Boingo Wireless, Inc.
Q1 2017 Earnings Call Transcript

Published: 5 May 2017

[Operator:]

Greetings, and welcome to the Boingo Wireless First Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Ms. Kimberly Orlando of Addo Investor Relations. Thank you, Ms. Orlando, you may now begin.

[Kim Orlando:]

Thank you, and welcome to the Boingo Wireless first quarter 2017 earnings conference call. By now, everyone should have access to the earnings press release, which was issued today at approximately 4 o'clock PM Eastern Time. In addition, an earnings supplement has been made available on the Investor Relations portion of Boingo's website at www.boingo.com by clicking on the investor tab. This call is being webcast and it is available for replay. In our remarks today, we will include statements that are considered forward-looking within the meanings of securities laws, including forward looking statements about guidance and future results of operations, business strategies and plans and market and potential growth opportunities. In addition, management may make additional forward-looking statements in response to your questions. Forward-looking statements are based on management's current knowledge and expectations as of today, May 04, 2017 and are subject to certain risks and uncertainties that may cause the actual results to differ materially from the forward-looking statements. A detailed discussion of such risks and uncertainties are contained in our most recent Form 10-K for the quarter ended December 31, 2016 filed with the SEC on March 13, 2017 and our other filings with the SEC. The company undertakes no obligation to update any forward-looking statements. On this call, we will refer to non-GAAP measures such as adjusted EBITDA and free cash flows that when used in combination with GAAP results provide us with additional analytical tools to understand our operations. We have provided reconciliations to the most directly comparable GAAP financial measures in our earnings press release and which will be posted on the Investor Relations section of our website at www.boingo.com. And with that, I'll hand the call over to Boingo's Chief Executive Officer, David Hagan.

[David Hagan:]

Thanks Kim. Good afternoon, everyone and thanks for joining us to discuss Boingo's first quarter 2017 financial results. After a record-setting 2016, I'm pleased to share that our strong results and momentum continue. We've extended our streak of double-digit revenue growth to 10 consecutive quarters with our first quarter revenue up nearly 29% year-over-year to $44.3 million, which was above the high end of our guidance range. This topline growth reflects consistent execution against our strategic plan to leverage the explosive growth in mobile data, by obtaining long term wireless rights of large venues, deploying DAS, Wi-Fi and small cell networks at those venues and then monetizing the networks with Boingo's unique mix of products and services. In addition to exceeding the high end of our revenue guidance, I'm equally pleased to share that adjusted EBITDA for the quarter also exceeded our guidance, growing 119% year-over-year to $12.4 million. This is our seventh consecutive quarter of year-over-year EBITDA margin expansion and reflects the momentum that we see building in our DAS, military and carrier offload products. As we pointed out on our last earnings call, we expect to continue to be cash flow positive in 2017. To that end we generated $8 million of free cash flow in Q1, which is more than what we generated for the full year of 2016. We're extremely pleased with our Q1 financial results, which point to the strength of our business and the products and services driving these results, in particular DAS, military and carrier offload. So, let me take a minute to update you on each of those products starting with DAS. Our DAS business continues to be very robust and Q1 was another strong quarter for venue acquisition. We added 17 new DAS venues coast-to-coast, including five line airports, the new Transbay Transit Center in San Francisco and nine PATH stations in New York. We ended the quarter with more than 19,800 nodes live in another 10,500 nodes in backlog. This is the second largest venue acquisition quarter in our history and we continue to believe we're the largest provider of indoor DAS networks in the world. Last month Foresight Research predicted that the DAS industry, driven by the proliferation of smartphones and tablets, is expected to grow at a compound annual growth rate of approximately 8% over the next five years, reaching $11 billion by 2022. We believe this bodes extremely well for Boingo and our DAS opportunity. Next, let me turn your attention to our military business. For starters, we added 21,000 incremental subscribers in the first quarter, bringing the total number of subscribers to 128,000. We also achieved an important milestone during the quarter, exceeding 40% subscriber penetration for the first time and in it 40.3%. For those of you that have been following the company for a while, when we initially presented the long-term model for military, we estimated a penetration rate in the range of 15% to 30%. Three years later, we've exceeded the high-end of the range and by a significant margin. This speak to the quality of our service and how easy it is for marine, soldier or airman to easily move from one building to another on the same base or to an entirely new base and keep their Boingo Wi-Fi service. It's kind of ubiquitous network with the ability for a servicemember to seamlessly traveling with Boingo almost everywhere they are stationed as unique among MSOs and not something any of the traditional cable co's or carriers can offer. Since we compete head-to-head with these larger operators on many bases, this account portability represent a very strong competitive advantage for Boingo. We surpassed our initial goal of building out 300,000 beds in 2016 and we'll continue to add spaces and buildings where they make economic sense. To that end, we had another 6,000 beds in Q1 bringing the total number of beds in service to 318,000. In addition to DAS and military, we continue to make progress with carrier offload. We've been working closely with our second and larger Tier 1 carrier to roll out carrier offload across our owned and operated footprint for several months now and have been making excellent progress. We're seeing traffic on the five airport networks that is higher than our internal forecasts. As evidenced by our success with Sprint, the most important driver of offload traffic at scale, requires that devices automatically authenticate and connect with they encounter a Boingo network without any involvement by the end user. This is where Passpoint technology comes in. As we see with Sprint, the real catalyst for offload volume occurs when Passpoint is built into the device profile so that the connection is seamless for the end-user. Care number two pushed out more than 50 million Passpoint profiles via the IOS 10.3 in Q1 and user in the process of doing the update, so we continue to see traffic ramping up our five locations. Once these profiles have been updated, we expect to run out more venues on the market by market basis. Passpoint for android is schedule to be rolled out in the second half of 2017 by this carrier. Incredibly already 63% of devices in these airports are being connected via Passpoint and that's not even with carrier number two fully deployed across handset base. The shows the power seamless auto authentication is a potential with care offloading. Though we've not forecasted a meaningful revenue contribution from carrier number two for offload in 2017 we are encouraged by the traffic ramp up we should have our expectations in the rollout work we're doing now sets us up extremely well for 2018. Another area of growth for 2018 and beyond is small cells we continue to see strong interest from carriers who want to use small cell to augment coverage in venues where DAS doesn't make financial sense. This expand our addressable market for venues and allows us to pursue new venues that may not have made financial sense in the past. We are in active discussions with all four major carriers for small cell projects and we remain very enthusiastic about how small cells can help drive growth in our business in future years. Finally, our retail subscribers grew slightly year-over-year during the first quarter. We believe retail continue to slowly decline over time as the business continues to transition with new revenue streams such as care offload and comes with Boingo. We're very pleased with the financial results, which exceeded the top end of our guidance and revenue, net loss, and adjusted EBITDA and it reflect the strength of our business model and our success in executing against Boingo's strategic plan. Now I would like to turn it over to Pete Hovenier, our Chief Financial Officer to walk you through first quarter financial results in detail. Pete?

