Boingo Wireless, Inc.
BOINGO WIRELESS INC (Form: 10-Q, Received: 05/10/2013 15:53:40)

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 March 31, 2013

 

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 x

 

 

 

Non-accelerated filer o

 

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 May 1, 2013, there were 35,669,971 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

14

 

 

 

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

22

 

 

 

Item 4.

Controls and Procedures

22

 

 

 

PART II — OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

23

 

 

 

Item 1A.

Risk Factors

23

 

 

 

Item 4.

Mine Safety Disclosures

23

 

 

 

Item 6.

Exhibits

23

 

 

SIGNATURES

24

 

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)

 

 

 

March 31,
2013

 

December 31,
2012

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

46,648

 

$

58,138

 

Restricted cash

 

30

 

30

 

Marketable securities

 

45,224

 

41,558

 

Accounts receivable, net

 

13,413

 

10,977

 

Prepaid expenses and other current assets

 

7,015

 

2,072

 

Deferred tax assets

 

1,204

 

1,204

 

Total current assets

 

113,534

 

113,979

 

Property and equipment, net

 

49,013

 

42,411

 

Goodwill

 

33,045

 

26,744

 

Intangible assets, net

 

16,543

 

10,594

 

Deferred tax assets

 

1,195

 

4,256

 

Other assets

 

2,835

 

4,548

 

Total assets

 

$

216,165

 

$

202,532

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

5,132

 

$

4,990

 

Accrued expenses and other liabilities

 

12,777

 

11,019

 

Deferred revenue

 

21,824

 

17,329

 

Total current liabilities

 

39,733

 

33,338

 

Deferred revenue, net of current portion

 

26,549

 

24,123

 

Other liabilities

 

2,096

 

572

 

Total liabilities

 

68,378

 

58,033

 

 

 

 

 

 

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

 

 

 

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, 35,650 and 35,483 shares issued and outstanding at March 31, 2013 and December 31, 2012, respectively

 

4

 

4

 

Additional paid-in capital

 

183,074

 

178,219

 

Accumulated deficit

 

(35,668

)

(34,547

)

Total common stockholders’ equity

 

147,410

 

143,676

 

Non-controlling interests

 

377

 

823

 

Total stockholders’ equity

 

147,787

 

144,499

 

Total liabilities and stockholders’ equity

 

$

216,165

 

$

202,532

 

 

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 Operations

(Unaudited)

(In thousands, except per share amounts)

 

 

 

Three Months Ended
March 31,

 

 

 

2013

 

2012

 

 

 

 

 

 

 

Revenue

 

$

23,134

 

$

24,187

 

Costs and operating expenses:

 

 

 

 

 

Network access

 

9,670

 

9,855

 

Network operations

 

3,951

 

3,454

 

Development and technology

 

3,136

 

2,658

 

Selling and marketing

 

2,990

 

2,251

 

General and administrative

 

4,490

 

3,327

 

Amortization of intangible assets

 

399

 

235

 

Total costs and operating expenses

 

24,636

 

21,780

 

(Loss) income from operations

 

(1,502

)

2,407

 

Interest and other income, net

 

47

 

56

 

(Loss) income before income taxes

 

(1,455

)

2,463

 

Income tax (benefit) expense

 

(467

)

658

 

Net (loss) income

 

(988

)

1,805

 

Net income attributable to non-controlling interests

 

133

 

148

 

Net (loss) income attributable to common stockholders

 

$

(1,121

)

$

1,657

 

 

 

 

 

 

 

Net (loss) income per share attributable to common stockholders:

 

 

 

 

 

Basic

 

$

(0.03

)

$

0.05

 

Diluted

 

$

(0.03

)

$

0.05

 

 

 

 

 

 

 

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

 

 

 

 

 

Basic

 

35,597

 

33,969

 

Diluted

 

35,597

 

36,632

 

 

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, 2012

 

35,483

 

$

4

 

$

178,219

 

$

(34,547

)

$

823

 

$

144,499

 

Issuance of common stock upon exercise of stock options

 

167

 

 

214

 

 

 

214

 

Stock-based compensation expense

 

 

 

602

 

 

 

602

 

Excess tax benefits from stock-based compensation

 

 

 

4,039

 

 

 

4,039

 

Non-controlling interests distributions

 

 

 

 

 

(579

)

(579

)

Net (loss) income

 

 

 

 

(1,121

)

133

 

(988

)

Balance at March 31, 2013

 

35,650

 

$

4

 

$

183,074

 

$

(35,668

)

$

377

 

$

147,787

 

 

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)

 

 

 

Three Months Ended
March 31,

 

 

 

2013

 

2012

 

Cash flows from operating activities

 

 

 

 

 

Net (loss) income

 

$

(988

)

$

1,805

 

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

 

 

 

 

 

Depreciation and amortization of property and equipment

 

4,133

 

4,515

 

Amortization of intangible assets

 

399

 

235

 

Stock-based compensation

 

602

 

993

 

Excess tax benefits from stock-based compensation

 

(3,419

)

(1,560

)

Changes in operating assets and liabilities, net of effect of acquisition:

 

 

 

 

 

Accounts receivable

 

(2,436

)

(1,115

)

Prepaid expenses and other assets

 

1,282

 

1,913

 

Accounts payable

 

(491

)

(312

)

Accrued expenses and other liabilities

 

(720

)

(3,122

)

Deferred revenue

 

6,894

 

2,311

 

Net cash provided by operating activities

 

5,256

 

5,663

 

Cash flows from investing activities

 

 

 

 

 

Purchases of marketable securities

 

(22,744

)

(41,170

)

Proceeds from sales of marketable securities

 

19,078

 

 

Purchases of property and equipment

 

(5,154

)

(5,089

)

Payments for business acquisition, net of cash acquired

 

(4,874

)

 

Other

 

 

(14

)

Net cash used in investing activities

 

(13,694

)

(46,273

)

Cash flows from financing activities

 

 

 

 

 

Excess tax benefits from stock-based compensation

 

3,419

 

1,560

 

Proceeds from exercise of stock options

 

214

 

1,375

 

Payments of capital leases and notes payable

 

(27

)

(164

)

Payments of acquired notes payable and financed liabilities

 

(6,079

)

 

Payments to non-controlling interests

 

(579

)

(642

)

Net cash (used in) provided by financing activities

 

(3,052

)

2,129

 

Net decrease in cash and cash equivalents

 

(11,490

)

(38,481

)

Cash and cash equivalents at beginning of period

 

58,138

 

93,933

 

Cash and cash equivalents at end of period

 

$

46,648

 

$

55,452

 

Supplemental disclosure of cash flow information

 

 

 

 

 

Cash paid for taxes

 

$

42

 

$

279

 

Supplemental disclosure of non-cash investing and financing activities

 

 

 

 

 

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

 

 

3,383

 

 

3,648

 

Assets acquired in business acquisition

 

 

17,317

 

 

 

Liabilities assumed in business acquisition

 

 

12,443

 

 

 

 

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

 

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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”, “our” or “the Company”) 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 months ended March 31, 2013 and 2012 are unaudited. The unaudited interim condensed consolidated financial information has been prepared in accordance 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, 2012 contained in our annual report on Form 10-K filed with the SEC on March 18, 2013. 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 months ended March 31, 2013 and 2012, our results of cash flows for the three months ended March 31, 2013 and 2012, and our financial position as of March 31, 2013. 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, our 70% ownership of Chicago Concourse Development Group, LLC and our 75% ownership of Boingo Holding Participacoes Ltda. 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. All intercompany balances and transactions have been eliminated in consolidation.

 

Business combinations

 

The results of businesses acquired in a business combination are included in the Company’s condensed consolidated financial statements from the date of the acquisition. Purchase accounting results in assets and liabilities of an acquired business being recorded at their estimated fair values on the acquisition date. Any excess consideration over the fair value of assets acquired and liabilities assumed is recognized as goodwill.

