Boingo Wireless, Inc.
Q4 2017 Earnings Call Transcript

Published: 28 Feb 2018

[Operator:]

Greetings, and welcome to the Boingo Wireless Fourth Quarter and Full Year 2017 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Kim Orlando. Please go ahead.

[Kimberly Orlando:]

Thank you, and welcome to the Boingo Wireless Fourth Quarter and Full Year 2017 Earnings Conference Call. By now everyone should have access to the earnings press release, which was issued today at approximately 4

[David Hagan:]

Thanks, Kim, and thanks, everyone, for joining us on the call today. 2017 was an incredible year for Boingo and we delivered our best results ever. We closed out the year as an all-time revenue high of $204.4 million or growth of 28% over 2016. We had high expectations for the year, but our performance surpassed even our own expectations by exceeding the high end of our guidance range. The fourth quarter also represented 13 consecutive quarters of double-digit revenue growth. Our strong top-line performance drove growth in adjusted EBITDA, which came in at $68.9 million, an increase of 69% over 2016. This also exceeded the high end of our guidance range. So net-net, some pretty incredible operating results for 2017 that we're really proud of. We believe that wireless infrastructure will continue to be a great sector to invest in and Boingo is very well positioned to take advantage. We believe our business has never been stronger and we have incredible runway in front of us for 2018 and beyond. With that, let me dive in a little deeper into what we expect for this upcoming year and why we remain confident that we're in the right place, at the right time, with the right strategy to continue delivering great results. To begin with, I want to start with the most fundamental macro trend that we're solving for and that is the seemingly never ending jaw-dropping growth of mobile data usage. Cisco projects that mobile data will grow another 7x from 2016 through 2021, putting incredible strain on traditional macrocell networks. The solution to this growth is densification, moving the wireless networks closer and closer to the end consumer. We do this with DAS and WiFi today and increasingly, we'll do so with small cells as well. The second macro trend that we're solving for is convergence and, in particular, 5G. 5G is going to revolutionize the world in ways like never before. It is expected to be the backbone that enables all kinds of different technology like autonomous cars, virtual reality, augmented reality, 360-degree video and instant 4K streaming and many other applications that haven't even been thought of. We know that 5G needs 2 things, first it's going to require a nationwide hyper dense network of small cells deployed to enable the world with millions of self driving vehicles, navigating our cities and highways. Second, we know that 5G will require both licensed and unlicensed spectrum working in concert. We believe Boingo is incredibly well suited to tackle both these challenges. For starters, we have been deploying both licensed and unlicensed spectrum for nearly 20 years. We believe we have more experience doing this than any of our competitors. Second, we are very focused on venue-based small cell deployments. As we've shared with you over the past year, there is tremendous amount of activity going on with small cells. We are engaged in deep planning and design discussions with all 4 Tier-1 carriers and have active trials in market. You can expect us to go full throttle with small cells in 2018. Our small cell strategy is an extension of our DAS business. It is venue-focused in partnership with the carriers to help them solve the densification need, both due to mobile data growth and 5G. We believe this strategy is differentiated from other small cell players and we like that. It matches our skill set and leverages what we do best, which is to partner with venues and carriers to deliver better service to end-users within and around venues. There is a massive addressable market for these small cell opportunities and we expect small cells to deliver growth for years to come. While we don't expect small cell to be a major contributor to revenue in 2018, we do plan to make investments today to drive small cell network deployments that we expect to pay dividends in 2019 and beyond. Okay, so I've talked about the macro trend, macro trends influencing our business and how we are positioned to take advantage of these trends. Now I'd like to discuss our traction on key growth drivers and what we're expecting for the year ahead. Like last year, we expect our 3 major revenue growth drivers will continue to be DAS, carrier offload and military broadband. So let me touch on each starting with DAS. DAS remains incredibly robust. We are coming off a very strong venue acquisition year with 36 new DAS venues and 23,500 DAS nodes live. It's pretty staggering to think about, but we have more DAS venues under contract, yet to be deployed, 84, and we have live venues with 38. Our venue pipeline remains incredibly strong and we expect that 2018 will be another strong year for venue acquisition. 2017 was also an excellent carrier leasing year with $77 million in carrier contracts signed and we believe 2018 will be even better. With the continued strengthening of our balance sheet, we are planning to selectively do some self-funding of DAS and small cell deployments, when it makes sense strategically on a deal-by-deal basis. We plan to use some of our free cash flow to reinvest it in the network. By self-funding certain DAS and small cell builds, we expect to be able to significantly grow our share of ongoing revenue and cash flow from each venue. While we anticipate building a healthy number of DAS and small cell networks, we plan to still manage the business to generate positive free cash flow. Our goal is to maximize the use of free cash flow to fund our growth initiatives and also to continue using carrier capital to fund some bills as we've always done. It's great that we're now in position to have this optionality. We will focus on doing what's right for the long-term value creation. Now let's discuss carrier offload. We had a record number of connects through WiFi offload in 2017 and we saw traffic continue to climb quarter-after-quarter. Growth is progressing in line with our expectations. Carrier offload is now enabled on almost all of our military bases with at least 1 carrier, so as you can imagine, we saw a significant spike in usage, where offload was enabled at those bases. We have 2 carriers on a growing number of airports and military bases, so we're pleased that offload continues to rollout across our network locations. We believe with continued mobile data growth that carriers will all need to utilize WiFi, which is less expensive on a cost-per-bit basis compared to licensed spectrum. As we've said many times in the past, we believe it's not a question of if, but when. Military broadband is the third booster of our growth engine. We now have 330,000 military beds deployed, up slightly from our 2016 year end total of 312,000. We expect to deploy another 15,000-or-so beds this year. We're live on 62 basis, up from 58 at the year-end 2016. We improved subscriber penetration from 34.3% in 2016 to 39.4% at year-end 2017. While we expect this to grow slightly, we believe that we're very well penetrated, when you take occupancy into account. Our focus now is on driving incremental ARPU out of the existing subscriber base, and on overlaying additional products and services onto the existing network like offload and small cell. So all in all, we feel incredibly good about the year ahead. As I shared many times in the past, we believe we have tremendous runway and all we have to do is execute. So that's what we're focused on. In summary, our business remains extremely robust and we anticipate strong double-digit revenue growth in 2018. Pete will walk you through our outlook as well as our fourth quarter results. So let me turn it over to him now. Pete?