[Pete Hovenier:]

Thanks Dave. I'll begin by reviewing our financial results and the key operating metrics for the first quarter ended March 31, 2017 and we'll conclude with our financial outlook for the second quarter and full year of 2017. Total revenue for the first quarter was $44.3 million an increase of 28.5% over the prior year period. Revenue growth reflected strengthen in DAS, military and wholesale Wi-Fi, which was partially offset by declines in retail and advertising and other revenue. As a percentage of first quarter revenues across our diversified revenue streams, DAS represented 37%, military was 28%, wholesale Wi-Fi and retail were 15% and advertising and other accounted for the remaining 5%. This compares to the first quarter of 2016 in which DAS represented 32% of revenues, military was 27%, retail was 20%, wholesale was Wi-Fi 14% and advertising and other accounted for the remaining 7%. In terms of total first quarter revenue contribution by category, DAS revenue was $16.3 million representing a 46.4% increase over the comparable period last year. Total DAS revenue was comprised of $11.4 million of build out project revenue and $4.9 million of access revenue. The year-over-year improvement in total DAS revenue was primarily related to increased revenues from new DAS build up projects, coupled with increased access fees from our telecom operator partners. Military revenue was $12.5 million, representing an increase of 37.8% versus the prior year period. Growth was driven primarily by an increase in military subscribers, which was partially offset by a decrease in average monthly revenue per subscriber as well as a decline in single used revenue. The shift from military single used revenue to subscriber revenue was mainly due to the removal of our nonrecurring monthly service offering, which also contributed to higher sign-ups in our recurring monthly subscription plan. Our military network increased by an additional 6,000 beds during the quarter giving us a total footprint of 318,000 beds. Most notably, our average subscriber penetration rate on live basis improved to 40.3% from 34.3% in the prior quarter. Wholesale Wi-Fi revenue was $6.8 million representing an increase of 38.4% over the prior year period, primarily due to higher partner usage base fees. Retail revenue was $6.4 million, representing a 7.2% decline over the prior period, primarily due to a decrease in retail single used revenue. As a reminder, while we expect retail revenue to continue to decline, the rate of decline continues to moderate. In fact, our retail subscriber base slightly increased year-over-year. Most importantly, we are able to monetize any foregone customers through our wholesale Wi-Fi service offerings, specifically through our Wi-Fi offloading agreements and comes with Boingo program. Advertising and other revenue was $2.3 million representing a 6.3% decrease over the prior year period, primarily due to a decline in the number of premium ad units sold. Now turning to our first quarter costs and operating expenses, network access costs totaled $19.4 million, a 32.2% increase over the first quarter of 2016, primarily due to increased depreciation-related to the DAS buildout projects as well as higher revenue share paid to our venue partners. Gross margin which is defined as revenue plus network access costs were 56.2% down 123 basis points from the prior year period. The decline in gross margin largely reflects the shift in our a diversified revenue streams, driven primarily by the significant increase in our lower margin DAS build revenue, partially offset by increases in higher margin military and DAS access revenues. Network operations expenses totaled $11.3 million, an increase of 7.8% from the comparable 2016 quarter primarily due to higher depreciation expenses, which was partially offset by decreases in personnel-related, maintenance and consulting expenses. Development and technology expenses were $6.3 million, an increase of 18.3% from the prior year period, due primarily to increases in depreciation, personnel-related and other expenses. Selling and marketing expenses were $4.9 million reflecting an increase of 4.8% for the comparable 2016 quarter. The increase was primarily due to increased personnel-related expenses. General and administrative expenses of $8.1 million were relatively consistent with the first quarter of 2016. Turning to our profitability measures for the quarter, net loss attributable to common