Boingo Wireless, Inc.
Q4 2016 Earnings Call Transcript

Published: 8 Mar 2017

[Operator:]

Greetings, and welcome to the Boingo Wireless fourth quarter and full year 2016 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. Kim Orlando of Addo Investor Relations. Thank you, Ms. Orlando, you may now begin.

[Kim Orlando:]

Thank you, and welcome to the Boingo Wireless fourth quarter and full year 2016 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, March 7, 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-Q for the quarter ended September 30, 2016 filed with the SEC on November 7, 2016 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 flow 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 our fourth quarter and full year 2016 financial results. 2016 was an incredible year for Boingo, our best ever. I'm incredibly proud of the Boingo team and our financial results. We delivered an all time high in revenue of $159.3 million, an increase of 14% over 2015. This marks our third year in a row of double digit revenue growth. We stated at the beginning of the year that we anticipated being free cash flow neutral for 2016 but we did much better than that. Our cash and cash equivalents balance increased $4.8 million versus leveled at the end of 2015, which resulted in $7.9 million in positive free cash flow for 2016. We expect that to accelerate in 2017. 2016 was a milestone year in other ways as well. For starters, we had the biggest year ever in terms of venue acquisition. We signed 38 new venues in total, including a landmark agreement with a leading entertainment company in Q4 which gives us the exclusive rights to build DAS networks at 27 amphitheaters across the country. Never has one contract brought us so many venues. We've already had great reception from the carriers to join these locations. It's important to note that we now have more new venues under contract but not yet deployed in our entire existing DAS footprint. We expect this will provide years of growth ahead as we get carriers signed up to deploy networks in these locations. We also signed more Tier 1 carrier contracts in 2016 than any other year in our history with 43 new agreements valued at more than $113 million in carrier commitments over the life of these contracts. Our DAS business is incredibly robust with more than 19,200 nodes live at the end of 2016 and another 8600 nodes in backlog. We continue to believe we are the largest provider of indoor DAS networks in the world. Our military business was also record setting. We added 21,000 subscribers in Q4 to finish the year with a total of 107,000 subscribers and improved overall subscriber penetration rate to 34.3%. We have completed the majority of the build-out of our military business finishing the year with 312,000 beds on 58 Army bases around the world, including our recent launches in Japan. We will continue to work with the military to add additional beds as they arise and to that end we anticipate adding approximately 20,000 new beds primarily on existing bases in the coming year. As you know, Boingo strategy centers around securing long term wireless rights at major venues and then monetizing those rights through a variety of offerings. Our monetization platform is unique in that we can offer a wide variety of products and services at any given venue depending on the needs of that partner. In other words, across the different venue types, from airports to stadiums to military bases, the opportunity exists to overlay carrier offload in small cells. As we've shared with you there's already interest from the carriers in doing both carrier offload and small cell deployments on the military bases and those conversations continue. And speaking of carrier offload, this was another milestone for Boingo in 2016. The number of offload connects increased over 40% year over year as of the end of 2016 and we also saw a 230% increase in total megabytes utilized per connect. Traffic continues to grow month over month in terms of total offload connects and megabytes per connect. Both trajectories are great harbingers for the offload business. We also launched our second Tier 1 carrier and have expanded the number of airports where they’re loading, offloading to five. We expect to continue to roll out additional venues throughout 2017. We’ve also signed a new pricing amendment with this carrier that includes negotiated pricing tiers with volume commitments at certain pricing levels which will be important as we expect this carrier to push out Passpoint profiles on millions of devices by early April. We believe this will vastly increase the number of customers who will automatically offload traffic to Wi-Fi when they are at a Boingo venue. We are working with this carrier’s local market teams to add more network locations to the roll-out schedule. Rounding out our wholesale business, I'm pleased to announce MasterCard as the second major brand that has launched a global deal with Comes with Boingo offering. Our agreement with MasterCard gives us access to millions of cardholders worldwide and that it enables any issuing bank to leverage pre-negotiated rates to provide a Boingo Wireless subscription to its cardholders. We've already received orders for millions of cards, including the deal with HSBC which we announced in conjunction with Mobile World Congress. Turning now to retail and media, I'm pleased to share that we grew our retail subscription base for the second quarter in a row. While we believe our retail business will continue to slowly decline over time as we transition to new business models like carrier offload and Comes with Boingo, it's great to know the pace has slowed somewhat. In addition, our media business started to rebound in Q4 from the softness we saw in Q3. All in all we're very pleased with these financial results which reflect the strength of our business model and our success in executing against Boingo strategic plan. Now I’d like to turn over to Pete Hovenier, our Chief Financial Officer to walk you through our fourth quarter financial results in detail. Pete?