 

The Company performs valuations of assets acquired and liabilities assumed for an acquisition and allocates the purchase price to its respective net tangible and intangible assets. Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates including the selection of valuation methodologies, estimates of future revenues and cash flows, discount rates and selection of comparable companies. The Company engages the assistance of valuation specialists in concluding on fair value measurements in connection with fair values of assets and liabilities assumed in a business combination.

 

Transaction costs associated with business combinations are expensed as incurred, and are included in general and administrative expenses in the condensed consolidated statements of operations. Transaction costs were $158 for the three months ended March 31, 2013. There were no transaction costs for the three months ended March 31, 2012.

 

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Table of Contents

 

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. The following is a summary of our revenue by primary revenue source:

 

 

 

Three Months Ended
March 31,

 

 

 

2013

 

2012

 

Revenue:

 

 

 

 

 

Retail subscription

 

$

8,067

 

$

7,846

 

Retail single-use

 

2,586

 

3,616

 

Wholesale

 

11,555

 

12,084

 

Advertising and other

 

926

 

641

 

Total revenue

 

$

23,134

 

$

24,187

 

 

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 a one-year period. At March 31, 2013 and December 31, 2012, we had $45,224 and $41,558, respectively, in short-term marketable securities and no long-term marketable securities.

 

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, net.

 

For the three months ended March 31, 2013, 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, (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, and (iv) display advertisements and sponsorships on our walled garden sign-in pages. 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 and revenue is deferred for the portions of monthly recurring subscription fees collected in advance. 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.

 

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Table of Contents

 

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. The initial term of platform service license agreements is generally between two to five years and the agreements generally contain renewal clauses. 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 generally 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 estimated customer relationship period. The initial term of our contracts with telecom operations and wholesale partners generally range from three to fifteen years and the agreements generally contain renewal clauses. 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 adopted the provisions of Accounting Standards Update (“ASU”) 2009-13, Revenue Recognition (Topic 605)—Multiple-Deliverable Revenue Arrangements (“ASU 2009-13”), on a prospective basis on January 1, 2011. For multiple-deliverable arrangements entered into prior to January 1, 2011 that are accounted for under ASC 605-25, Revenue Recognition—Multiple- Deliverable Revenue Arrangements , we defer recognition of revenue for the full arrangement and recognize all revenue ratably over the wholesale service period for platform service arrangements and the term of the estimated customer relationship period for DAS arrangements, as we do not have evidence of fair value for the undelivered elements in the arrangement. For multiple-deliverable arrangements entered into or materially modified after January 1, 2011 that are accounted for under ASC 605-25, we evaluate whether or not separate units of accounting exist and then allocate the arrangement consideration to all units of accounting based on the relative selling price method using estimated selling prices as vendor specific objective evidence and third party evidence is not available. We recognize the revenue associated with the separate units of accounting upon completion of such services or ratably over the wholesale service period for platform service arrangements and the term of the estimated customer relationship period for DAS arrangements.

 

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

 

Recent accounting pronouncements

 

In February 2013, the FASB issued ASU 2013-02, Comprehensive Income—Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2013-02”). This ASU requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income (“AOCI”) by component. In addition, an entity is required to present, either on the face of the statement where net (loss) income is presented or in the notes, significant amounts reclassified out of AOCI by the respective line items of net (loss) income but only if the amount reclassified is required under GAAP to be reclassified to net (loss) income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be reclassified in their entirety to net (loss) income, an entity is required to cross-reference to other disclosures required under GAAP that provide additional detail about those amounts. ASU 2013-02 will be effective prospectively for reporting periods beginning after December 15, 2012. We adopted this standard effective January 1, 2013. The adoption of this standard did not have any impact on our financial statements as we currently do not have any amounts in AOCI.

 

3. Acquisition

 

On February 22, 2013, we acquired all outstanding stock of Endeka Group, Inc. (“Endeka”) . Endeka is a provider of commercial wireless broadband and Internet Protocol television (IPTV) services at certain military bases, as well as Wi-Fi services to certain federal law enforcement training facilities. We acquired Endeka because Endeka’s portfolio of venues and management team are natural additions to our managed network business. We have included the operating results of Endeka in our condensed consolidated financial statements since the date of acquisition. The operating results for Endeka for the period ended March 31, 2013 are not material. The Endeka acquisition is not a significant acquisition for us and pro forma financial statements have therefore not been included.

 

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The acquisition has been accounted for under the acquisition method of accounting in accordance with FASB ASC 805, Business Combinations . As such, the assets acquired and liabilities assumed are recorded at their acquisition-date fair values. The total purchase price was $6,623, which includes cash paid at closing, holdback consideration to be paid and additional contingent consideration comprised of two components: (i) a payment (“Build Payment”) if the amount of the capital expenditures incurred for the substantial completion of a specified build project is less than a target; and (ii) a payment (“Milestone Payment”) based on revenue generated by certain contracts in fiscal year 2014. There is no maximum to the contingent consideration payments for the Milestone Payment. The Build Payment is expected to be paid in late 2013 and the Milestone Payment will be paid on February 28, 2015.

 

The fair value of the contingent consideration is based on Level 3 inputs as defined in FASB ASC 820, Fair Value Measurements and Disclosures . Further changes in the fair value of the contingent consideration will be recorded through operating income. We allocated the excess of the purchase price over the fair value of assets acquired and liabilities assumed to goodwill, which is not deductible for tax purposes. The goodwill arising from the Endeka acquisition is attributable primarily to expected synergies and other benefits, including the acquired workforce, from combining Endeka with us.

 

The fair value of the acquired intangible assets and contingent consideration is provisional pending our final determination of fair value, including the valuation report for those assets and liabilities from a third party valuation expert assisting us. Also, the deferred tax liabilities are provisional pending the filing of Endeka’s 2012 and final short period 2013 tax returns. The contingent consideration was valued using a discounted cash flow method with probability weighted cash flows and a discount rate of 50.5%. The identifiable intangible assets were primarily valued using the excess earnings, relief from royalty, and replacement cost methods using discount rates ranging from 40.0% to 50.0% and royalty rates ranging from 0.5% to 1.5%, where applicable.

 

The amortizable intangible assets are being amortized straight-line over their estimated useful lives. The following summarizes the preliminary purchase price allocation:

 

 

 

Estimated Fair Value

 

Estimated Useful
Life (years)

 

Consideration:

 

 

 

 

 

Cash paid

 

$

4,894

 

 

 

Holdback consideration

 

400

 

 

 

Contingent consideration

 

1,329

 

 

 

Total consideration

 

$

6,623

 

 

 

 

 

 

 

 

 

Recognized amounts of identifiable assets acquired and liabilities assumed:

 

 

 

 

 

Cash

 

$

20

 

 

 

Other current assets

 

44

 

 

 

Property, plant and equipment

 

4,617

 

 

 

Other assets

 

12

 

 

 

Trade accounts payable

 

(992

)

 

 

Other current liabilities

 

(186

)

 

 

Notes payable and financed liabilities

 

(6,476

)

 

 

Deferred tax liabilities

 

(3,062

)

 

 

Net tangible liabilities acquired

 

(6,023

)

 

 

Existing customer contracts and relationships

 

4,770

 

10.0

 

Technology

 

930

 

6.0

 

Trademark and tradename

 

300

 

10.0

 

Non-compete agreement

 

250

 

2.0

 

Other intangibles

 

95

 

10.0

 

Goodwill

 

6,301

 

 

 

Total purchase price

 

$

6,623

 

 

 

 

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Table of Contents

 

4. Cash and cash equivalents

 

Cash and cash equivalents consisted of the following:

 

 

 

March 31,
2013

 

December 31,
2012

 

Cash and cash equivalents:

 

 

 

 

 

Cash

 

$

8,817

 

$

16,677

 

Money market accounts

 

37,831

 

39,001

 

Marketable securities

 

 

2,460

 

Total cash and cash equivalents

 

$

46,648

 

$

58,138

 

 

Marketable securities 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 with original maturities of three months or less. For the three months ended March 31, 2013 and 2012, interest income was $54 and $26, respectively, which is included in interest and other income, net in the accompanying condensed consolidated statements of operations.