stockholders was $6.9 million or $0.18 per diluted share versus a net loss of $10 million or $0.27 per diluted share in the prior year quarter. Adjusted EBITDA, a non-GAAP measure was $12.4 million an increase of 118.8% from the comparable 2016 quarter. As a percent of total revenue, adjusted EBITDA was 27.9% up from 16.4% of revenue in the comparable 2016 quarter. The first quarter marks our seventh consecutive quarter of year-over-year EBITDA margin expansion. Now trying to our key metrics, the number of DAS nodes in our network for the first quarter was 19,800, up 58.4% from the prior year period and up 3.1% for the fourth quarter of 2016. The number of DAS notes in backlog, which represents the number of DAS notes under contract, but not yet active as of the end of the first quarter was 10,500 up 101.9% from the prior year period and up 22.1% from the fourth quarter of 2016. Our military subscriber base was 128,000 subscribers into the first quarter and 85% increase versus the prior year period and 19.6% increase in the fourth quarter of 2016. Our retail subscriber base was 194,000 subscribers at the end of the first quarter, which was up 3.7% from the prior year period and down only half a percentage point from the fourth quarter of 2016. Next our paid usage on our worldwide network were approximately $43.1 million up 41.9% from in the prior period and up 6.9% from the fourth quarter of 2016. Moving on to discuss our balance sheet. At March 31, 2017, cash and cash equivalents totaled $19 million up from $14.7 million at March 31, 2016. Total debt was $19.9 million a reduction of $5.7 million from our debt levels at December 31, 2016. As of March 31, we had approximately $59.8 million available from our credit facility. Capital expenditures were $17.5 million for the first quarter, which included $10.2 million utilized for DAS infrastructure buildout projects that are reimbursed by our operating partners. Our non-reimbursed capital expenditures were driven primarily by new network builds, mainly related to the roll-off from those based networks managed and operated network upgrades and various infrastructure upgrades and enhancements. As a reminder, we estimate our annual maintenance capital requirements, which excludes all growth capital to be approximately 3% to 5% of revenue. Free cash flow was $8 million for the first quarter versus a negative $4.5 million in the first quarter of 2016. I'll now turn to our outlook for the second quarter and full-year of 2017. For the second quarter ended June 30, 2017, we expect total revenue to be in the range of $43.5 million to $47.5 million. Net loss attributable to common stockholders to be in the range of $8.5 million to $5.5 million or a loss of $0.22 to $0.14 per diluted share and adjusted EBITDA to be in the range of $11 million to $14 million. For the full year ended December 31, 2017, we are reiterating our guidance. Total revenue is expected to be in the range of $180 million to $188 million representing year-over-year growth of approximately 15.5% at the midpoint of the range. We expect net loss attributable to common stockholders be in the range of $29 million to $25 million or a loss of $0.74 to $0.64 per diluted share and adjusted EBITDA to be in the range of $51 million to $56 million, which implies an EBITDA margin of 29.1% and 3.5 points of EBITDA margin expansion at the midpoint of the range. We remain focused on EBITDA margin expansion and continue to expect will grow it by approximately two to three points each year the next two years. We'll maintain our tax valuation allowance and as such we do not expect to accrue material tax benefits or tax expenses on our statements through 2017. We continue to expect a nominal full year tax rate as well as fully diluted shares outstanding of approximately $39 million. Further our non-reimbursed annual capital expenditure budget remains unchanged at approximately $20 million to $25 million for 2017, with the majority of CapEx allocated to support our Wi-Fi network builds and upgrades at our major operating venues in addition to their finalization of our military base network buildout. In summary, we delivered an outstanding quarter with strong financial and operational performance. We look forward to a productive rest of the year and continuing to execute on our strategic priority to secure and monetize new venues but also generating positive free cash. With that, I'll turn it back over to out back over to Dave for closing remarks.