[Peter Hovenier:]

Thanks, Dave. I'll begin by reviewing our financial results and key operating metrics for the fourth quarter ended December 31, 2017, and will conclude our financial outlook for the full year and first quarter of 2018. Total revenue for the fourth quarter reached a record $57.3 million, an increase of 27.5% over the prior year period. Revenue growth [restructures] strong performance in wholesale WiFi, DAS and military, partially offset by year-over-year declines in retail and advertising and other revenue. As a percentage of revenue across our diversified revenue streams as compared to the prior year quarter, DAS represented 42% revenue, up from 38%; military was 26%, up from 24%; wholesale WiFi represented 16%, up from 14%; retail was at 10%, down from 15%; and advertising and other accounted for 6% of revenue, down from 9%. In terms of total revenue contribution by category for the quarter, DAS revenue was $24 million, representing a 39.3% increase over the comparable period last year. Total DAS revenue was comprised of $18 million of build-out project revenue and $6 million of access fee revenue. The year-over-year improvement in total DAS revenue was primarily related to increased revenue from new DAS build-out projects. Military revenue was $15.1 million, representing an increase of 37.2% versus the prior year period. Growth was driven primarily by increases in military subscribers and average monthly revenue per subscriber, which were partially offset by decline in single-use revenue. The shift from military single-use revenue to subscriber revenue was mainly due to the removal of our nonrecurring monthly service offering, which contributed to higher signups for our monthly recurring subscription plan. During the quarter, we also built out the network to cover an additional 6,000 military beds, bringing our total footprint to 330,000 beds at December 31. We believe that military vertical will continue to be a strong driver of recurring cash flow with incremental opportunities to come primarily, including the implementation of carrier offload and additional services on these bases. Wholesale WiFi revenue was $9.1 million, representing a 46.9% increase over the prior year period, primarily due to higher partner usage-based fees and increase in managed service fees from our venue partners, who pay us to install, manage, and operate WiFi infrastructure at their venues. Retail revenue was $5.9 million, representing a 9.4% decline over the prior year period, due to reduced retail subscribers and decreased retail single-use revenue. Advertising and other revenue was $3.2 million, representing a 19.1% decrease over the prior year period, primarily due to a decline in the number of premium ad units sold during the quarter as compared to the prior year period. Now turning to our cost and operating expenses. Network access costs totaled $26 million, a 33.3% increase over the fourth quarter of 2016, primarily related to increased depreciation for DAS build-out projects and higher revenue share paid to our venue partners. Gross margin, which is defined as revenue less network access costs, was 54.6%, down 200 basis points from the prior year period. Decline in gross margin largely reflects the shift in 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 wholesale WiFi revenue. Network operations expenses totaled $13.1 million, an increase of 21.6% for the comparable 2016 quarter, primarily due to higher personnel related, depreciation and other expenses. Development and technology expenses were $6.9 million, an increase of 13.5% from the prior year period, due primarily to increases in depreciation, personnel related and cloud computing expenses. Selling and marketing expenses were $5.7 million, an increase of 24.2% for the comparable 2016 quarter, primarily due to higher personnel-related expenses, marketing expenditures and other consulting expenses. General and administrative expenses were $8.2 million, a 14.4% increase in the comparable 2016 quarter, primarily due to increased personnel-related expenses and an increase in bad debt expense. Now turning to our profitability measures