 

5. Property and equipment

 

Property and equipment consisted of the following:

 

 

 

March 31,
2013

 

December 31,
2012

 

Leasehold improvements

 

$

77,115

 

$

72,119

 

Construction in progress

 

11,507

 

6,295

 

Computer equipment

 

7,457

 

7,493

 

Software

 

7,886

 

7,519

 

Office equipment

 

411

 

411

 

Total property and equipment

 

104,376

 

93,837

 

Less: accumulated depreciation and amortization

 

(55,363

)

(51,426

)

Total property and equipment, net

 

$

49,013

 

$

42,411

 

 

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

 

 

 

Three Months Ended
March 31,

 

 

 

2013

 

2012

 

Network access

 

$

2,877

 

$

3,665

 

Network operations

 

808

 

674

 

Development and technology

 

416

 

150

 

General and administrative

 

32

 

26

 

Total depreciation and amortization of property and equipment

 

$

4,133

 

$

4,515

 

 

6. Fair value measurement

 

ASC 820 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 March 31, 2013

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

37,831

 

$

 

$

 

$

37,831

 

Marketable securities

 

 

45,224

 

 

45,224

 

Restricted cash

 

30

 

 

 

30

 

Total assets

 

$

37,861

 

$

45,224

 

$

 

$

83,085

 

Liabilities:

 

 

 

 

 

 

 

 

 

Contingent consideration

 

$

 

$

 

$

(1,329

)

$

(1,329

)

Total liabilities

 

$

 

$

 

$

(1,329

)

$

(1,329

)

 

At December 31, 2012

 

Level 1

 

Level 2

 

Total

 

Assets:

 

 

 

 

 

 

 

Cash equivalents

 

$

39,001

 

$

2,460

 

$

41,461

 

Marketable securities

 

 

41,558

 

41,558

 

Restricted cash

 

30

 

 

30

 

Total assets

 

$

39,031

 

$

44,018

 

$

83,049

 

 

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Table of Contents

 

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.

 

The Company used the income approach to value the contingent consideration as of March 31, 2013. The contingent consideration used a discounted cash flow method with probability weighted cash flows and a discount rate of 50.5%. The following table presents a reconciliation of the beginning and ending amounts related to the fair value of contingent consideration for the Endeka acquisition, categorized as Level 3:

 

Beginning balance, January 1, 2013

 

$

 

Contingent consideration for acquisition of business

 

1,329

 

Change in fair value

 

 

Balance, March 31, 2013

 

$

1,329

 

 

7. Accrued expenses and other liabilities

 

Accrued expenses and other liabilities consisted of the following:

 

 

 

March 31,
2013

 

December 31,
2012

 

Revenue share

 

$

3,384

 

$

3,312

 

Salaries and wages

 

2,749

 

3,676

 

Accrued for construction-in-progress

 

1,420

 

1,003

 

Accrued partner network

 

1,273

 

1,134

 

Deferred rent

 

912

 

791

 

Other

 

3,039

 

1,103

 

Total accrued expenses and other liabilities

 

$

12,777

 

$

11,019

 

 

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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Table of Contents

 

During the three months ended March 31, 2013, we recognized excess windfall tax benefits of $4,039 from stock option exercises. These benefits will decrease income taxes payable for the year ended December 31, 2013, and were recorded as an increase to additional paid-in capital in the accompanying condensed consolidated balance sheet as of March 31, 2013.

 

Income tax (benefit) expense of $(467) and $658 reflects an effective tax rate of 32.1% and 26.7% for the three months ended March 31, 2013 and 2012, respectively.  Our effective tax rate differs from the statutory rate primarily due to benefits from disqualifying dispositions of incentive stock options for the three months ended March 31, 2013 and 2012 and non-tax deductible transaction costs related to the acquisition of Endeka for the three months ended March 31, 2013. 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 March 31, 2013, we have net deferred tax assets of $2,399, which includes net operating loss carry-forwards. As of March 31, 2013 and December 31, 2012, we had $392 of uncertain tax positions, $106 of which is a reduction to deferred tax assets, which is presented net of uncertain tax positions, in the accompanying condensed consolidated balance sheets.

 

We are subject to taxation in the United States and in various states. Our tax years 2009 and forward are subject to examination by the IRS and our tax years 2007 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 could 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 Equity Incentive Plan (“2011 Plan”).  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.  As of March 31, 2013, 7,108,013 shares of common stock are reserved for issuance.

 

No further awards will be made under our 2001 Plan, and it will be terminated.  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
March 31,

 

 

 

2013

 

2012

 

Network operations

 

$

166

 

$

5

 

Development and technology

 

(43

)

200

 

Selling and marketing

 

118

 

210

 

General and administrative

 

361

 

578

 

Total stock-based compensation

 

$

602

 

$

993

 

 

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

 

 

 

Number of
Options (000’s)

 

Weighted
Average
Exercise
Price

 

Weighted-
Average
Remaining
Contract
Life (years)

 

Aggregate
Intrinsic
Value

 

Outstanding at December 31, 2012

 

5,045

 

$

6.50

 

6.44

 

$

14,742

 

Granted

 

466

 

$

6.61

 

 

 

 

 

Exercised

 

(167

)

$

1.28

 

 

 

 

 

Cancelled/forfeited

 

(407

)

$

11.71

 

 

 

 

 

Outstanding at March 31, 2013

 

4,937

 

$

6.26

 

6.59

 

$

8,960

 

Vested and expected to vest at March 31, 2013

 

4,750

 

$

6.16

 

6.49

 

$

8,956

 

Exercisable at March 31, 2013

 

2,711

 

$

3.74

 

4.71

 

$

8,788

 

 

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Table of Contents

 

The significant assumptions used for newly issued stock option grants for the three months ended March 31, 2013 were an expected term of 6.25 years, an expected volatility of 49.2%, a risk free interest rate of 1.0% and no expected dividends.

 

In March 2013, we issued restricted stock units (“RSU”) to executive and non-executive personnel. The RSUs generally vest over a two year period with 50% of the RSUs vesting when the individual completes 12 months of continuous service and the remaining 50% vesting on a quarterly basis thereafter. A summary of the RSU activity under the 2011 Plan is as follows:

 

 

 

Number of Shares
(000’s)

 

Weighted Average
Grant-Date Fair
Value

 

Nonvested at December 31, 2012

 

 

$

 

Granted

 

605

 

6.05

 

Vested

 

 

 

Forfeited

 

 

 

Nonvested at March 31, 2013

 

605

 

$

6.05

 

 

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
March 31,

 

 

 

2013

 

2012

 

 

 

(in thousands)

 

Numerator:

 

 

 

 

 

Net (loss) income attributable to common stockholders, basic and diluted

 

$

(1,121

)

$

1,657

 

Denominator:

 

 

 

 

 

Weighted average common stock, basic

 

35,597

 

33,969

 

Dilutive effect of stock-based awards

 

 

2,663

 

Weighted average common stock, dilutive

 

35,597

 

36,632

 

Net (loss) income per share attributable to common stockholders:

 

 

 

 

 

Basic

 

$

(0.03

)

$

0.05

 

Diluted

 

$

(0.03

)

$

0.05

 

 

For the three months ended March 31, 2013, we excluded all stock options and RSUs from the computation of diluted net loss per share due to the net loss for the quarter. For the three months ended March 31, 2012, 2,033,129 options to purchase common stock were not included in the computation of diluted net income per share as the inclusion would have been anti-dilutive.

 

12. Subsequent events

 

On April 1, 2013, the Company approved a stock repurchase program to repurchase up to $10,000 of the Company’s common stock in the open market, exclusive of any commissions, markups or expenses. The stock repurchased will be retired and will resume the status of authorized but unissued shares of common stock.

 

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

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto included in “Item 1. Financial Statements” of this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto and the section titled “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the Securities Exchange Commission on March 18, 2013.