[David Hagan:]

Thanks Pete. We're extremely excited about these first quarter results, which reflect strong operating performance in the highest Q1 revenue quarter in the company's history. Our DAS military products are showing strong growth. We expect carrier offload will grow nicely in 2017 as carrier number two continues to ramp and other carries file a suit and we remain excited about the opportunity of small cell deployments to enable our business to expand into new venues. We believe the investments we've made over the past few years, coupled with our ability to leverage significant favorable industry dynamics, provide us with a long runway for continued growth. With that, I would like to open it up for questions, operator.

[Operator:]

Thank you. We will now be conducting a question-and-answer session. [Operator instructions] Our first question is from Scott Goldman of Jefferies. Please go ahead.

[Scott Goldman:]

Hey guys. Good afternoon and thanks for taking the questions. I have a couple here, just on the DAS side, Dave maybe you could just talk a little bit about the Venue acquisition opportunity or obviously coming of really strong quarters on that front. So maybe what that opportunity looks like this year? And on those same lines just around the competition, I think really one of the public tower company last week was really talking about the indoor opportunity, which seems like that would put them in your cross areas than perhaps it has in the past. So, whether you're seeing any change in competition going after the venue acquisition? And then just on the wholesale Wi-Fi a lot stronger than we thought it would be this quarter, you mentioned partner usage fees, but wondering maybe you can talk a bit bigger picture around what the impact of the wireless carriers are moving to unlimited plans and seemingly going back in that direction of unlimited plans means for your business going forward, thanks.

[David Hagan:]

Okay. Thanks Scott. Let me go through them one by one. So first on DAS and venue acquisition, yes Q1 was another really strong quarter on the heels of the biggest quarter we ever had, which was Q4 of last year. So, we see continued really strong momentum. We're very targeted in the types of venues that we go after. I think if you look at the list that we called out, in the script the five-line airport, the Transbay Transit Center, the PATH stations in New York and New Jersey in those are all very high-quality Tier 1 market venues and that's what -- that's where the carriers want to spend. So, we continue to see great momentum there. Our focus on the types of vertical, the types of venues that we are going after hasn’t changed and we feel like we're very aligned to the carriers on the type of venues that we were going after. So really strong -- really strong momentum there for two quarters in a row and we've always talked about venue acquisition being pretty lumpy. So, it probably won't be 17 new venues every quarter because you don't get too far ahead of ourselves, but we're seeing really good strong demand on that front. Regarding competition, I haven’t noticed any change. It's as we've talked about in the past, it really depends on the type of venue and in what market it is, the different competitors or the different competitive set changes quite a bit on those factors. We're always a little bit surprised who may show up. It could be a carrier, it could be a tower co. could be one of the other small cell companies and then there are a whole host of nonbranded system integrator types out there. So, we haven't noticed any difference there. Regarding wholesale, yeah, we had nice quarter on wholesale revenue, unlimited plans, we think are a very strong boost overall to our business and that is going to drive greater data demand on the silent networks and that means they need more densification in the venues where we have -- where we have wireless rights. So, we view the unlimited plans as of a great boost for our business.

[Scott Goldman:]

Great. Thank you.

[David Hagan:]

Thanks Scott.