[Pete Hovenier:]

Thanks Dave. I'll begin by reviewing our financial results and key operating metrics for the fourth quarter ended December 31, 2016. And we'll conclude with our financial outlook for the full year and first quarter of 2017. Total revenue for the fourth quarter reached a record $45 million, an increase of 16% over the prior year period. Revenue growth reflected strength in DAS and military which was partially offset by declines in advertising and other, wholesale Wi-Fi and retail revenue. As a percentage of fourth quarter revenues across a diversified revenue streams, DAS represented 38%, military was 24%, retail was 15%, wholesale W-Fi was 14% and advertising and other accounted for the remaining 9%. This compares to the fourth quarter of 2015 in which DAS represented 30% of revenues; retail, military and wholesale Wi-Fi, each were 18% of revenues, and advertising and other accounted for the remaining 16%. In terms of total revenue contribution by category for the quarter, DAS revenue was $17.2 million, representing a 48.6% increase with the comparable period last year. Told DAS revenue was comprised of $11.1 million of build-out project revenue and $6.1 million of access fee revenue. The year-over-year improvement in total DAS revenue was primarily related to increased revenues from new DAS build-out projects, coupled with the increased access fees from our telecom operator partners. Military revenue was $11 million, representing an increase of 59.6% versus the prior year period primarily due to increased subscribers. Our military network now covers 312,000 beds representing an increase of 26,000 beds as compared to the end of the third quarter 2016. As Dave mentioned, we anticipate adding approximately 20,000 new beds primarily in our existing bases in the coming year. Our penetration rate has also improved to 34.3% in the quarter, up from 30.1% from the prior quarter which was above our expectations. Retail revenue was $6.5 million representing an 8.7% decline over the prior year period. The decrease is partly due to a decline in our retail subscriber base and our average monthly revenue per subscriber in addition to reduced retail single use revenue. As a reminder, while we expect retail revenues to continue to decline year over year, the rate of decline continues to decrease, plus we are still able to monetize these foregoing [ph] customers through our wholesale Wi-Fi service offerings, specifically with our Comes with Boingo program and Wi-Fi offloading agreements. Wholesale Wi-Fi revenue was $6.2 million representing a decrease of 9.3% over the prior year period, primarily due to some non-recurring partner usage base fees in the prior year quarter and a decline in wholesale service provider revenues. Advertising and other revenue was $4 million representing a 36.3% 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 quarterly costs and operating expenses. Network access costs totaled $19.5 million, a 23.4% increase over the fourth quarter of 2015 primarily due to increased depreciation and higher revenue share paid to our venue partners. The increase was partially offset by a reduction in other direct costs. Gross margin which is defined as revenue plus network access cost was 56.6%, down 259 basis points from the prior year period. The decline in gross margin largely reflects the shift in our diversified revenue streams primarily driven by the significant increase in our lower margin DAS build revenue, partially offset by increases in higher margin military and DAS access fee revenues. Network operations expenses totaled $10.7 million, an increase of 14.5% from the comparable 2015 quarter primarily due to higher depreciation, network maintenance, consulting and personnel related expenses. Development and technology expenses were $6.1 million, an increase of 18.2% from the prior year period, also primarily due to higher depreciation and consulting expenses. Selling and marketing expenses were $4.6 million reflecting a decrease of 18.3% from the comparable 2015 quarter. The decline was primarily due to decreased personnel related expenses. General and administrative expenses were $7.2 million, a 33.6% increase from the comparable 2015 quarter primarily due to increased personnel related expenses which is inclusive of the stock based compensation as well as increased legal and other professional fee. Now turning to our profitability measures for the quarter. Net loss attributable to common stockholders was $4.4 million or $0.11 per diluted share versus a net loss of $3.7 million or $0.10 per diluted share in the prior year quarter. Adjusted EBITDA, a non-GAAP measure, was $14.3 million, an increase of 30.5% from the comparable 2015 quarter. As a percent of total revenue, adjusted EBITDA was 31.8%, up from 28.3% of revenue for the comparable 2015 quarter. The fourth quarter marks the sixth consecutive quarter of year over year EBITDA margin expansion. Now turning to our key metrics. Number of DAS nodes on our network for the fourth quarter was 19,200, up 76.1% from the prior year period, up 8.5% from the third quarter of 2016. Number of DAS nodes in backlog, which represents number of DAS nodes under contract but not yet active, as of the end of the fourth quarter was 8600, up 75.5% from the prior year period, and up 65.4% from the third quarter of 2016. Our military subscriber base was 107,000 subscribers at the end of the fourth quarter, an 87.7% increase versus the prior year period and a 24.4% increase from the third quarter of 2016. Our retail subscriber base was 195,000 subscribers at the end of the fourth quarter which was down 4.4% from the prior year period and up 5.4% from the third quarter of 2016. Connects or paid usage in our worldwide network were approximately $40.3 million, up 39.3% from the prior year period and flat with third quarter of 2016. Moving on to discuss our balance sheet. As of December 31, 2016 cash and cash equivalents totaled $19.5 million, up from $14.7 million at December 31, 2015. Total debt was $25.6 million and we had approximately $54.8 million available under our credit facility as of December 31, 2016. Capital expenditures were $15.3 million for the fourth quarter which included $10.5 million utilized for DAS infrastructure build-out projects that are reimbursed by our telecom operator partners. Our non-reimbursed capital expenditures were driven primarily by new network builds mainly related to the rollout of our military 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 our growth capital to be approximately 3% to 5% of revenue. Free cash flow was $6.4 million for the fourth quarter versus $9 million for the fourth quarter of 2015. Turning to our outlook. We're initiating guidance as follows