 

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Table of Contents

 

Forward-Looking Statements

 

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

 

Overview

 

Boingo makes it simple to connect to the mobile Internet.

 

We make it easy, convenient and cost effective for individuals to find and gain access to the mobile Internet through high-speed, high-bandwidth Wi-Fi networks globally. We also manage and operate a distributed antenna system infrastructure, or DAS, which is a cellular extension network. Our solution includes easy-to-use software for Wi-Fi enabled devices such as smartphones, laptops and tablet computers, and our sophisticated back-end system infrastructure that detects and enables one-click access to our extensive global Wi-Fi network. Individuals use our solutions to access what we believe is the world’s largest commercial Wi-Fi network, consisting of over 700,000 Wi-Fi locations, or hotspots, in over 100 countries at venues such as airports, hotels, coffee shops, shopping malls, arenas, stadiums and quick service restaurants.

 

We have direct customer relationships with users who have purchased our mobile Internet services, and we provide solutions to our partners, which include telecom operators, cable companies, technology companies, enterprise software and services companies, and communications companies to allow their millions of users to connect to the mobile Internet through hotspots in our network. As of March 31, 2013, we have grown our subscriber base to approximately 296,000, an increase of approximately 12.1% over the same prior year period.

 

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

 

We generate revenue from individual users, partners and advertisers. Individual users provide approximately 46% of our revenue by purchasing month-to-month subscription plans that automatically renew, or hotspot specific single-use access to our network. In addition, our partners pay us usage-based network access and software licensing fees to allow their customers access to our network. We also generate revenue from telecom operators that pay us build-out fees and recurring access fees so that their cellular customers may use our DAS at locations where we manage and operate the Wi-Fi network. We also generate revenue from advertisers that seek to reach our users with sponsored access, promotional programs and display advertising at locations where we manage and operate the Wi-Fi network and locations where we solely provide authorized access to a partner’s Wi-Fi network through sponsored access and promotional programs.

 

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

 

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Table of Contents

 

The mobile Internet is a complex and constantly evolving ecosystem, comprised of over a billion mobile Internet-enabled devices from dozens of manufacturers, which are powered by many different operating systems. Devices use different network technologies and must be configured with the appropriate software to detect and optimize a connection to the mobile Internet. This complexity is amplified as new device models and operating systems are released, new categories of devices become Internet-enabled, and new network technologies emerge.

 

The increasing number of mobile Internet-enabled devices in this ecosystem is causing an even more rapid increase in data consumption. Despite spending billions of dollars every year to expand their networks, network and telecom operators still face capacity-strained networks. Innovations in broadband technologies such as 3G and 4G will not be sufficient to relieve the strain on networks.

 

We believe we are the leading global provider of commercial mobile Wi-Fi Internet solutions. Key elements of our strategy are to:

 

·                        grow the installed base of our software;

 

·                        leverage our neutral-host business model;

 

·                        invest in our software to enhance the customer experience;

 

·                        expand our network;

 

·                        grow our business internationally; and

 

·                        increase our brand awareness.

 

Reconciliation of Non-GAAP Financial Measures

 

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

 

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

 

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

 

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

 

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

 

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

 

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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 (loss) income attributable to common stockholders.

 

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

 

 

 

Three Months Ended
March 31,

 

 

 

2013

 

2012

 

 

 

(unaudited)
(in thousands)

 

 

 

 

 

 

 

Net (loss) income attributable to common stockholders

 

$

(1,121

)

$

1,657

 

Depreciation and amortization of property and equipment

 

4,133

 

4,515

 

Income tax (benefit) expense

 

(467

)

658

 

Amortization of intangible assets

 

399

 

235

 

Stock-based compensation expense

 

602

 

993

 

Non-controlling interests

 

133

 

148

 

Interest and other income, net

 

(47

)

(56

)

Adjusted EBITDA

 

$

3,632

 

$

8,150

 

 

Results of Operations

 

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

 

 

 

Three Months Ended
March 31,

 

 

 

2013

 

2012

 

 

 

(unaudited)
(in thousands)

 

Consolidated Statement of Operations Data:

 

 

 

 

 

Revenue

 

$

23,134

 

$

24,187

 

Costs and operating expenses:

 

 

 

 

 

Network access

 

9,670

 

9,855

 

Network operations

 

3,951

 

3,454

 

Development and technology

 

3,136

 

2,658

 

Selling and marketing

 

2,990

 

2,251

 

General and administrative

 

4,490

 

3,327

 

Amortization of intangible assets

 

399

 

235

 

Total costs and operating expenses

 

24,636

 

21,780

 

(Loss) income from operations

 

(1,502

)

2,407

 

Interest and other income, net

 

47

 

56

 

(Loss) income before income taxes

 

(1,455

)

2,463

 

Income tax (benefit) expense

 

(467

)

658

 

Net (loss) income

 

(988

)

1,805

 

Net income attributable to non-controlling interests

 

133

 

148

 

Net (loss) income attributable to common stockholders

 

$

(1,121

)

$

1,657

 

 

 

 

Three Months Ended
March 31,

 

 

 

2013

 

2012

 

 

 

(unaudited)
(in thousands)

 

Depreciation and amortization expense included in the above line items:

 

 

 

 

 

Network access

 

$

2,877

 

$

3,665

 

Network operations

 

808

 

674

 

Development and technology

 

416

 

150

 

General and administrative

 

32

 

26

 

Total(1)

 

$

4,133

 

$

4,515

 

 

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Table of Contents

 


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

 

 

 

Three Months Ended
March 31,

 

 

 

2013

 

2012

 

 

 

(unaudited)
(in thousands)

 

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

 

 

 

 

 

Network operations

 

$

166

 

$

5

 

Development and technology

 

(43

)

200

 

Selling and marketing

 

118

 

210

 

General and administrative

 

361

 

578

 

Total(2)

 

$

602

 

$

993

 

 


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

 

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

 

 

 

Three Months Ended
March 31,

 

 

 

2013

 

2012

 

 

 

(unaudited)
(as a percentage of revenue)

 

Consolidated Statement of Operations Data:

 

 

 

 

 

Revenue

 

100.0

%

100.0

%

Costs and operating expenses:

 

 

 

 

 

Network access

 

41.8

 

40.7

 

Network operations

 

17.1

 

14.3

 

Development and technology

 

13.6

 

11.0

 

Selling and marketing

 

12.9

 

9.3

 

General and administrative

 

19.4

 

13.8

 

Amortization of intangible assets

 

1.7

 

1.0

 

Total costs and operating expenses

 

106.5

 

90.1

 

(Loss) income from operations

 

(6.5

)

9.9

 

Interest and other income, net

 

0.2

 

0.2

 

(Loss) income before income taxes

 

(6.3

)

10.1

 

Income tax (benefit) expense

 

(2.0

)

2.7

 

Net (loss) income

 

(4.3

)

7.4

 

Net income attributable to non-controlling interests

 

(0.6

)

0.6

 

Net (loss) income attributable to common stockholders

 

(4.8

)%

6.8

%

 

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Table of Contents

 

Three Months ended March 31, 2013 and 2012

 

Revenue

 

 

 

Three Months Ended March 31,

 

 

 

2013

 

2012

 

Change

 

% Change

 

 

 

(unaudited)

 

 

 

(in thousands, except churn data)

 

Revenue:

 

 

 

 

 

 

 

 

 

Retail subscription

 

$

8,067

 

$

7,846

 

$

221

 

2.8

%

Retail single-use

 

2,586

 

3,616

 

(1,030

)

(28.5

)%

Wholesale

 

11,555

 

12,084

 

(529

)

(4.4

)%

Advertising and other

 

926

 

641

 

285

 

44.5

%

Total revenue

 

$

23,134

 

$

24,187

 

$

(1,053

)

(4.4

)%

 

 

 

 

 

 

 

 

 

 

Key business metrics:

 

 

 

 

 

 

 

 

 

Subscribers

 

296

 

264

 

32

 

12.1

%

Monthly churn

 

9.9

%

10.0

%

(0.1

)%

(1.0

)%

Connects

 