[Operator:]

Thank you. The next question is from James Breen of William Blair. Please go ahead.

[James Breen:]

Thanks for taking the question. Just a couple, on the military side, I think you said you eliminated the one-time plans and can you just talk about that and obviously you are looking down a little bit again and I think it's because you're seeing less of those one-time usage but it's clearly converting to more the recurring use customers? And then secondly, just on the guidance side, at the low end of the guidance for next quarter, it is below where you reported this quarter, just thoughts put and takes there on revenue. It doesn't seem like on an absolute basis, DAS or military or offload can go down absolutely on a sequential basis, but just wondering what the puts and takes are there, thanks.

[David Hagan:]

Yes, thanks Jim. I'll start with the first one and I am going to hand it off to Pete on the guidance question. So, what we did in the military business is we had a 30-day nonrecurring or non-subscription plan in addition to the monthly recurring plan. So, it was confusing to the soldiers signing up and what we found was that people would be confused. They would sign up for the 30-day nonrecurring plan and then have a gap in service. They would call us or we would reach out to them, they’ve been resigned up and just get into this 30-day cycle which didn't make any sense for them or for us. So, we went back to our military partner, it was a contractual obligation that we had to include that kind of a plan and we showed them the data and they agreed that we are just eliminate that plan as you know our service our plan the customer can cancel it anytime. So, there's really no sense in only having a 30-day nonrecurring plan. So, when we took that plan out, it really boosted the subscription plan those customers that were confused, that we signed up for the wrong plan, now are all going on description plan so nice a nice lift on the subscriber side and you saw that in the numbers. Pete do you want to ARPU and guidance.

[Pete Hovenier:]

Absolutely so an ARPU Jim is exactly what you alluded to it and what you noted it's really the shift from the transactional customers to a monthly recurring and so we no longer have that transactional revenue coming in without the corresponding subscriber. So, we're now seeing virtually all the revenue coming on military being tied to a subscriber. On the guidance, I think when you point to there is just I would say hate the at the weighting primarily around aj a.2 there is just as a hit of conservatism primarily around advertising and retail we continue to see and expect strong growth in DAS military and offload and we're cautious on the side of retail and advertising, but really in the low end. We were above the high end of this range and we continue to focus more in the midpoint of that behind us that range and we continue to focus more in the midpoint.

[David Hagan:]

I would just add as well Jim that it is just Q1, so we don't want to get too far ahead of ourselves. One quarter doesn’t make the year. So, we got to keep executing.

[James Breen:]

Sure. Thank you.

[David Hagan:]

Yeah, thanks Jim.

[Operator:]

Thank you. The next question is from Anthony Stoss of Craig-Hallum. Please go ahead.

[Anthony Stoss:]

Hi guys, nice execution. On the carrier to Wi-Fi offload, do you have to wait or are they likely to wait before they move to more airports ports for entering the second half of the year and any color you can provide us on how quickly they can move beyond five? And then lastly, a couple of quarters ago you talked the military was interested in moving to DAS in addition to Wi-Fi and I would love to hear an update in that, thanks.

[David Hagan:]

Yes, so Tony on carrier number two, so we're working with them on a larger rollout schedule and very active there. So, we're talking about the end of Q1 now. The goal as we've talked about on the last call was to get pass point profile pushed. They have now been pushed as part of 10.3, that's for their iOS base and the customers go through the manual process of actually updating. We all do that. So, they're not all updated yet, but good progress there and again as I referenced in my script, incredible traffic volume ramping up on the network, which is great. In terms of rollout schedule, I think we communicated last time that we expect near full rollout by year-end but definitely in the second half of the year skewed. So that's why we're not calling out a lot of revenue tied to it in 2017, but we're looking at it as really well setup for '18. So, from our perspective and I know everybody wants it faster and we too, but from our perspective, it's right on schedule and executing the way that we expected it to go. On military, I think you're referring to are there other opportunities on the military bases and there are. We're in significant discussions with multiple carriers about the military. There is keen interest from most if not all of the major four. What we're determined now is what's the best approach DAS plus small cell and multicarrier. So, we're in planning phases with several of the carriers. So, a lot of activity there and I think we talked about on the last call, 2017 is the year of a lot of small cell activity and getting the carriers into market, but revenues is much more going to be oriented towards 2018, but there is a very significant small cells/DAS opportunity on the military bases. We're very excited about it.

[Anthony Stoss:]

Great. Thanks Dave.