for the quarter. Net loss attributable to common stockholders was $1 million or $0.02 per diluted share versus a net loss of $4.4 million or $0.11 per diluted share in the prior year quarter. During the quarter, we received a one-time noncash tax benefit in the amount of $3 million due to the implementation of the Tax Cuts and Jobs Act in 2017. Adjusted EBITDA, a non-GAAP measure, was $20.4 million, an increase of 42.7% from the comparable 2016 quarter. As a percentage of total revenue, adjusted EBITDA was 35.6%, up from 31.8% of revenue in the comparable 2016 quarter. The fourth quarter marks our 10th consecutive quarter of year-over-year EBITDA margin expansion. Turning now to our key metrics. Number of DAS nodes in our network for the fourth quarter was 23,500, up 22.4% from the prior year period and up 5.9% from the third quarter of 2017. Number of DAS nodes in backlog, which represents the number of DAS nodes under contract, but not yet active, as of the end of the fourth quarter were 11,200, up 30.2% from the prior year period and up 1.8% from the third quarter of 2017. Our military subscriber base was 130,000 subscribers at the end of the fourth quarter, up 21.5% versus the prior year period. Compared to the third quarter of 2017, military subscribers declined by 2.3%, in line with seasonal trends, which typically reflect a short-term reduction in subscribers during the last few weeks of December around the holidays. By early January, our military subscriber base was already above the September levels of 133,000 subscribers. Our retail subscriber base was 188,000 subscribers at the end of fourth quarter, which was down 3.6% from the prior year period, and down 3.1% from the third quarter of 2017. Connects or paid usage on our worldwide network were approximately $63.9 million, up 58.6% from the prior year period and down 1.5% from the third quarter of 2017. Moving on to discuss our balance sheet. As of December 31, 2017, cash and cash equivalents totaled $26.7 million, up from $19.5 million at December 31, 2016. Total debt was $13.4 million, reflecting a reduction of $600,000 from our debt levels at September 30, 2017, and we had approximately $69.8 million available on our credit facility as of December 31, 2017. Capital expenditures were $18.6 million for the fourth quarter, which included $11.8 million utilized for DAS infrastructure build-out projects that are reimbursed by our telecom operator partners. Our nonreimbursed capital expenditures were driven primarily by new network builds, 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 $11.7 million for the fourth quarter, up 83.2% from the fourth quarter of 2016. For the full year 2017, free cash flow of $24.4 million was over 3x higher than in 2016. While we continue to manage the business to generate positive free cash flow, our goal is to maximize long-term shareholder value by investing majority of our free cash flow in network expansion opportunities to drive growth. Before I turn to our outlook, I'd like to comment on the 8-K we filed at the SEC on January 16, 2018. In this filing, we announced our intention to extend our venue agreement with one of our largest partners, The Chicago Department of Aviation. The venue agreement, which we expect to finalize by March 31, 2018, covers both O'Hare and Midway airports. The extension represents a significant milestone for our business to retain this important partnership. We believe, we have made significant progress on the agreement and accordingly, we are projecting through new lease venues in our 2018 guidance provided today. As a result of this projected renewal, we have reamortized the associated historical deferred revenue balances in place at the year-end 2017 over the new and extended estimated customer relationship period. We believe the impact of this reamortization will result in a $12 million noncash revenue reduction in 2018, solely related to the extension of the periods in which we are amortizing deferred revenue balances from our customer agreements at these airports. Turning to our outlook for the first quarter ended March 31, 2018. We are initiating guidance as follows