6,266

 

3,586

 

2,680

 

74.7

%

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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Table of Contents

 

Costs and Operating Expenses

 

 

 

Three Months Ended March 31,

 

 

 

2013

 

2012

 

Change

 

% Change

 

 

 

(unaudited)

 

 

 

(in thousands)

 

Costs and operating expenses:

 

 

 

 

 

 

 

 

 

Network access

 

$

9,670

 

$

9,855

 

$

(185

)

(1.9

)%

Network operations

 

3,951

 

3,454

 

497

 

14.4

%

Development and technology

 

3,136

 

2,658

 

478

 

18.0

%

Selling and marketing

 

2,990

 

2,251

 

739

 

32.8

%

General and administrative

 

4,490

 

3,327

 

1,163

 

35.0

%

Amortization of intangible assets

 

399

 

235

 

164

 

69.8

%

Total costs and operating expenses

 

$

24,636

 

$

21,780

 

$

2,856

 

13.1

%

 

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

 

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

 

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

 

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

 

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

 

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

 

Interest and Other Income, Net

 

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

 

Income Tax (Benefit) Expense

 

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

 

Non-controlling Interests

 

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

 

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Table of Contents

 

Net (Loss) Income Attributable to Common Stockholders

 

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

 

Adjusted EBITDA

 

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

 

Liquidity and Capital Resources

 

We have financed our operations primarily through cash provided by operating activities.  Our primary sources of liquidity as of March 31, 2013 consisted of $46.6 million of cash and cash equivalents and $45.2 million of marketable securities.

 

Our principal uses of liquidity have been to fund our operations, working capital requirements, capital expenditures and acquisitions. We expect that these requirements will be our principal needs for liquidity over the near term. Our capital expenditures in the first quarter of 2013 were $5.2 million, of which $2.0 million was reimbursed through revenue for DAS build-out projects from our telecom operators.

 

We believe that our existing cash and cash equivalents, working capital and our cash flow from operations will be sufficient to fund our operations, planned capital expenditures and potential acquisitions for at least the next 12 months. There can be no assurance, however, that future industry-specific or other developments, general economic trends, or other matters will not adversely affect our operations or our ability to meet our future cash requirements. Our future capital requirements will depend on many factors, including our rate of revenue growth, the timing and size of our managed and operated location expansion efforts, the timing and extent of spending to support product development efforts, the timing of introductions of new solutions and enhancements to existing solutions and the continuing market acceptance of our solutions. We may enter into acquisitions of complementary businesses, applications or technologies which could require us to seek additional equity or debt financing. Additional funds may not be available on terms favorable to us, or at all.

 

The following table sets forth cash flow data for the three months ended March 31:

 

 

 

2013

 

2012

 

 

 

(unaudited)

 

 

 

(in thousands)

 

 

 

 

 

 

 

Net cash provided by operating activities

 

$

5,256

 

$

5,663

 

Net cash used in investing activities

 

(13,694

)

(46,273

)

Net cash (used in) provided by financing activities

 

(3,052

)

2,129

 

 

Net Cash Provided by Operating Activities

 

For the three months ended March 31, 2013, we generated $5.3 million of net cash from operating activities, a decrease of $0.4 million from the prior year comparative period. The decrease is primarily due to a $2.8 million decrease in our net income (loss) including non-controlling interests, a $0.4 million decrease in our depreciation expense, a $0.4 million decrease in our stock-based compensation expense and a $1.9 million increase in our excess windfall tax benefits from stock option exercises from the three months ended March 31, 2012. The decreases were offset by changes in working capital of $4.9 million resulting from increases in our accounts payable, accrued expenses and other liabilities and deferred revenues offset by increases in our accounts receivable and prepaids and other assets and $0.2 million increase in amortization of intangible assets expense.

 

Net Cash Used in Investing Activities

 

For the three months ended March 31, 2013, we used $13.7 million in investing activities, a decrease of $32.6 million from the prior year comparative period. This decrease is primarily due to a $37.5 million decrease in net purchases of marketable securities offset by $4.9 million of cash payments made for our acquisition of Endeka in February 2013.

 

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Table of Contents

 

Net Cash (Used in) Provided by Financing Activities

 

For the three months ended March 31, 2013, we used $3.1 million in financing activities, a decrease of $5.2 million from the prior year comparative period. This is primarily due to a $1.2 million decrease in proceeds from the exercise of stock options and $6.1 million of cash used to repay notes payable and other financed liabilities that were assumed in our Endeka acquisition in February 2013. The decreases were offset by a $1.9 million increase in excess windfall tax benefits from stock option exercises.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet financing arrangements and we do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

 

Critical Accounting Policies and Estimates

 

There have been no material changes to our critical accounting policies and estimates from the information provided for the year ended December 31, 2012 in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our annual report on Form 10-K filed by us with the SEC on March 18, 2013.

 

Recently Issued Accounting Standards

 

See Note 2 to our unaudited condensed consolidated financial statements in Part I, Item 1 of this report for a description of recently issued accounting standards, including our expected dates of adoption and estimated effects on our results of operations and financial condition.

 

Item 3.          Quantitative and Qualitative Disclosure about Market Risk

 

Market risk represents the potential loss arising from adverse changes in the value of financial instruments. The risk of loss is assessed based on the likelihood of adverse changes in fair values, cash flows or future earnings.

 

We have established guidelines relative to the diversification and maturities of investments to maintain safety and liquidity. These guidelines are reviewed periodically and may be modified depending on market conditions. Although investments may be subject to credit risk, our investment policy specifies credit quality standards for our investments and limits the amount of credit exposure from any single issue, issuer or type of investment. At March 31, 2013, our market risk sensitive instruments consisted of marketable securities available-for-sale, which are comprised of highly rated short-term corporate bonds.

 

Marketable securities available-for-sale are carried at fair value and are intended for use in meeting our ongoing liquidity needs. Unrealized gains and losses on available-for-sale securities, which are deemed to be temporary, are reported as a separate component of stockholders’ equity, net of tax. The cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. The amortization, along with realized gains and losses is included in interest and other income, net.

 

Item 4.          Controls and Procedures

 

Disclosure Controls and Procedures . We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness, as of March 31, 2013, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective.

 

Changes in Internal Control over Financial Reporting . During the three months ended March 31, 2013, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

22



Table of Contents

 

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

The information set forth in Note 9 “Commitments and Contingencies,” to the unaudited condensed consolidated financial statements included in Part I, Item 1, of this Quarterly Report, is incorporated herein by this reference.

 

Item 1A.           Risk Factors

 

Certain Factors Affecting Boingo Wireless, Inc.

 

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A: Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2012, which we incorporate by reference into this Quarterly Report on Form 10-Q, which could materially affect our business, results of operations, cash flows, or financial condition. The risks described in our Annual Report on Form 10-K are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, or future results. There have been no material changes in the risk factors contained in our Annual Report on Form 10-K.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 6.  Exhibits

 

The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q:

 

Exhibit

 

 

 

Incorporated by Reference

 

Filed

 

No.

 

Description

 

Form

 

Date

 

Number

 

Herewith

 

3.2

 

Amended and Restated Certificate of Incorporation.

 

S-1

 

03/21/2011

 

3.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3.4

 

Amended and Restated Bylaws.

 

S-1

 

03/21/2011

 

3.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.16

 

Letter Agreement between the Registrant and Nick Hulse, dated May 1, 2013.

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

31.1

 

Certification of David Hagan, Chief Executive Officer, pursuant to Rule 13a-14(a)  and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

31.2

 

Certification of Peter Hovenier, Chief Financial Officer, pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

32.1

 

Certification of David Hagan, Chief Executive Officer, and Peter Hovenier, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

101†

 

The following financial information from the Quarterly Report on Form 10-Q of Boingo Wireless, Inc. for the quarter ended March 31, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at March 31, 2013 and December 31, 2012 for Boingo Wireless, Inc.; (ii) Condensed Consolidated Statements of Operations for the three months ended March 31, 2013 and 2012 for Boingo Wireless, Inc.; (iii) Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and 2012 for Boingo Wireless, Inc.; (iv) Condensed Consolidated Statements of Equity for Boingo Wireless, Inc.; and (v) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.