[Operator:]

Thank you. The next question is from Paul Penny of Northland Capital. Please go ahead.

[Paul Penny:]

Hey guys. Good afternoon, about the carrier offloads, is there any gap in terms of the timing on when the carrier number will reveal their identity and assuming carrier number two is fully operational across the same amount of venues as print. So, there is the 30 venues. Is there a range of expected revenue and EBITDA contribution?

[David Hagan:]

Thanks Paul. I'll start. So, in terms of the timing on who it is, obviously lots of speculation around it. They want to get further down the path. If you think about it from a carrier's perspective doing an announcement that only impacts some portion of their customer base, isn’t necessarily in their best interest and that's how they think about it and we're very respectful of that. So not a surprise at this point. I know that people want to know, but that's kind of where we are and we want to honor their perspective on it. In terms of revenue range Pete, you should take that one on.

[Pete Hovenier:]

Yes, I think the way to think about this is as this market develops and as we see more and more usage, we'll provide more and more color. I think it's a little early right now to talk about where carrier two will be. What we can say is the usage on the five locations that we've seen already is already above our initial occasions. So, we think about the guidance we put into the year for carrier number two. I guess we talked about in our last call it was around a few million and the usage we're seeing already supports that range. So, we're highly optimistic and we're seeing good traffic, we're seeing good uptake, but I think it's a little early to start trying to the box and frame it. On the EBITDA side, what's powerful about carrier offloading, it's incredibly leverageable. So, the assets that we've deployed adding a subsequent carriers does not sincerely require additional asset. Sometime there may be some augmentations of assets and maybe some additional bandwidth, but think of it as very highly accretive, with the additional cost of it being revenue share back to the venue. So, as we get more color on revenue, think of it as very high incremental contribution margin.

[Paul Penny:]

Okay. Thanks Pete. One last one, in terms of penetration rates in military, how high can they go and are you at the only option the sole option for Wi-Fi connectivity at the basis?

[David Hagan:]

So, we're not. We typically are competing with either a local telco or the local cable co. In some cases, those are the big names that everyone knows, in some cases they're much more of a regional telco or cable co, but there are a few cases where we're the only supplier but in the vast majority we are competing with one other. And so, the way to think about that 40% and that's against the beds that we've deployed and we know that not all beds are occupied. So, there's an occupancy layer in what we use as a 20% rule thumb on unoccupied beds. So, 40% against the universe is really 50% market share of occupancy, again rule of thumb. So, we're much further along than we frankly ever expected to be at this point. The original range that we put out in the market was 15% to 30% and the way to think about that was, that was the long-term model to make this a good economic investment right. So, this a good return on capital and that was in the 15% to 30% range. At the low end of that range, it was acceptable, but not great. it's the high end of that range, it's a fantastic business and we've now blown through the high end of the range. So, we're not going to give a new range. It's now about just incremental growth and then harvesting that revenue stream and quality of service over time. So, we're not going to go with the new range because we think we're passed needing to prove it as a business case, but we continue to expect to see nice continued growth there.

[Paul Penny:]

Great and last question, I appreciate the guidance for the upcoming quarter and the year, is there any thought to giving a longer-term projection in terms of your path to getting to GAAP profitability I think that would be helpful to the marketplace.

[David Hagan:]

No direction at this point on when we're going to come out with that specifically and given some informal input on when we expect to get there. Pete do you want to talk about that?

[Pete Hovenier:]

Yes, the way to think about your gaining to GAAP profitability, so much of it is dependent upon how aggressive we go on network deployments. So, the more aggressive we go on network deployment actually can extend out GAAP profitability, but I would say that would be generating long-term value. When you deploy assets that provide value over a 10 to 20-year life. Those are great investments we can make to return on capital hurdles and for us to deploy capital we do. So, there will be a range when we come out, but it's still a few years away but as you see from our top line growth and our EBITDA margin expansion, we're making great progress.

[Paul Penny:]

Great. Thanks Pete and Dave.

[David Hagan:]

Thank you.

[Operator:]

Thank you. The next question is from John Heckman of Ladenburg Thalmann. Please go ahead.

[David Hagan:]

John, I think you got disconnected, are you there?

[John Heckman:]

I am sorry, my question has been answered, it was about the military how big that could actually get for you guys and you addressed that, so thank you very much.

[David Hagan:]

Great. Thanks John.

[Operator:]

Thank you. The next question is from Walter Piecyk of BTIG. Please go ahead.

