable is reasonably assured.

 

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 withheld three percent of our sales for future refunds for a period of six months from the month of activity, which was recognized as revenue at the time of sale because the reserve balance was not used to provide refunds to customers. The reserve amount was subject to credit evaluations and biannual reviews. Based on the contract terms with the charge card processor as of November 2011, we are no longer required to withhold sales, and as a result, at June 30, 2012, we had no charge card reserve. 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 estimated customer relationship period, 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 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.

 

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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, Revenue Recognition (Topic 605) — Multiple Deliverable Revenue Arrangements 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.

 

Revision of prior period financial statements

 

During the three months ended December 31, 2011, prior period errors were identified relating to accounting for income taxes that primarily resulted from the Company’s improper recording of the following: deferred income taxes on the 2006 acquisition of Concourse Communications Group, LLC, the valuation allowance release, and tax benefits related to stock-based compensation. These errors impacted periods beginning in the year ended December 31, 2006 and subsequent periods through September 30, 2011.

 

In evaluating whether our previously issued consolidated financial statements were materially misstated, the Company considered the guidance in ASC Topic 250, Accounting Changes and Error Corrections , ASC Topic 250-10-S99-1, Assessing Materiality , and ASC Topic 250-10-S99-2, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements . We concluded these errors were not material individually or in the aggregate to any of the prior reporting periods, and therefore, amendments of previously filed reports were not required. However, the cumulative error would have been material in the year ended December 31, 2011, if the entire correction was recorded in the fourth quarter of 2011. As such, the revisions for these corrections to the applicable prior periods, including for the three and six months ended June 30, 2011, are reflected in the financial information herein and will be reflected in future filings containing such financial information.

 

The prior period unaudited condensed consolidated financial statements for the three and six months ended June 30, 2011 included in this filing have been revised to reflect the corrections of these errors, the effects of which have been provided in summarized format below.

 

Revised unaudited condensed consolidated balance sheet amounts

 

 

 

June 30, 2011

 

 

 

As Previously
Reported

 

Adjustment

 

As
Revised

 

Deferred tax assets

 

$

3,572

 

$

(1,978

)

$

1,594

 

Total current assets

 

$

94,749

 

$

(1,978

)

$

92,771

 

Deferred tax assets, non-current

 

$

6,381

 

$

1,843

 

$

8,224

 

Total assets

 

$

180,503

 

$

(135

)

$

180,368

 

Accrued expenses and other liabilities

 

$

10,020

 

$

1,128

 

$

11,148

 

Total current liabilities

 

$

26,029

 

$

1,128

 

$

27,157

 

Total liabilities

 

$

56,892

 

$

1,128

 

$

58,020

 

Accumulated deficit

 

$

(44,096

)

$

(1,263

)

$

(45,359

)

Total common stockholders’ equity

 

$

123,457

 

$

(1,263

)

$

122,194

 

Total stockholders’ equity

 

$

123,611

 

$

(1,263

)

$

122,348

 

Total liabilities and stockholders’ equity

 

$

180,503

 

$

(135

)

$

180,368

 

 

Revised unaudited condensed consolidated statements of operations amounts

 

 

 

For the Three Months Ended
June 30, 2011

 

 

 

As Previously
Reported

 

Adjustment

 

As
Revised

 

Income tax expense

 

$

213

 

$

99

 

$

312

 

Net income

 

$

1,975

 

$

(99

)

$

1,876

 

Net income attributable to Boingo Wireless, Inc.

 

$

1,830

 

$

(99

)

$

1,731

 

Net income attributable to common stockholders

 

$

1,392

 

$

(99

)

$

1,293

 

Net income per share attributable to common stockholders—Basic

 

$

0.06

 

$

 

$

0.06

 

Net income per share attributable to common stockholders—Diluted

 

$

0.05

 

$

 

$

0.05

 

 

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Table of Contents

 

 

 

For the Six Months Ended
June 30, 2011

 

 

 

As Previously
Reported

 

Adjustment

 

As
Revised

 

Income tax expense

 

$

873

 

$

(82

)

$

791

 

Net income

 

$

2,978

 

$

82

 

$

3,060

 

Net income attributable to Boingo Wireless, Inc.

 

$

2,696

 

$

82

 

$

2,778

 

Net income attributable to common stockholders

 

$

1,063

 

$

82

 

$

1,145

 

Net income per share attributable to common stockholders—Basic

 

$

0.07

 

$

0.01

 

$

0.08

 

Net income per share attributable to common stockholders—Diluted

 

$

0.06

 

$

 

$

0.06

 

 

Revised unaudited condensed consolidated statements of cash flow amounts

 

 

 

For the Six Months Ended
June 30, 2011

 

 

 

As Previously
Reported

 

Adjustment

 

As
Revised

 

Net income

 

$

2,978

 

$

82

 

$

3,060

 

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

 

 

 

 

 

 

 

Change in deferred income taxes

 

$

316

 

$

(82

)

$

234

 

 

The revisions did not change the net cash flows provided by or used in operating, investing or financing activities for the six months ended June 30, 2011.