 

 


 

Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

 

 

23



Table of Contents

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

BOINGO WIRELESS, INC.

 

 

Date: May 10, 2013

By:

/s/ DAVID HAGAN

 

 

David Hagan

 

 

Chief Executive Officer

 

 

 

 

 

BOINGO WIRELESS, INC.

 

 

Date: May 10, 2013

By:

/s/ PETER HOVENIER

 

 

Peter Hovenier

 

 

Chief Financial Officer

 

 

(Principal Accounting Officer)

 

24


Exhibit 10.16

 

BOINGO WIRELESS, INC.

10960 WILSHIRE BLVD., SUITE 800
LOS ANGELES, CA 90024

 

April 22, 2013

 

Nick Hulse

 

Dear Nick:

 

Boingo Wireless, Inc. (the “Company” ) is pleased to offer you employment on the following terms. This letter agreement (the “Agreement” ) will become effective May 1, 2013 (the “Effective Date” ).

 

1.                                  Position. Your title and position with the Company will be President, and you will report to the Chief Executive Officer. This is a full-time position and your place of employment will be our headquarters in Los Angeles. While you render services to the Company, you will not engage in any other employment, consulting or other business activity (whether full-time or part-time) that would create a conflict of interest with the Company. By signing this Agreement, you confirm to the Company that you have no contractual commitments or other legal obligations that would prohibit you from performing your duties for the Company.

 

2.                                  Compensation. Beginning on the Effective Date, your annual base salary will be $325,000 per year, payable in accordance with the Company’s standard payroll schedule. This salary will be subject to adjustment pursuant to the Company’s employee compensation policies in effect from time to time. In addition, you will be eligible for a cash-incentive bonus for each fiscal year of the Company. The bonus (if any) will be awarded based on objective or subjective criteria established and approved by the Compensation Committee of the Board. Your target bonus will be equal to 75% of your annual base salary, measured as of the last day of each fiscal year, pro-rated for services rendered in 2013. Any bonus for a fiscal year will be paid within 2 1 / 2  months after the close of that fiscal year, but only if you are still employed by the Company at the time of payment. The determinations of the Compensation Committee with respect to your bonus will be final and binding. In addition, subject to the approval of the Company’s Board of Directors or its Compensation Committee, you will be granted an option (the “Option” ) to purchase 250,000 shares of the Company’s Common Stock and restricted stock units covering 50,000 shares of the Company’s Common Stock (the “RSU” ). The exercise price per share of the Option will be no less than the fair market value of a share of the Company’s Common Stock on the date of grant. The Option and RSU will be subject to the terms and conditions applicable to options and restricted stock units granted under the Company’s 2011 Equity Incentive Plan (the “Plan” ), as described in the Plan and the applicable Stock Option and Stock Unit Agreements.

 

3.                                  Employee Benefits. As a regular employee of the Company, you will be eligible to participate in the Company’s standard employee benefits programs, as such are in effect from time to time. In addition, you will be entitled to paid vacation in accordance with the Company’s vacation policy, as in effect from time to time.

 



 

4.                                  Payments Upon Termination. If your employment with the Company terminates other than as set forth in Section 5 below, then (a) all vesting will cease immediately with respect to your then-outstanding Equity Awards and (b)   the only amounts payable to you by the Company will be (i) any unpaid base salary due for periods prior to the date of termination of your employment and (ii) any accrued but unused vacation through such termination date. Such payments, if any, will be made promptly upon termination and within the period of time mandated by law.

 

5.                                  Severance Benefits.

 

(a)                             General. If you are subject to an Involuntary Termination, then you will be entitled to the benefits described in this Section 5. However, you will not be entitled to any of the benefits described in this Section 5 unless you have (i) returned all Company property in your possession, (ii) resigned as a member of the Board and of the boards of directors of all of the Company’s subsidiaries, to the extent applicable, and (iii) executed a general release of all claims that you may have against the Company or persons affiliated with the Company, substantially in the form attached hereto as Exhibit A (the “Release” ). You must execute and return the release on or before the date specified by the Company in the Release (the “Release Deadline”). The Release Deadline will in no event be later than fifty (50) days after your Separation. If you fail to return the Release on or before the Release Deadline, or if you revoke the Release, then you will not be entitled to the benefits described in this Section 5.

 

Notwithstanding the foregoing, the Company may immediately discontinue all benefits or revoke any vesting acceleration described in this Section 5 (in addition to pursuing all other legal and equitable remedies) if you breach the Employee Inventions and Confidentiality Agreement or the Mutual Agreement to Arbitrate Claims between you and the Company that you previously signed (collectively, the “Confidentiality Agreement”), a copy of which is attached hereto as Exhibit B, the terms of Section 7 below or any other material agreement with the Company that by its terms continues in force following your Separation.

 

(b)                             Termination Not in Connection With Change in Control. Subject to the requirements set forth in Section 5(a) above, if you experience an Involuntary Termination either prior to a Change in Control or more than twelve (12) months after a Change in Control, then you will be entitled to the following:

 

(i)                                                    Salary Continuation. The Company will continue to pay your base salary for a period beginning on the day after your Separation and ending on the date twelve (12) months after your Separation. Your base salary will be paid at the rate in effect at the time of your Separation and in accordance with the Company’s standard payroll procedures. Subject to the Company’s having first received an effective Release pursuant to Section 5(a) above, the salary continuation payments will commence within sixty (60) days after your Separation and, once they commence, will include any unpaid amounts accrued from the date of your Separation. However, if the sixty (60)-day period described in the preceding sentence spans two calendar years, then the payments will in any event begin in the second calendar year.

 

2



 

(ii)                                                      Accrued Bonus. The Company will pay you a lump sum equal to your annual target bonus in the year of your Separation, pro-rated based on the number of days that you are employed during the year of your Separation. Subject to the Company’s having first received an effective Release pursuant to Section 5(a) above, such payment will be made within sixty (60) days after your Separation; however, if such sixty (60)-day period spans two calendar years, then the payment will be made in the second calendar year.

 

(iii)                                                   Additional Payment in Lieu of Health Benefit. The Company will pay you a lump sum amount equal to the product of (A) twelve (12) and (B) the monthly amount the Company was paying on behalf of you and your eligible dependents pursuant to the Company’s health insurance plans in which you or your dependents were participants as of the day of your Separation. Subject to the Company’s having first received an effective Release pursuant to Section 5(a) above, such payment will be made within sixty (60) days after your Separation; however, if such sixty (60)-day period spans two calendar years, then the payment will be made in the second calendar year.

 

(iv)                                                  Equity Acceleration. You will receive twelve (12) months of vesting credit under your then-outstanding Equity Awards; provided, however, that in the event acceleration of the settlement or distribution date of an award would result in additional taxes and penalties under Section 409A of the Code, then the vesting of such award shall accelerate but settlement or distribution of award shares (or cash, if applicable) shall occur on the date(s) specified in the agreement governing the award.

 

(c)                              Termination in Connection With Change in Control. Subject to the requirements set forth in Section 5(a) above, if you experience an Involuntary Termination within twelve (12) months following a Change in Control, then you will be entitled to the following:

 

(i)                                                         Salary Continuation. The Company will continue to pay your base salary for a period beginning on the day after your Separation and ending on the date twelve (12) months after your Separation. Your base salary will be paid at the rate in effect at the time of your Separation and in accordance with the Company’s standard payroll procedures. Subject to the Company’s having first received an effective Release pursuant to Section 5(a) above, the salary continuation payments will commence within sixty (60) days after your Separation and, once they commence, will include any unpaid amounts accrued from the date of your Separation. However, if the sixty (60)-day period described in the preceding sentence spans two calendar years, then the payments will in any event begin in the second calendar year.