[Walter Piecyk:]

Thanks. So, on the supplement the DAS node backlog you're showing obviously the last two quarters a big increase right 8-6, 10-5, I don't know what that relates to as far as revenue, but when we look the reimbursable CapEx, it would be in the $10 million if it was two quarters, which given kind of all the commentary about I think the new wins and how the backlog is going up I would think that at some point we're going to see a spike. So, when you think about next quarter or over the course of the year, are we ever going to get back to these $30 million levels that you saw in Q4 of '15 in Q1 of '16 and can we maybe see the next quarter possibly with this backlog ramp?

[David Hagan:]

Good question Walt. So, as you know and I think everybody knows the cycle time on the DAS business the cycles are pretty long. So, we sign and then typically it takes quite a bit of time to get carried number one and then we go down the process of getting additional carriers on and there is network designs that are in the middle of all that and budget approvals. So, the backlog is a great thing and we've never been in this position to have this much backlog. So, we think that's fantastic and it allows us to now have a portfolio of venues that we can go out to all four carriers with and sign multi-venue deals which the carriers really like and obviously we like as well. So that pipeline is getting worked and we do expect to see more coming in, so that you'll see it in CapEx line. Pete do you want to address more specifically or is that enough.

[Pete Hovenier:]

No, I can add a little additional color. So, you should be thinking about 2017 in aggregate, the reimbursable DAS CapEx should be pretty substantial similar to what we see in 2016 in total. So, to get to that full-year number and '17 as compared to '16 you're actually getting to see some much larger numbers in Q2, Q3 and Q4.

[Walter Piecyk:]

So, it is more of a second half ramp, so Q2 is probably going to look more like the last two quarters or it's more like $10 million?

[Pete Hovenier:]

I think Q2 will be larger than Q1. So, there's some timing involved and the import thing to remember that Q1 last year we had a very large World Trade Center build going on. We have some other substantial builds in process and they're just taking off. So, you'll see some step up in Q2, but more so in Q3 and also in Q4.

[Walter Piecyk:]

And then there should be a correlation to say maybe the deferred revenues go back up as that were reimbursable CapEx as opposed to being flattish.

[Pete Hovenier:]

Absolutely you it Walt.

[Walter Piecyk:]

Got it and then just one quick question on the balance sheet, the receivables dropped pretty much like what it $50 million that was a nice drop but it's been like in this kind of $45 million $50 million range for like the last two years. So, what was the big collection and is this the new run rate or do you can use the balance sheet and does the working capital go the other way and get back to the $40 million $50 million range that you've been historically?

[Pete Hovenier:]

Yes, so I would say first off, we did an outstanding job in turning AR into our cash. So, seeing AR go down is a good thing but need to continue to add to the AR balance and we are and so you'll see it actually grow in Q2. So, I don't know if it necessarily gets you back to the $40 million $45 range.

[Walter Piecyk:]

And what is the principal receivable, would that be like the wholesale type customers stuff like…

[David Hagan:]

It's a combination, so it's a wholesale customers, it's going to be our DAS customers, so it's a combination, but primarily it's the carrier. Carriers are the big numbers.

[Walter Piecyk:]

Got it and you didn't see any receivables during the quarter, right?

[David Hagan:]

No, we've never sold receivables.

[Walter Piecyk:]

Got it. Thank you so much.

[David Hagan:]

You bet.

[Operator:]

Thank you. [Operator instructions] The next question is from Tim Horan of Oppenheimer. Please go ahead.

[Tim Horan:]

Thanks guys. Just so in the standards shift to military, can you talk about what the exit run rate of that business was or is this kind of a good starting point to the next quarter given all the puts and takes on how you're charging and frankly the same thing on the wholesale Wi-Fi, just kind of a good kickoff point for the next quarter? I know it's kind of asked by Jim, I just want to sample to those a little bit or the lumpiness involved in that?

[David Hagan:]

Sure, so on military to the actuals, we were 12.5 and that should be going from there.

[Pete Hovenier:]

Yes, there is lumpiness in military. Wholesale can be lumpy, but wholesale has some military in that.

[David Hagan:]

And to the wholesale the run rate was 68 and again I see that, that's a run rate now it has a little more volatility on wholesale depending on A, the usage for the carrier offloading customers and then B, for the number of cards that are made available when there comes a bungled programs, but in both cases, think of those as run rate going forward.