[David Hagan:]

Thanks, Pete. As mentioned, it's been an incredible year for Boingo, but we're even more excited for the years ahead. We're incredibly well positioned to take advantage of the macro trends impacting our business. We believe DAS, offload and military will continue to be growth drivers in 2018. Small cell presents a huge greenfield opportunity with a large addressable market. We're in the very early innings of a long-term wireless infrastructure investment cycle by the carriers and our business has never been more robust. With that, we'll open it up for questions. Operator?

[Operator:]

[Operator Instructions] Our first question comes from James Breen of William Blair & Company.

[James Breen:]

Just a couple of questions, Pete. I wonder if you just talk about the buildup of EBITDA through the year, given where your first quarter guidance is relative to the full year guidance? And then just a point of clarification on the impact of the amortization on the growth rates, you talked about the midpoint being in the 12.5% range year-over-year. Did you say that revenue impact was 6%? So had that contracts stayed the same, the concepts would have been closer to the high-teens and then additionally on the EBITDA side?

[Peter Hovenier:]

Thanks, Jim. Yes, so the way to think about EBITDA for the year, I think, you are looking at our historical trends, and EBITDA historically, first quarter represents around 20% out of our total EBITDA for the year. Second quarter is typically in the, call it, 22% range, and you give out 26% for Q3, which leaves 32% for about Q4. So that's pretty consistent year-over-year. I'll probably the same question also too on revenue. So I'll give you the same ways to think about this, which is 22% Q1, about 24% Q2, 26% Q3 and then 28% Q4. Regarding the reamortization, absolutely. As you said, it's 6 points of growth that is a shortfall or a headwind. So you'd be thinking about upper teens had we not had this reamortization. And let me pause just for a second, just remind you and everyone, this is a very good thing for the business. So the best thing we can do for shareholder value is extend our key relationships with our venue partners. So it's a good thing, but as a result, the accounting rules are very clear, we now need to reamortize that deferred revenue that's on the books as of year-end over a new longer estimated customer relationship period.

[James Breen:]

So basically you're extending that contract out so it just includes more certainty around that contract. I mean, is this similar to what happened, I think at a previous contract maybe in New York 2 years ago, when you had the same situation into the first quarter?