 

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 ASC 350 . 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 update 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 stockholders’ 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. Subsequently, the FASB issued ASU 2011-12, Comprehensive Income — Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 (“ASU 2011-12”).  ASU 2011-12 defers indefinitely the provision within ASU 2011-05 requiring entities to present reclassification adjustments out of accumulated OCI by component in both the income statement and the statement in which OCI is presented.  ASU 2011-12 does not change the other provisions instituted within ASU 2011-05.   The Company adopted this standard effective January 1, 2012.  The adoption of this standard had no material impact on our financial position, results of operations or cash flows as the Company’s comprehensive income currently equals net income.

 

In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S.GAAP and IFRS, which 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.

 

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The amendments in this ASU are effective prospectively for interim and annual periods beginning after December 15, 2011, with no early adoption permitted. The adoption of this standard had no material impact on our financial position, results of operations or cash flows.

 

3. Cash and cash equivalents and marketable securities

 

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

 

 

 

June 30,
2012

 

December 31,
2011

 

Cash and cash equivalents:

 

 

 

 

 

Cash

 

$

15,274

 

$

12,851

 

Money market accounts

 

40,752

 

81,082

 

Total cash and cash equivalents

 

$

56,026

 

$

93,933

 

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

 

 

 

 

 

Marketable securities

 

$

42,195

 

$

 

Total short-term marketable securities

 

$

42,195

 

$

 

 

All contractual maturities of marketable securities were less than one year at June 30, 2012. These consist primarily of corporate securities which include commercial paper and corporate debt instruments including notes issued by foreign or domestic corporations which pay in U.S. dollars and carry a rating of A or better.  For the six months ended June 30, 2012, and 2011, interest income was $82 and $18, respectively, which is included in interest and other income (expense), net in the accompanying condensed consolidated statements of operations.

 

4. Property and equipment

 

Property and equipment consisted of the following:

 

 

 

June 30,
2012

 

December 31,
2011

 

 

 

 

 

 

 

Leasehold improvements

 

$

73,054

 

$

60,030

 

Construction in progress

 

5,534

 

7,059

 

Computer equipment

 

7,016

 

6,674

 

Software

 

5,955

 

5,818

 

Office equipment

 

411

 

400

 

Total property and equipment

 

91,970

 

79,981

 

Less: accumulated depreciation and amortization

 

(48,111

)

(40,264

)

Total property and equipment, net

 

$

43,859

 

$

39,717

 

 

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

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Network access

 

$

2,479

 

$

1,927

 

$

6,144

 

$

3,659

 

Network operations

 

716

 

620

 

1,390

 

1,178

 

Development and technology

 

130

 

237

 

280

 

439

 

General and administrative

 

33

 

26

 

59

 

63

 

Total depreciation and amortization of property and equipment

 

$

3,358

 

$

2,810

 

$

7,873

 

$

5,339

 

 

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5. 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). The following table sets forth our financial assets that are measured at fair value on a recurring basis:

 

At June 30, 2012

 

Level 1

 

Level 2

 

Total

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

Cash equivalents

 

$

40,752

 

$

 

$

40,752

 

Marketable securities available-for-sale

 

 

42,195

 

42,195

 

Total assets

 

$

40,752

 

$

42,195

 

$

82,947

 

 

At December 31, 2011

 

Level 1

 

Level 2

 

Total

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

Cash equivalents

 

$

81,082

 

$

 

$

81,082

 

Marketable securities available-for-sale

 

 

 

 

Total assets

 

$

81,082

 

$

 

$

81,082

 

 

Our marketable securities available-for-sale utilize Level 2 inputs and consist primarily of corporate securities which include commercial paper and corporate debt instruments including notes issued by foreign or domestic corporations which pay in U.S. dollars and carry a rating of A or better. The Company has evaluated the various types of securities in its investment portfolio to determine an appropriate fair value hierarchy level based upon trading activity and the observability of market inputs.  Due to variations in trading volumes and the lack of quoted market prices in active markets, our fixed maturities are classified as Level 2 securities. The fair value of our fixed maturity marketable securities available-for-sale is derived through the use of a third party pricing source or recent reported trades for identical or similar securities, making adjustments through the reporting date based upon available market observable data.