 

(ii)                                                      Target Bonus. The Company will pay you a lump sum equal to your annual target bonus in the year of your Separation. Subject to the Company’s having first received an effective Release pursuant to Section 5(a) above, such payment will be made within sixty (60) days after your Separation; however, if such sixty (60)-day

 

3



 

period spans two calendar years, then the payment will be made in the second calendar year.

 

(iii)                                                   Additional Payment in Lieu of Health Benefit. The Company will pay you a lump sum amount equal to the product of (A) twelve (12) and (B) the monthly amount the Company was paying on behalf of you and your eligible dependents pursuant to the Company’s health insurance plans in which you or your dependents were participants as of the day of your Separation. Subject to the Company’s having first received an effective Release pursuant to Section 5(a) above, such payment will be made within sixty (60) days after your Separation; however, if such sixty (60)-day period spans two calendar years, then the payment will be made in the second calendar year.

 

(iv)                                                  Equity Acceleration. You will receive full vesting credit under your then-outstanding Equity Awards; provided, however, that in the event acceleration of the settlement or distribution date of an award would result in additional taxes and penalties under Section 409A of the Code, then the vesting of such award shall accelerate but settlement or distribution of award shares (or cash, if applicable) shall occur on the date(s) specified in the agreement governing the award.

 

6.                                  Limitation on Payments.

 

(a)                             Scope of Limitation. This Section 6 will apply only if the accounting firm serving as the Company’s independent public accountants immediately prior to a Change in Control (the “Accounting Firm” ) determines that the after-tax value of all Payments (as defined below) to you under Section 5 of this Agreement, taking into account the effect of all federal, state and local income taxes, employment taxes and excise taxes applicable to you (including the excise tax under Section 4999 of the Code), will be greater after the application of this Section 6 than it was before the application of this Section 6. If this Section 6 applies, it will supersede any contrary provision of this Agreement. For purposes of this Section 6, the term “Company” will also include affiliated corporations to the extent determined by the Accounting Firm in accordance with Section 280G(d)(5) of the Code.

 

(b)                             Basic Rule. In the event that the Accounting Firm determines that any payment or transfer by the Company to or for your benefit (a “Payment” ) would be nondeductible by the Company for federal income tax purposes because of the provisions concerning “excess parachute payments” in Section 280G of the Code and pursuant to the regulations thereunder, then provided that Subsection (a) results in applicable of this Section 6, the aggregate present value of all Payments will be reduced (but not below zero) to the Reduced Amount. For purposes of this Section 6, the “Reduced Amount” will be the amount, expressed as a present value, which maximizes the aggregate present value of the Payments without causing any Payment to be nondeductible by the Company because of Section 280G of the Code.

 

(c)                              Reduction of Payments. If the Accounting Firm determines that any Payment would be nondeductible by the Company because of Section 280G of the Code, and if none of the Payments is subject to Section 409A of the Code, then the reduction will occur in the

 

4



 

manner you elect in writing prior to the date of payment; provided, however, that if the manner elected by you pursuant to this sentence could in the opinion of the Company result in any of the Payments becoming subject to Section 409A of the Code, then the following sentence will instead apply. If any Payment is subject to Section 409A of the Code, or if you fail to elect an order under the preceding sentence, then the reduction will occur in the following order: (i) cancellation of acceleration of vesting of any Equity Awards for which the exercise price (if any) exceeds the then-fair market value of the underlying Stock; (ii) reduction of cash payments (with such reduction being applied to the payments in the reverse order in which they would otherwise be made (that is, later payments will be reduced before earlier payments)); and (iii) cancellation of acceleration of vesting of Equity Awards not covered under (i) above; provided, however, that in the event that acceleration of vesting of Equity Awards is to be cancelled, such acceleration of vesting will be cancelled in the reverse order of the date of grant of such Equity Awards (that is, later Equity Awards will be canceled before earlier Equity Awards).

 

(d)                            Fees of Accounting Firm and Required Data. The Company will pay all fees, expenses and other costs associated with retaining the Accounting Firm for the purposes described in this Section 6. You and the Company will provide to the Accounting Firm all data in the Company’s possession or under its control that the Accounting Firm reasonably requires for the purposes described in this Section 6.

 

7.                                  Further Obligations to the Company.

 

(a)                             General. You acknowledge your obligations under, and agree to comply with, all applicable laws and all Company policies in effect at all times and from time to time during your employment with the Company. You further acknowledge and agree that such applicable laws or policies may relate to the general terms of your employment with the Company or to a specific component of your compensation. By way of example, such applicable laws or policies may include any Company recoupment or clawback policy, insider trading policy or code(s) of conduct or other policies adopted under, pursuant to or in light of, or requirements imposed by, the Sarbanes-Oxley Act of 2002 or the Dodd-Frank Wall Street Reform and Consumer Protection Act.

 

(b)                             Confidential information. You agree to execute such additional documents as may be necessary to protect the Company’s confidential and proprietary information, which such documents will supplement the Confidentiality Agreement (which such agreement will continue in full force and effect).

 

8.                                  Employment Relationship. Employment with the Company is for no specific period of time. Your employment with the Company shall be “at will,” meaning that either you or the Company may terminate your employment at any time and for any reason, with or without cause. Any contrary representations that may have been made to you are superseded by this Agreement. This is the full and complete agreement between you and the Company on this term. Although your job duties, title, compensation and benefits, as well as the Company’s personnel policies and procedures, may change from time to time, the “at will” nature of your employment

 

5



 

may only be changed in an express written agreement signed by you and a duly authorized officer of the Company (other than you).

 

9.                                  Tax Matters.

 

(a)                             General. All forms of compensation referred to in this Agreement are subject to reduction to reflect applicable withholding and payroll taxes and other deductions required by law. You are encouraged to obtain your own tax advice regarding your compensation from the Company. You agree that the Company does not have a duty to design its compensation policies in a manner that minimizes your tax liabilities, and you will not make any claim against the Company or its Board related to tax liabilities arising from your compensation.

 

(b)                             Section 409A. For purposes of Section 409A of the Code, each payment under Section 5 is hereby designated as a separate payment for purposes of Treasury Regulation 1.409A-2(b)(2). If the Company determines that you are a “specified employee” under Section 409A(a)(2)(B)(i) of the Code at the time of your Separation, then (i) any payments under this Agreement, to the extent that they are not exempt from Section 409A of the Code (including by operation of the next following sentence) and otherwise subject to the taxes imposed under Section 409A(a)(1) of the Code (a “Deferred Payment” ), will commence on the first business day following (A) the expiration of the six-month period measured from your Separation or (B) the date of your death and (ii) the installments that otherwise would have been paid prior to such date will be paid in a lump sum when such payments commence. Notwithstanding the foregoing, any amount paid under this Agreement that either (1) satisfies the requirements of the “short-term deferral” rule set forth in Treasury Regulation 1.409A-1(b)(4); or (2) (A) qualifies as a payment made as a result of an involuntary separation from service pursuant to Treasury Regulation 1.409A-1(b)(9)(iii), and (B) does not exceed the Section 409A Limit will not constitute a Deferred Payment. The provisions of this Agreement are intended to comply with, or be exempt from, the requirements of Section 409A of the Code so that none of the payments and benefits to be provided under this Agreement will be subject to the additional tax imposed under Section 409A of the Code, and any ambiguities herein will be interpreted to so comply or be exempt. You and the Company agree to work together in good faith to consider amendments to this Agreement and to take such reasonable actions as are necessary, appropriate or desirable to avoid imposition of any additional tax or income recognition prior to actual payment to you under Section 409A of the Code. In no event will the Company reimburse you for any taxes that may be imposed on you as result of Section 409A of the Code.