[Peter Hovenier:]

Yes, it is similar. Exact same situation. Now it -- and it will happen -- it happens time-to-time, but this is a larger contract. So as a result, it flows through and its material to the financials. Typically, it doesn't flow through and come out as being material to the financials, which is why we're calling it out.

[James Breen:]

Great. And then maybe just one for Dave. Just on the venue acquisition front. You obviously have a lot of venues in backlog relative to what you have activated and you talk about 2018 being a good venue acquisition year. Can you just talk about the trend in those venues. What kind of venues you're seeing now relative to what you traditionally had been signing up?

[David Hagan:]

Sure, Jim. So venue acquisition in the pipeline remains very similar to what it has been last several quarters. RFP activity is extremely high, so that's a great leading indicator for us. In terms of the mix, same mix, transportation hubs, sports arenas and stadiums. Then there is a smattering of other types of things. You could see some malls in there. You could see some enterprises, corporate buildings and that type of thing. But in general, the mix hasn't changed. So we're feeling really good about it.

[Operator:]

Our next question comes from Mark Argento of Lake Street Capital Markets.

[Mark Argento:]

Just wanted to drill down a little bit on kind of penetration rates, both in terms of carriers and the different DAS nodes. And then also, thinking about the military opportunity, obviously, you saw something a little bit, but maybe you could drill down a little bit on, it sounded like you had some new contracts, or you pull back on a certain type of subscription offering and we're trying to push more to long-term contracts?

[David Hagan:]

So on -- Mark, this is Dave. So on the penetration rate, you're talking about number of carriers per DAS venue. Is that core of the question?

[Mark Argento:]

Correct just -- yes, just basically trying to -- I know it's 1 to 2 and it's ratcheting up over time kind of where do you stand right now? Where do you think you can get in the next year or 2?

[David Hagan:]

Yes, so the numbers haven't changed a lot. So over -- venues that have been in place over 3 years, we have this 3.4 carriers per venue, which is really, really strong, especially when compared to the tower companies. Obviously, new venues dilute that number down, as you would expect, because we don't typically launch with 3 carriers that we have in some very large venues. So we typically, as you know, launch with 1 to 2 carriers per, and then we work really hard to get carriers 3 and 4 on over the next months to years. So nothing has really changed there, same kind of consistent execution that we've been talking about over the last several quarters.

[Peter Hovenier:]

Probably the next one. I'll just add on the military sub, so you questioned a little about military subs and the different model. So, as you may remember, about a year ago, we transitioned and no longer sell our monthly nonrecurring plan. And so as a result, we've seen a shift from a transactional customer to a monthly recurring customer, which is, again, a great thing for the business and that's driven upward subscribers in military. It's also important to note that, and I think we talked about this when we talked about metrics is that our sub base came down slightly in Q4 as compared to Q3. That's really a one-time drop what we see as a seasonal shift as the soldiers go on to what's called a block leave. We did see those soldiers come back and sign up in early January.

[Mark Argento:]

And just last question, when it comes to you deploying capital, do you guys have any target returns on capital or -- that you're focused on? Or what's kind of the metrics you're using when you're cranking up the redeployment of free cash flow?

[David Hagan:]

Pete, you should take that one.

[Peter Hovenier:]

Sure. So we don't come out and provide our target hurdle rates, but I'll say, it's well above our cost of capital. When we do this, it's really a couple of things that we primarily focus on. It's, number one, getting the venues deployed faster. And so that's the first and foremost. And then two, we use that -- once you get the anchor, you then get subsequent carriers on to the network quicker. So it's really -- overall, we will do this to drive growth and to get venues deployed faster.

[Operator:]

Our next question comes from Paul Penney of Northland Capital.

[Paul Penney:]

Just to follow-up on the self-funding issue. What percent in a range would do you expect DAS venues to be self-funded this year? Is there a range we can think about?

[David Hagan:]

Yes, Pete go on.