 

6. Accrued expenses and other liabilities

 

Accrued expenses and other liabilities consisted of the following:

 

 

 

June 30,
2012

 

December 31,
2011

 

 

 

 

 

 

 

Revenue share

 

$

3,381

 

$

3,915

 

Salaries and wages

 

2,251

 

3,934

 

Accrued for construction-in-progress

 

1,792

 

688

 

Accrued partner network

 

859

 

1,274

 

Deferred service usage credits

 

211

 

634

 

Deferred rent

 

585

 

223

 

Accrued taxes

 

274

 

682

 

Amounts due to non-controlling interests

 

253

 

557

 

Other

 

1,678

 

852

 

Total accrued expenses and other liabilities

 

$

11,284

 

$

12,759

 

 

7. 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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During the six months ended June 30, 2012, we recognized excess windfall tax benefits of $2.4 million from stock option exercises. These benefits will decrease income taxes payable for the year ended December 31, 2012, and were recorded as an increase to additional paid-in capital in the accompanying unaudited condensed consolidated balance sheet as of June 30, 2012.

 

Income tax expense of $1,367 and $791 reflects an effective tax rate of 28.6% and 20.5% for the six months ended June 30, 2012 and 2011, respectively.  Our effective tax rate differs from the statutory rate primarily due to benefits from disqualifying dispositions of incentive stock options for the six months ended June 30, 2012 and incentive stock options that were recharacterized as nonqualified stock options for the six months ended June 30, 2011. Under current tax regulations, we do not receive a tax deduction for the issuance, exercise or disposition of incentive stock options if the employee meets certain holding requirements. If the employee does not meet the holding requirements, a disqualifying disposition occurs, at which time we may receive a tax deduction. We do not record tax benefits related to incentive stock options unless and until a disqualifying disposition is reported. At June 30, 2012, we have deferred tax assets of $6,449, which includes net operating loss carry-forwards and other losses. As of June 30, 2012, 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.

 

8. 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 could have a material adverse effect on our business, financial position, results of operations or cash flows.

 

9. Stock incentive plans

 

In March, 2011, our board of directors approved the 2011 Equity Incentive Plan (“2011 Plan”) under which 5,511,288 shares of common stock are reserved for issuance.  The 2011 Plan provides for the grant of incentive and nonstatuatory stock options, stock appreciation rights, restricted shares of our common stock, stock units, and performance cash awards.  As of January 1 of each year, the number of shares of common stock reserved for issuance under our stock incentive 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.

 

No further awards will be made under our Amended and Restated 2001Stock Incentive Plan (“2001 Plan”), which terminated pursuant to its term.  Options outstanding under the 2001 Plan will continue to be governed by their existing terms.

 

The weighted average assumptions used for newly issued stock option grants for the six months ended June 30, 2012 were an expected term of 6.1 years, an expected volatility of 49.9%, a risk free rate of return of 1.1% and no expected dividends.

 

We recognized stock-based compensation expense as follows:

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Network operations

 

$

105

 

$

92

 

$

111

 

$

110

 

Development and technology

 

222

 

125

 

421

 

161

 

Selling and marketing

 

191

 

134

 

401

 

174

 

General and administrative

 

434

 

344

 

1,012

 

456

 

Total stock-based compensation

 

$

952

 

$

695

 

$

1,945

 

$

901

 

 

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

 

 

 

Number of
Options

 

Weighted
Average
Exercise
Price

 

Weighted-
Average
Remaining
Contract
Life (years)

 

Aggregate
Intrinsic
Value

 

 

 

 

 

 

 

 

 

 

 

Outstanding at December 31, 2011

 

6,601

 

$

5.50

 

7.0

 

$

30,996

 

Granted

 

379

 

$

9.60

 

 

 

 

 

Exercised

 

(1,407

)

$

1.34

 

 

 

 

 

Cancelled/forfeited

 

(192

)

$

10.89

 

 

 

 

 

Outstanding at June 30, 2012

 

5,381

 

$

6.68

 

6.96

 

$

30,344

 

Vested and expected to vest at June 30, 2012

 

5,219

 

$

6.49

 

6.91

 

$

30,268

 

Exercisable at June 30, 2012

 

2,831

 

$

2.08

 

5.26

 

$

27,322

 

 

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10. 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
June 30,

 

Six Months Ended
June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

Net income attributable to common stockholders, basic and diluted

 

$

1,461

 

$

1,293

 

$

3,118

 

$

1,145

 

Denominator:

 

 

 

 

 

 

 

 

 

Weighted average common stock, basic

 

34,799

 

23,258

 

34,384

 

14,927

 

Effect of dilutive stock options

 

2,604

 

3,989

 

2,937

 

3,953

 

Effect of dilutive common stock warrants

 

 

22

 

 

22

 

Weighted average common stock, dilutive

 

37,403

 

27,269

 

37,321

 

18,902

 

Net income per share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.04

 

$

0.06

 

$

0.09

 

$

0.08

 

Diluted

 

$

0.04

 

$

0.05

 

$

0.08

 

$

0.06

 

 

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
June 30,

 

Six Months Ended
June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Convertible preferred stocks

 

 

8,284

 

 

22,846

 

Options to purchase common stock

 

2,410

 

2,164

 

2,391

 

2,164

 

Warrants to purchase preferred stock

 

 

17

 

 

17

 

Total

 

2,410

 

10,465

 

2,391

 

25,027

 

 

11. Subsequent Events:

 

On August 6, 2012, we acquired the assets of Cloud 9 Wireless, Inc. for $3.5 million plus other contingent consideration. Cloud 9 provides Wi-Fi sponsorship and location-based advertising at more than 6,000 airports, hotels, bars and restaurants, and recreational areas in the U.S. and Canada. Due to the timing of the closing, we have not completed the purchase accounting associated with the acquisition as of the date of this report.