 

10.                           Interpretation, Amendment and Enforcement. Upon the Effective Date, this Agreement will constitute the complete agreement between you and the Company, contain all of the terms of your employment with the Company and supersede and replace any prior agreements, policies, representations or understandings (whether written, oral, implied or otherwise) between you and the Company. This Agreement may not be amended or modified, except by an express written agreement signed by both you and a duly authorized officer of the Company. The terms of this Agreement and the resolution of any disputes as to the meaning, effect, performance or validity of this Agreement or arising out of, related to, or in any way connected with, this

 

6



 

Agreement, your employment with the Company or any other relationship between you and the Company (the “Disputes” ) will be governed by California law, excluding laws relating to conflicts or choice of law. You and the Company submit to the exclusive personal jurisdiction of the federal and state courts located in California in connection with any Dispute or any claim related to any Dispute. By signing this Agreement, you acknowledge and agree that you will no longer be eligible for any benefits or payments provided for in any such prior agreement, except as otherwise expressly provided in this Agreement.

 

11.                           Successors and Assignment.

 

(a)                             Company’s Successors. Any successor to the Company (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets will assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term “Company” shall include any such successor to the Company, or to the Company’s business and/or assets, that executes and delivers the assumption agreement described in this Section 11(a) or which becomes bound by the terms of this Agreement by operation of law.

 

(b)                             Employee’s Successors. The terms of this Agreement and all of your rights hereunder will inure to the benefit of, and be enforceable by, your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. All of your obligations under this Agreement are personal to you and may not be transferred or assigned by you at any time.

 

12.                           Definitions. The following terms have the meaning set forth below wherever they are used in this Agreement:

 

“Board” means the Company’s Board of Directors.

 

“Cause” means the occurrence of any one or more of the following: (a) your conviction by, or entry of a plea of “guilty” or nolo contendere in, a court of competent jurisdiction for any crime which constitutes a felony in the jurisdiction involved, (b) your commission of an act of theft or fraud, whether prior or subsequent to the date hereof, upon the Company, (c) your gross negligence in the scope of your services to the Company, (d) your breach of a material provision of any written agreement between you and the Company, (e) your continuing failure to perform assigned duties after receiving written notification of such failure from the Chief Executive Officer or (f) your failure to cooperate in good faith with a governmental or internal investigation of the Company or its directors, officers or employees, if the Company has requested your cooperation.

 

“Change in Control” means (a) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becoming the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing more than

 

7



 

fifty percent (50%) of the total voting power represented by the Company’s then-outstanding voting securities; (b) the consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets; (c) the consummation of a merger or consolidation of the Company with or into any other entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) more than fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately after such merger or consolidation; or (d) individuals who are members of the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the members of the Board over a period of twelve (12) months; provided, however, that if the appointment or election (or nomination for election) of any new Board member was approved or recommended by a majority vote of the members of the Incumbent Board then still in office, such new member shall, for purposes of this Agreement, be considered as a member of the Incumbent Board.

 

A transaction will not constitute a Change in Control if its sole purpose is to change the state of the Company’s incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction. In addition, if a Change in Control constitutes a payment event with respect to any Equity Award which provides for a deferral of compensation and is subject to Section 409A of the Code, then notwithstanding anything to the contrary in this Agreement, the transaction with respect to such Equity Award must also constitute a “change in control event” as defined in Treasury Regulation 1.409A-3(i)(5) to the extent required by Section 409A of the Code.

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

“Equity Awards” means (a) all shares of Stock; (b) all options and other rights to purchase shares of Stock; (c) all stock units, performance units or phantom shares whose value is measured by the value of shares of Stock; and (d) all stock appreciation rights whose value is measured by increases in the value of shares of Stock.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

“Involuntary Termination” means either (a) your Termination Without Cause (other than due to your death or Permanent Disability) or (b) your Resignation for Good Reason.

 

“Permanent Disability” means your total and permanent disability as defined in Section 22(e)(3) of the Code.

 

“Resignation for Good Reason” means a Separation as a result of your resignation within twelve (12) months after one of the following conditions initially has come into existence without your express written consent:

 

i.                                      A material reduction of your duties, authority and responsibilities, relative to your duties, authority and responsibilities as in effect

 

8



 

immediately prior to such reduction, or the assignment to you of such reduced duties, authority and responsibilities;

 

ii.                                   A reduction in your base salary in effect immediately prior to such reduction;

 

iii.                                A material reduction in the kind or level of employee benefits to which you were entitled immediately prior to such reduction, with the result that your overall benefits package is materially reduced;

 

iv.                               A relocation to a facility or a location more than thirty-five miles from your then-present location that increases your one-way commute; or

 

v.                                  The Company’s breach of this Agreement, including its failure to obtain the assumption of this Agreement by any successor (whether direct or indirect and whether by purchase, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets.

 

A Resignation for Good Reason will not be deemed to have occurred unless you give the Company written notice of the condition within ninety (90) days after the condition initially comes into existence and the Company fails to remedy the condition within thirty (30) days after receiving your written notice.

 

“Section 409A Limit” means the lesser of two times: (i) your annualized compensation based upon the annual rate of pay paid to you during the taxable year preceding your taxable year in which your termination of employment occurs, as determined under, and with such adjustments as are set forth in, Treasury Regulation 1.409A-1(b)(9)(iii)(A)(1) and any guidance issued with respect thereto or (ii) the maximum amount that may be taken into account under a qualified plan pursuant to Section 401(a)(17) of the Code for the year in which your employment is terminated.

 

“Separation” means a “separation from service,” as defined in the regulations under Section 409A of the Code.

 

“Stock” means the Common Stock of the Company.

 

“Termination Without Cause” means a Separation as a result of a termination of your employment by the Company without Cause, provided you are willing and able to continue performing services within the meaning of Treasury Regulation 1.409A-1(n)(1).

 

* * * * *

 

9



 

You may indicate your agreement with these terms and accept this offer by signing and dating the enclosed duplicate original of this Agreement and returning it to me.

 

 

 

Very truly yours,

 

 

 

 

 

BOINGO WIRELESS, INC.

 

 

 

 

 

 

 

 

By:

/s/ David Hagan

 

 

Title:

CEO

 

 

 

 

 

 

 

I have read and accept this employment offer:

 

 

 

 

 

 

 

 

/s/ Nick Hulse

 

 

Signature of Nick Hulse

 

 

 

 

 

Dated:

4-22-13

 

 

 

 

 

 

 

 

Attachment

 

 

 

 

 

Exhibit A:

Release

 

 

Exhibit B:

Confidentiality Agreement

 

 

 

10


Exhibit 31.1

 

CERTIFICATIONS

 

I, David Hagan, certify that:

 

1.                            I have reviewed this Quarterly Report on Form 10-Q of Boingo Wireless, Inc.;

 

2.                            Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.                            Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.                            The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

 

(a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)  Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)  Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

5.                            The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

By:

/s/ David Hagan

 

 

David Hagan

 

 

Chief Executive Officer

 

 

(Principal Executive Officer)

 

 

 

 

Date:

May 10, 2013

 

 


Exhibit 31.2

 

CERTIFICATIONS

 

I, Peter Hovenier, certify that:

 

1.                            I have reviewed this Quarterly Report on Form 10-Q of Boingo Wireless, Inc.;

 

2.                            Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.                            Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.                            The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

 

(a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)  Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)  Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

5.                            The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

By:

/s/ Peter Hovenier

 

 

Peter Hovenier

 

 

Chief Financial Officer

 

 

(Principal Accounting Officer)

 

 

 

 

Date:

May 10, 2013

 

 


Exhibit 32.1

 

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2013 of Boingo Wireless, Inc., (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David Hagan, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

1.                The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2.                The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

/s/ David Hagan

 

David Hagan

 

Chief Executive Officer

 

(Principal Executive Officer)

 

Date: May 10, 2013

 

A signed original of this written statement required by Section 906 has been provided to Boingo Wireless, Inc. and will be retained by Boingo Wireless, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

 



CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2013 of Boingo Wireless, Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Peter Hovenier, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

1.               The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2.               The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

/s/ Peter Hovenier

 

Peter Hovenier

 

Chief Financial Officer

 

(Principal Accounting Officer)

 

Date: May 10, 2013

 

A signed original of this written statement required by Section 906 has been provided to Boingo Wireless, Inc. and will be retained by Boingo Wireless, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.