[Peter Hovenier:]

Yes, so it's going to be case-by-case. I would say, in the year maybe as high as 20%, 25% of our venues that we would deploy this year would be on the self-funded model. There is some interest from the carriers, but it's not going to be across-the-board. And there's some deals that we're looking at right now, which may go self-funded and others may be the traditional model. So...

[David Hagan:]

It's also important to think about, and we've talked about this so many 1 on 1s is that we don't have to do a flash cut over to the new model, in fact, that's not what we're doing. It literally is not only venue by venue but carrier by carrier within the venue. So we could have a venue that has multiple carriers, some that we self-funded and some that we actually had carrier funding. So we really can be very surgical about how we do it, and careful about it, so that we don't get ahead of ourselves from a cash flow perspective.

[Paul Penney:]

That helps. And on the small cell opportunity, shouldn't we be thinking about this as a more of a longer term growth initiative for you guys? And what are you guys doing from internally in terms of a staffing standpoint to exploit the opportunities in small cells?

[David Hagan:]

Yes, so small cells, we view as a massive long-term opportunity. As we talked about in the last call, we're in some trials with multiple carriers, both in -- on military bases and in other types of venues. But it's a long-term build out. We are projecting that by year-end, it will become, on a run-rate basis, a real business for us or a material number for us. But 2018 is really development of the deals, development of -- and working with the carriers on OEM selection, getting those products into market and then scaling. So your second part of the question, I think was, how much investment are we making there? We're hiring and have hired a handful of people dedicated to the effort maybe a few more than that. But not a large run up. Pete, do you want to comment on that?

[Peter Hovenier:]

Yes, hopefully, one other thing I would add to that is, I'd say, OpEx, maybe think about 1 point of year-over-year OpEx growth tied to investing in this opportunity. So it's something we're doing surgically. It's not a massive spin, but it's something that's important.

[Paul Penney:]

Great. And in terms of forced ranking potential location opportunities, is it the office building, smaller venues, hospitals, universities, maybe give more color in terms of where you see the initial business going?

[David Hagan:]

Sure. So the way to think about small cells versus DAS is really size of venue, like that's the number one driver of it. So you're going to see a lot of overlay in the same types of venues. A small regional airport that wouldn't have qualified for DAS network will be prime for small cell network, right. So that's the same kind of venues that we've done in the past, but just on the smaller size. And then because of the smaller size, it does open up new types of venues that we haven't pursued before. So all types of -- and our strategy around this is still venue-centric. So we're not doing pulverized as an example. We're still going to go out and win venue contracts. There may be multiple venues within a contract and then we'll deploy a relatively small number of nodes per venue. And so that opens up retail, that opens up other types of categories that maybe we haven't pursued in the past. But in general, in terms of a business development perspective, it's very similar to our DAS business and that we're doing it on a venue-by-venue basis.

[Operator:]

Our next question comes from Anthony Stoss of Craig Hallum.

[Anthony Stoss:]

Just let me follow-up on small cells, how much of the conversation is geared towards 5G and how much of a pause do you think in terms of maybe not deploying small cells in '18 more '19, as they are preparing for 5G. I'm just curious if there is any pause related to your DAS business in that as well? And then there's a follow-up Pete, love to hear your view on ASC 606 and what your auditors are thinking? And what it might or how it might impact your model for this year?

[David Hagan:]

Yes. Thanks, Tony, I'll start then I'll hand it up to Pete. So on DAS and on small cells in terms of any pause around 5G, we absolutely haven't seen it. Most of what the carriers are doing from a 5G perspective now is still a non-stand-alone 5G, so that's the earliest version that's coming out, that was just approved late last year. So it's tied into the LTE networks that they have in place. True stand-alone 5G, the real new standard that everybody is excited about, that's not going to be -- the standard won't be settled until mid year of this year. So we're really talking more 2019 deployments of that. But we see both on the small cell side and on the DAS side, extremely high carrier activity level. So certainly no pause from our perspective. Pete, do you want to deal with 606?