 

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Table of Contents

 

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

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and notes thereto included in “Item 1. Financial Statements” of this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto and the section titled “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2011, filed with the Securities Exchange Commission on April 13, 2012.

 

Forward-Looking Statements

 

We revised previously issued financial statements to correct errors identified related to accounting for income taxes. The revisions were immaterial to the periods impacted, as disclosed in Note 2 of the condensed consolidated financial statements included in this report on Form 10-Q. All amounts in Item 2 of this filing are provided as revised.

 

This Quarterly Report on Form 10-Q and the documents incorporated herein by reference contain forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, as amended, based on our current expectations, estimates and projections about our operations, industry, financial condition, performance, results of operations, and liquidity. Statements containing words such as “may,” “believe,” “anticipate,” “expect,” “intend,” “plan,” “project,” “projections,” “business outlook,” “estimate,” or similar expressions constitute forward-looking statements. These forward-looking statements include, but are not limited to, statements about future financial performance; revenues; metrics; operating expenses; market trends, including those in the markets in which we compete; operating and marketing efficiencies; liquidity; cash flows and uses of cash; dividends; capital expenditures; depreciation and amortization; tax payments; foreign currency exchange rates; hedging arrangements; our ability to repay indebtedness, pay dividends and invest in initiatives; our products and services; pricing; competition; strategies; and new business initiatives, products, services, and features. Potential factors that could affect the matters about which the forward-looking statements are made include, among others, the factors disclosed in the section entitled “Risk Factors” in this Quarterly Report on Form 10-Q and additional factors that accompany the related forward-looking statements in this Quarterly Report on Form 10-Q and our other filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as the date hereof. Any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that may cause actual performance and results to differ materially from those predicted. Reported results should not be considered an indication of future performance. Except as required by law, we undertake no obligation to publicly release the results of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

 

Overview

 

Boingo makes it simple to connect to the mobile Internet.

 

We make it easy, convenient and cost effective for individuals to find and gain access to the mobile Internet through high-speed, high-bandwidth Wi-Fi networks globally. We also manage and operate a distributed antenna system infrastructure, or DAS which is a cellular extension network. Our solution includes easy-to-use software for Wi-Fi enabled devices such as smartphones, laptops and tablet computers, and our sophisticated back-end system infrastructure that detects and enables one-click access to our extensive global Wi-Fi network. Individuals use our solutions to access what we believe is the world’s largest commercial Wi-Fi network, consisting of over 550,000 Wi-Fi locations, or hotspots, in over 100 countries at venues such as airports, hotels, coffee shops, shopping malls, arenas, stadiums and quick service restaurants.

 

We have direct customer relationships with users who have purchased our mobile Internet services, and we provide solutions to our partners, which include telecom operators, cable companies, technology companies, enterprise software and services companies, and communications companies to allow their millions of users to connect to the mobile Internet through hotspots in our network. As of June 30, 2012, we have grown our subscriber base to 287,000, an increase of 25.3% over the prior year period.

 

Individuals who are accustomed to the benefits of broadband performance at home and work are seeking the same applications, performance and availability on-the-go, through smartphones, laptops, tablet computers and other devices. We believe that this consumer demand has created a significant market opportunity that we are uniquely positioned to capture.

 

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Table of Contents

 

We generate revenue from individual users, partners and advertisers. Individual users provide approximately half of our revenue by purchasing month-to-month subscription plans that automatically renew, or hotspot specific single-use access to our network. In addition, our partners pay us usage-based network access and software licensing fees to allow their customers access to our network. We also generate revenue from telecom operators that pay us build-out fees and access fees so that their cellular customers may use our distributed antenna system or DAS at locations where we manage and operate the Wi-Fi network. We also generate revenue from advertisers that seek to reach our users with display advertising, sponsored access and other promotional programs.

 

We install, manage and operate wireless network infrastructure to provide Wi-Fi services at our managed and operated hotspots, where we generally have exclusive multi-year agreements.