[Tim Horan:]

Great I just assume maybe the military run rate was a little bit higher than 12.5 exiting I know that you changed the model quite a bit in the quarter. So, I was trying to get any more color on was that really reflective of how you exited the quarter?

[David Hagan:]

I would say it's reflective of how we exited the quarter.

[Tim Horan:]

Great and then on the retail side, what's driving the stabilization you had a couple good quarters of a pretty big change in trajectory and now the subs looking a little bit better just any color there?

[David Hagan:]

We talked about a couple of quarters ago actually it's been a close to a year ago three quarters ago anyway. We made a change to utilize this technology called web sheet for the IOS customer base and it basically integrates the web sheet capability of the handset into our sign-up process. We had originally not allowed web sheet access. You had to go through the browser the garden page and as we made this change now close to a year ago and basically what we saw we were losing customers who weren’t going to the wall garden page were now web sheet just pops up in front of the customers so it's a little bit more in-your-face and we're getting more sign-ups as a result and so that's -- so more people are joining the network thus slower lock. In fact, we've had some growth in the customer base, so it's been a big win for us and great both for those customers are now getting faster speed in the airports and obviously for our business as well, so it's a technology change.

[Tim Horan:]

Great and then lastly just two other points and on the wireless wholesale offload, where are you with maybe the third and fourth carriers in terms of conversations and the number two carrier would there be any reason there volumes wouldn't be the same rough volume that you're seeing with the first carrier based on the five airports that you are doing also limited kind of sample size?

[David Hagan:]

No commentary on number three and four rather than we're having good discussion with both but can't commit to a timeline. Regarding volume, carrier number two is significantly larger than carrier number one. So, when they're fully deployed it should be should be more traffic more revenue.

[Pete Hovenier:]

And one thing worth adding is the usage per user is right in line with expectations. So, the average usage is better than what we thought and then usage per user is in line with what we've seen with Sprint. So, we're very bullish.

[Operator:]

Thank you. The next question is from Mark Argento of Lake Street Capital. Please go ahead.

[Mark Argento:]

Hi, good afternoon. Most of my questions have been asked and answered, but just wanted to follow up on the small cell opportunity. I know it seems like competitive environment in small cell continues to tick up, Crown Castle looks to be getting a little more aggressive. How do you see that opportunity progressing or rolling out for you guys? What's the kind of the go to market strategy there as we watch that opportunity start to progress for you?

[David Hagan:]

Thanks for the question Mark. So, there is unbelievable energy on the carrier -- from the carriers on small cell. We've never seen anything like it. They're coming to us and others. You mentioned Crown, they're looking for deployment partners as they're getting ready to roll out the next generation technology while that's on their LTE 4G LTE or if they're talking about LTEU or talking about 5G next-generation networks, they need densification help and obviously we've got lots of great locations where we've got those wireless rights, we're having a lot of great conversations, we're doing design work with multiple carriers in multiple locations. So, we're going to have much more to talk about that. We just wanted to say that when it's a little more tangible and we're talking about deployment instead of planning, but you're going to hear a lot more about small cells from us in the coming quarters.

[Mark Argento:]

Great and then just lastly, this will be strong spot for you guys, so what the pricing rev share, any changes, any competitive pressures there on the pricing side, rev split side anything there?

[David Hagan:]

I would say no change on DAS. Especially our deployment because these are big venues. They may take a little bit longer. Price negotiations with carriers are always challenging. What we're finding is portfolio approach that I mentioned earlier where we now have a whole long list of great venues where we can do package deal that seems to make things -- it's quicker, it's more venues, it takes more design time, but in terms of negotiations, you're doing one negotiation for many venues. So that helps on the steep side. So, no real change there on pricing, so it's a challenge. Thankfully we have great venues that they need to be in, that's what -- that the leverage that we have.

[Mark Argento:]

Great thanks for the help and congrats on a strong quarter.

[David Hagan:]

Thank you.

[Operator:]

Thank you. There are no further questions in the queue at this time. I would like to turn the conference back over to Mr. Hagan for closing remarks.

[David Hagan:]

Thanks for your questions everyone and for participating in today's call. We've got a great slate of investor conferences that we'll be attending in the coming quarter including the Jefferies Technology Conference, the Needham's Emerging Technology Conference, Craig Hallum Institutional Investor Conference and the William Blair Growth Stock Conference. We look forward to seeing you soon. Thank you.

[Operator:]

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time and thank you for your participation.