[Peter Hovenier:]

Sure. So regarding 606, we and our technical accountants that we work with on the consulting side have completed our assessment of 606, and we believe the impact from the adoption of ASC 606 will not be material to our financial statements. We presented this analysis and assessment to our auditors. They are working through this and they have completed their review on the vast majority of our revenue streams and they are in general agreement with us on our assessment. They will not be material to our financials.

[Anthony Stoss:]

Okay. And then as a follow-up Pete, you mentioned the $12 million of reamortization impact in revenues, I think you got asked on the EBITDA side for the full year. Is that roughly $4 million similar to your EBITDA margins and in terms of the impact on Chicago for your EBITDA guide?

[Peter Hovenier:]

Yes, it's actually going to be higher. There was some higher margin business, so probably about half would be a headwind for EBITDA as well.

[Operator:]

Our next question comes from Walter Piecyk of BTIG.

[Unidentified Analyst:]

This is Joe for Walt. What's the reimbursable CapEx guidance for this year?

[Peter Hovenier:]

Yes, Joe. We don't provide formal CapEx guidance on what reimbursable CapEx. We do work with the carriers to determine what we think and what they think they're going to be spending for the year. What we can say at this point in time is given the deal flow that we are seeing and given the interactions we're having with the carriers, we believe 2018 will be our biggest year ever in terms of capital deployed to build out DAS networks. So if you look at that historically, our biggest spend was $80 million. So we're saying it'll be above that. But we're not [thinking] of a formal range because it's so dictated by the carriers capital budgets. But we're seeing an incredible amount of activity.

[Unidentified Analyst:]

And what happened, I guess, this quarter that it was kind of down sequentially, is that typical seasonally in the fourth quarter?

[Peter Hovenier:]

I wouldn't say, it was typical seasonally in the fourth quarter, I actually thought in this year it was going to be higher and we're doing some pretty big builds, probably the one of the biggest ones we're doing is Transbay in San Francisco. And there were some invoices we received in December that in normal course would be paid in January. Had those been paid in January, we would have been in mid-50s, terms out reimbursed CapEx for the year and then up sequentially versus mid-40s for the full year. So big invoices on big projects can really shift, and it is important to note that capital expenditures is cash expended, not just what's accrued.

[Unidentified Analyst:]

Okay, got it. And then on the $12 million reamortization, is that kind of a drop off right away so that revenue would decline in Q1, and then it would work its way out through the year? How do I think want to think about that one, I'm modeling revenue?

[Peter Hovenier:]

Yes, now that's exactly how you should pursue it. So in our reamortization, we're making the assumption as of 1/1/18 that the contract has renewed because we believe it will renew. So as a result, there'll be a one-time step down and you will see that accrete up as we win and deploy more deals.

[Operator:]

[Operator Instructions] Our next question comes from Jon Hickman of Ladenburg Thalmann.

[Jon Hickman:]

Pete, could you talk a little bit about your expectations for gross margins during the year? You might have covered that in your comments, but you were talking fast. So...

[Peter Hovenier:]

Yes, happy to, John. So as a result of our business and our revenue mix, we are expecting some gross margin pressure throughout the year. We are still -- when you look at our guidance projecting year-over-year EBITDA margin expansion. Right now at the midpoint of our range it's about a point of margin expansion at the mid point of our range. But on a gross margin level, I do expect as much as 2 points of gross margin compression on a year-over-year basis, but while still seeing EBITDA margin expansion. And so we're doing that by growing top line and then managing the expense lines.

[Jon Hickman:]

Thanks very much. So all my other questions have been answered.

[Operator:]

If there are no further questions, I'd like to turn the call back to David Hagan for closing remarks.

[David Hagan:]

Thank you, operator, and thanks everyone for joining us today. Hope to speak with you soon.

[Operator:]

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.