 

The mobile Internet is a complex and constantly evolving ecosystem, comprised of over a billion mobile Internet-enabled devices from dozens of manufacturers, which are powered by many different operating systems. Devices use different network technologies and must be configured with the appropriate software to detect and optimize a connection to the mobile Internet. This complexity is amplified as new device models and operating systems are released, new categories of devices become Internet-enabled, and new network technologies emerge. The increasing number of mobile Internet-enabled devices in this ecosystem is causing an even more rapid increase in data consumption. Despite spending billions of dollars every year to expand their networks, network and telecom operators still face capacity-strained networks. Innovations in broadband technologies such as 3G and 4G will not be sufficient to relieve the strain on networks. We believe we are the leading global provider of commercial mobile Wi-Fi Internet solutions. Key elements of our strategy to extend that lead are to:

 

·         extend footprint via our neutral-host business model;

 

·         expand our partner relationships;

 

·         increase the installed base of our software;

 

·         grow our business internationally and

 

·         drive new revenue sources.

 

Reconciliation of Non-GAAP Financial Measures

 

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

 

We believe that Adjusted EBITDA is useful to investors and other users of our financial statements in evaluating our operating performance because it provides them with an additional tool to compare business performance across companies and across periods. We believe that:

 

·                        Adjusted EBITDA provides investors and other users of our financial information consistency and comparability with our past financial performance, facilitates period-to-period comparisons of operations and facilitates comparisons with other companies, many of which use similar non-GAAP financial measures to supplement their GAAP results; and

 

·                        it is useful to exclude non-cash charges, such as accretion of convertible preferred stock, depreciation and amortization of property and equipment and asset impairment, amortization of other intangible assets and stock-based compensation, and non-core operational charges such as acquisition-related expense, from Adjusted EBITDA because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations, and these expenses can vary significantly between periods as a result of acquisitions, full amortization of previously acquired tangible and intangible assets or the timing of new stock-based awards.

 

We use Adjusted EBITDA in conjunction with traditional GAAP measures as part of our overall assessment of our performance, for planning purposes, including the preparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies and to communicate with our board of directors concerning our financial performance.

 

We do not place undue reliance on Adjusted EBITDA as our only measure of operating performance. Adjusted EBITDA should not be considered as a substitute for other measures of financial performance reported in accordance with GAAP. There are limitations to using non-GAAP financial measures, including that other companies may calculate these measures differently than we do.

 

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Table of Contents

 

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
June 30,

 

Six Months Ended
June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

(unaudited)

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to common stockholders

 

$

1,461

 

$

1,293

 

$

3,118

 

$

1,145

 

Depreciation and amortization of property and equipment

 

3,358

 

2,810

 

7,873

 

5,339

 

Accretion of convertible preferred stock

 

 

438

 

 

1,633

 

Income tax expense

 

709

 

312

 

1,367

 

791

 

Amortization of other intangible assets

 

247

 

508

 

482

 

1,069

 

Stock-based compensation expense

 

952

 

695

 

1,945

 

901

 

Non-controlling interests

 

147

 

145

 

295

 

282

 

Interest expense (income), net

 

(81

)

239

 

(137

)

305

 

Adjusted EBITDA

 

$

6,793

 

$

6,440

 

$

14,943

 

$

11,465

 

 

Results of Operations

 

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

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

(unaudited)

 

 

 

(in thousands)

 

Consolidated Statement of Operations Data:

 

 

 

 

 

 

 

 

 

Revenue

 

$

24,302

 

$

22,943

 

$

48,489

 

$

43,971

 

Costs and operating expenses:

 

 

 

 

 

 

 

 

 

Network access

 

9,661

 

9,169

 

19,516

 

17,506

 

Network operations

 

3,748

 

3,944

 

7,202

 

7,668

 

Development and technology

 

2,834

 

2,259

 

5,492

 

4,743

 

Selling and marketing

 

2,419

 

1,826

 

4,670

 

3,455

 

General and administrative

 

3,157

 

2,810

 

6,484

 

5,374

 

Amortization of intangible assets

 

247

 

508

 

482

 

1,069

 

Total costs and operating expenses

 

22,066

 

20,516

 

43,846

 

39,815

 

Income from operations

 

2,236

 

2,427

 

4,643

 

4,156

 

Interest and other (expense) income, net

 

81

 

(239

)

137

 

(305

)

Income before income taxes

 

2,317

 

2,188

 

4,780

 

3,851

 

Income taxes

 

709

 

312

 

1,367

 

791

 

Net income

 

1,608

 

1,876

 

3,413

 

3,060

 

Net income attributable to non-controlling interests

 

147

 

145

 

295

 

282

 

Net income attributable to Boingo Wireless, Inc.

 

1,461

 

1,731

 

3,118

 

2,778

 

Accretion of convertible preferred stock

 

 

(438

)

 

(1,633

)

Net income attributable to common stockholders

 

$

1,461

 

$

1,293

 

$

3,118

 

$

1,145

 

 

Depreciation and amortization expense included in the above line items:

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

(unaudited)

 

 

 

(in thousands)

 

Network access

 

$

2,479

 

$

1,927

 

$

6,144

 

$

3,659

 

Network operations

 

716

 

620

 

1,390

 

1,178

 

Development and technology

 

130

 

237

 

280

 

439

 

General and administrative

 

33

 

26

 

59

 

63

 

Total

 

$

3,358

 

$

2,810

 

$

7,873

 

$

5,339

 

 

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Table of Contents

 

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

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

(unaudited)

 

 

 

(in thousands)

 

Network operations

 

$

105

 

$

92

 

$

111

 

$

110

 

Development and technology

 

222

 

125

 

421

 

161

 

Selling and marketing

 

191

 

134

 

401

 

174

 

General and administrative

 

434

 

344

 

1,012

 

456

 

Total

 

$

952

 

$

695

 

$

1,945

 

$

901

 

 

The $0.5 million increase in depreciation and amortization expense of property and equipment for the three months ended June 30, 2012 compared to June 30, 2011 is primarily due to DAS build-out projects.

 

The $2.5 million increase in depreciation and amortization expense of property and equipment for the six months ended June 30, 2012 as compared to the six months ended June 30, 2011 are due to a one-time DAS build-out project of $1.3 million and $1.2 million from other DAS build-out projects for the six months ended.

 

The $0.3 million and $1.0 million increase in stock-based compensation expense for the three months and six months ended June 30, 2012 respectively, as compared to the three and six months ended June 30, 2011, are primarily a result of the May 3, 2011 option grants to employees and directors in which 2.2 million shares were granted.

 

The following table sets forth our results of operations for the specified periods as a percentage of our revenue for those periods.

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

(unaudited)

 

 

 

(as a percentage of revenue)

 

Consolidated Statement of Operations Data:

 

 

 

 

 

 

 

 

 

Revenue

 

100.0

%

100.0

%

100.0

%

100.0

%

Costs and operating expenses:

 

 

 

 

 

 

 

 

 

Network access

 

39.8

 

40.0

 

40.2

 

39.8

 

Network operations

 

15.4

 

17.2

 

14.9

 

17.4

 

Development and technology

 

11.7

 

9.8

 

11.3

 

10.8

 

Selling and marketing

 

9.9

 

8.0

 

9.6

 

7.9

 

General and administrative

 

13.0

 

12.2

 

13.4

 

12.2

 

Amortization of intangible assets

 

1.0

 

2.2

 

1.0

 

2.4

 

Total costs and operating expenses

 

90.8

 

89.4

 

90.4

 

90.5

 

Income from operations

 

9.2

 

10.6

 

9.6

 

9.5

 

Interest and other income (expense), net

 

0.3

 

(1.1

)

0.3

 

(0.7

)

Income before income taxes

 

9.5

 

9.5

 

9.9

 

8.8

 

Income taxes

 

2.9

 

1.4

 

2.8

 

1.8

 

Net income

 

6.6

 

8.1

 

7.1

 

7.0

 

Net income attributable to non-controlling interests

 

0.6

 

0.6

 

0.6

 

0.6

 

Net income attributable to Boingo Wireless, Inc.

 

6.0

 

7.5

 

6.5

 

6.4

 

Accretion of convertible preferred stock

 

 

(1.9

)

 

(3.7

)

Net income attributable to common stockholders

 

6.0

%

5.6

%

6.5

%

2.7

%

 

18



Table of Contents

 

Three Months ended June 30, 2012 and 2011

 

Revenue

 

 

 

Three Months Ended June 30,

 

 

 

2012

 

2011

 

Change

 

% Change

 

 

 

(unaudited)

 

 

 

(in thousands, except churn data)

 

Revenue:

 

 

 

 

 

 

 

 

 

Retail subscription

 

$

8,017

 

$

6,976

 

$

1,041

 

14.9

%

Retail single-use

 

3,877

 

4,417

 

(540

)

(12.2

)%

Wholesale

 

11,122

 

10,284

 

838

 

8.2

%

Advertising and other

 

1,286

 

1,266

 

20

 

1.5

%

Total revenue

 

$

24,302

 

$

22,943

 

$

1,359

 

5.9

%

 

 

 

 

 

 

 

 

 

 

Key business metrics:

 

 

 

 

 

 

 

 

 

Subscribers

 

287

 

229

 

58

 

25.3

%

Monthly churn

 

9.1

%

9.9

%

(0.8

)%

(8.1

)%

Connects

 

4,132

 

3,222

 

910

 

28.2

%

 

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

 

Subscribers.   This metric represents the number of paying retail customers who are on a month-to-month subscription plan at a given period end.

 

Monthly churn.   This metric shows the number of subscribers who canceled their subscriptions in a given month, expressed as a percentage of the average subscribers in that month. The churn in a given period is the average monthly churn in that period. This measure is one indicator of the longevity of our subscribers. Some of our customers who cancel subscriptions maintain accounts for single-use access.

 

Connects.   This metric shows how often individuals connect to our global Wi-Fi network in a given period.  The connects include retail and wholesale customers in both customer pay locations and customer free locations where we are a paid service provider and/or sponsorship and/or promotion fees.  We count each connect as a single connect regardless of how many times the individual accesses the network at a given venue during their 24 hour period. This measure is an indicator of paid activity throughout our network.

 

Total revenue. Total revenue increased $1.4 million or 5.9%, for the three months ended June 30, 2012, as compared to the three months ended June 30, 2011.

 

Retail subscription. Retail subscription revenue increased $1.0 million, or 14.9%, for the three months ended June 30, 2012, as compared to the three months ended June 30, 2011, due to a 25.3% increase in subscribers.  This increase in subscribers was partially offset by a decrease in our revenue per subscriber from the growing mix of lower-priced smartphone and tablet subscriptions compared to unlimited subscriptions, and sales promotions in the current quarter.

 

Retail single-use.   Retail single-use revenue decreased $0.5 million, or 12.2%, for the three months ended June 30, 2012, as compared to the three months ended June 30, 2011. The decrease in single-use revenue was due to the increase in new customers that opted for subscriptions, increased usage from wholesale partner customers that use our service on a wholesale basis rather than purchase single-use access and greater hourly use access than day pass access.

 

Wholesale.   Wholesale revenue increased $0.8 million, or 8.2%, for the three months ended June 30, 2012, as compared to the three months ended June 30, 2011, due to $0.6 million from new DAS build-out projects in our managed and operated locations and $0.2 million from increased partner usage-based fees.

 

Advertising and other.   Advertising and other revenue remained relatively unchanged for the three months ended June 30, 2012, as compared to the three months ended June 30, 2011.

 

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Table of Contents

 

Costs and Operating Expenses

 

 

 

Three Months Ended June 30,

 

 

 

2012

 

2011

 

Change

 

% Change

 

 

 

(unaudited)

 

 

 

(in thousands, except percentages)

 

Costs and operating expenses:

 

 

 

 

 

 

 

 

 

Network access

 

$

9,661

 

$

9,169

 

$

492

 

5.4

%

Network operations

 

3,748

 

3,944

 

(196

)

(5.0

)%

Development and technology

 

2,834

 

2,259

 

575

 

25.5

%

Selling and marketing

 

2,419

 

1,826

 

593

 

32.5

%

General and administrative

 

3,157

 

2,810

 

347

 

12.3

%

Amortization of intangible assets

 

247

 

508

 

(261

)

(51.4

)%

Total costs and operating expenses

 

$

22,066

 

$

20,516

 

$

1,550

 

7.6

%

 

Network access . Network access costs increased $0.5 million, or 5.4%, for the three months ended June 30, 2012, as compared to the three months ended June 30, 2011. The change reflects increases of $0.5 million in depreciation expense, $0.3 million from revenue share paid to venues in our managed and operated locations, $0.2 million from sale of equipment for mall build-out projects and $0.2 million from bandwidth and other cost of sales. The increase was partially offset by decreases of $0.7 million from customer usage at partner venues.

 

Network operations. Network operations expenses decreased $0.2 million, or 5.0%, for the three months ended June 30, 2012, as compared to the three months ended June 30, 2011 due to a decrease of $0.2 million in personnel related expenses from employees transferred from network operations into the development and technology and selling and marketing departments.

 

Development and technology. Development and technology expenses increased $0.6 million, or 25.5% for the three months ended June 30, 2012, as compared to the three months ended June 30, 2011 due to a $0.3 million increase in personnel related expenses, inclusive of $0.1 million in stock-based compensation expenses and $0.1 million due to employees transferred in from network operations, $0.2 million increase in hardware and software maintenance expense and $0.1 million in consulting expenses.

 

Selling and marketing. Selling and marketing expenses increased $0.6 million, or 32.5%, for the three months ended June 30, 2012, as compared to the three months ended June 30, 2011, due to a $0.4 million increase in personnel related expenses, inclusive of $0.1 million in stock-based compensation expenses and $0.1 million due to employees transferred in from network operations, and a $0.2 million increase in marketing expenses.

 

General and administrative.   General and administrative expenses increased $0.3 million, or 12.3% for the three months ended June 30, 2012, as compared to the three months ended June 30, 2011 primarily due to increase in franchise taxes and stock-based compensation.

 

Amortization of intangible assets.   Amortization of intangible assets expense decreased $0.3 million, or 51.4%, for the three months ended June 30, 2012, as compared to the three months ended June 30, 2011. The decrease was due to certain acquired assets being fully amortized in the second half of 2011.

 

Interest and Other Income (Expense), Net

 

Interest and other income (expense), net, increased $0.3 million for the three months ended June 30, 2012 compared to June 30, 2011 due to $0.2 million in gains from foreign currency transactions and having a mark to market adjustment for preferred warrants in the prior year of $0.1 million.

 

Income Taxes

 

Income taxes increased $0.4 million or 127.2% in the three months ended June 30, 2012, as compared to the three months ended June 30, 2011.  In the prior quarter ended June 30, 2011 we concluded it was more likely than not that certain of our state deferred tax assets would be realizable, and therefore we received a $0.2 million benefit from the reduction of our valuation allowance. For the three months ended June 30, 2012 we also had decreased deductions from the exercise and sale of incentive stock options and increased income before income taxes of $0.1 million. Our effective tax rate also increased to 30.6% for the three months ended June 30, 2012 as compared to 14.3% for three months ended June 30, 2011.

 

20



Table of Contents

 

Non-controlling Interests

 

Non-controlling interests remained relatively unchanged for the three months ended June 30, 2012, as compared to the three months ended June 30, 2011.

 

Adjusted EBITDA

 

Adjusted EBITDA was $6.8 million, up 5.5% from the $6.4 million recorded in the comparable 2011 quarter.  As a percent of revenue, Adjusted EBITDA was 28.0% essentially flat to the comparable 2011 quarter. The Adjusted EBITDA increase was due primarily to $0.5 million of depreciation expense, $0.4 million from income tax expense, $0.3 million from stock-based compensation and $0.2 million from net income. These increases were partially offset by the accretion of convertible preferred stock of $0.4 million which was an add-back in the prior year quarter, decrease in other expenses of $0.3 million and decrease in amortization expenses of $0.3 million.

 

Six Months ended June 30, 2012 and 2011

 

Revenue

 

 

 

Six Months Ended June 30,

 

 

 

2012

 

2011

 

Change

 

% Change

 

 

 

(unaudited)

 

 

 

(in thousands, except churn data)

 

Revenue:

 

 

 

 

 

 

 

 

 

Retail subscription

 

$

15,864

 

$

13,732

 

$

2,132

 

15.5

%

Retail single-use

 

7,494

 

8,219

 

(725

)

(8.8

)%

Wholesale

 

23,206

 

19,800

 

3,406

 

17.2

%

Advertising and other

 

1,925

 

2,220

 

(295

)

(13.3

)%

Total revenue

 

$

48,489

 

$

43,971

 

$

4,518

 

10.3

%

 

 

 

 

 

 

 

 

 

 

Key business metrics:

 

 

 

 

 

 

 

 

 

Subscribers

 

287

 

229

 

58

 

25.3

%

Monthly churn

 

9.6

%

9.6

%

 

 

Connects

 

7,718

 

6,148

 

1,570

 

25.5

%

 

Total revenue. Total revenue increased $4.5 million or 10.3%, for the six months ended June 30, 2012, as compared to the six months ended June 30, 2011.

 

Retail subscription. Retail subscription revenue increased $2.1 million, or 15.5%, for the six months ended June 30, 2012, as compared to the six months ended June 30, 2011, due to a 25.3% increase in subscribers.  This increase in subscribers was partially offset by a decrease in our revenue per subscriber from the growing mix of lower-priced smartphone or tablet subscriptions compared to unlimited subscriptions, and sales promotions in the current period.

 

Retail single-use.   Retail single-use revenue decreased $0.7 million, or 8.8%, for the six months ended June 30, 2012, as compared to the six months ended June 30, 2011. The decrease in single-use revenue was due to the increase in new customers that opted for subscriptions, increased usage from wholesale partner customers that use our service on a wholesale basis rather than purchase single-use access and greater hourly use access than day pass access.

 

Wholesale.   Wholesale revenue increased $3.4 million, or 17.2%, for the six months ended June 30, 2012, as compared to the six months ended June 30, 2011, due to $1.4 million from a one-time DAS build-out project for an airport location, and $1.2 million from build-out projects in other managed and operated locations, $0.5 million from increased partner usage-based fees, and $0.3 million from DAS access and usage fees.

 

Advertising and other.   Advertising and other revenue decreased $0.3 million, or 13.3%, for the six months ended June 30, 2012, as compared to the six months ended June 30, 2011, due primarily to the lower level of sponsorship revenue in the first quarter of 2012.

 

21



Table of Contents

 

Costs and Operating Expenses

 

 

 

Six Months Ended June 30,

 

 

 

2012

 

2011

 

Change

 

% Change

 

 

 

(unaudited)

 

 

 

(in thousands, except percentages)

 

Costs and operating expenses:

 

 

 

 

 

 

 

 

 

Network access

 

$

19,516

 

$

17,506

 

$

2,010

 

11.5

%

Network operations

 

7,202

 

7,668

 

(466

)

(6.1

)%

Development and technology

 

5,492

 

4,743

 

749

 

15.8

%

Selling and marketing

 

4,670

 

3,455

 

1,215

 

35.2

%

General and administrative

 

6,484

 

5,374

 

1,110

 

20.7

%

Amortization of intangible assets

 

482

 

1,069

 

(587

)

(54.9

)%

Total costs and operating expenses

 

$

43,846

 

$

39,815

 

$

4,031

 

10.1

%