[David Hagan:]

Thanks, Pete. We are extremely excited about the year head. The investments we've made in our business are bearing fruit and we believe we're extremely well positioned to take advantage of the massive growth in mobile data. Our DAS, carrier offload and military lines of revenue are showing strong growth. In addition, remain excited about the opportunity of small cell deployments to enable our business to expand into new venues. The guidance we have provided for 2017 reflects the growing strength of our business. The midpoint of revenue guidance represents 15.5% growth over 2016 and the midpoint for EBITDA guidance represents over 30% growth. As Pete discussed, we expect to continue generating positive free cash flow going forward. Our business has never been healthier and as a team we’re incredibly optimistic. With that, I'd like to open up for questions. Operator?

[Operator:]

[Operator Instructions] Our first question is from James Breen of William Blair.

[James Breen:]

Thanks for taking the question. Pete, can you just talk about, on the balance sheet side at what total debt did quarter to quarter, and how that helped contribute to the positive cash flow in terms of debt and capital leases and payable and so forth? And just how you guys are thinking about the balance sheet in conjunction with cash flow now as you’re generating cash flow, will you use that to fund the business and will you no longer sort of tap the revolver you have in place? And then Dave, maybe you just talked about on the DAS side, as venue win with these concert venues, that's what it sounds like concert venues. This obviously is a new sort of vertical in that space. And there's -- it seems like there are lot more of those and there are stadium and so forth. Just talk about the opportunity there going forward. Thanks.

[David Hagan:]

Hi Jim, thanks for the question. Pete, why don’t you start?

[Pete Hovenier:]

Yes, so Jim first off on our debt, our revolver portion we’ve had $15 million that was outstanding at the end of last year and that was consistent with what we had beginning of 2016. So revolver did not change. We get out of some capital leases to the tune of a couple million but nothing really substantial in that regard. So it’s how we think about the balance sheet as we continue to generate cash. What we feel today is the best way to deploy our capital continues to be more network expansion. So we continue to look for networks to invest into, and to get our positive returns on those networks.

[David Hagan:]

And then on the value wins that we announced, the entertainment venue win, Jim, they're very much like stadiums and arenas. So we think of them in the sports and entertainment category. So a large audiences sitting hip to hip, so a very high density, so the same types of needs that a basketball arena for example would need but there are a little bit smaller than that typically, though not all of them are smaller but typically little bit smaller. So the great opportunity there is clearly interest from the carriers and getting coverage in those types of venues. They are very important from a younger demographic perspective for the carriers, so keen interest there. We hope to pursue some other venues like that, some of them will probably fall into small cells. So the large ones will be DAS, the smaller ones will be small cells. So we think it's a category that is ripe for opportunity for us.

[Operator:]

Thank you. The next question is from Scott Goldman of Jefferies.

[Scott Goldman:]

Hey good afternoon guys. Thanks for taking the questions. I’ve got a couple; first on the revenue, obviously you guys laid out the guidance and talked about how growth is going to accelerate there. Pete, and/or Dave, wondering maybe you guys could just comment a little bit on how to think about some of the moving parts. It seems like you're expanding military DAS, you talked about some of these venue wins. So clearly some momentum there but maybe helping us not only frame those but think about how we should think about maybe the advertising side, which is a little bit weaker in 2016 forward? And then secondly, Dave, you just mentioned briefly on a small cell side, I don't think there's a lot in the prepared remarks, that you talked about last quarter doing some trials and a deployment I believe in Illinois. Maybe just give us a bit of an update on what you're seeing there and how your conversations with the carriers who are obviously moving at a more rapid pace now in small cells fit into Boingo’s product and service portfolio? Thanks.

[David Hagan:]

Great, thanks Scott. I'll start on the revenue guidance and the moving parts but Pete will probably add some color commentary more specifically. So -- and I think everybody on the call understands our strategy and how we think about our business and that is venue acquisition is the engine for growth for our business. And so when you look at the year that we just had and the quarter that we just announced, we're obviously extremely pleased with our venue acquisition and then obviously we turn that into revenue through monetization over time, whether it's DAS, Wi-Fi et cetera. So the engine of our growth has just incredible momentum. I'm going to take the second one and I'll come back to Pete maybe lines of revenue, you want to talk about kind of growth prospects there. In terms of small cells, incredible carrier interest, we're in discussions with multiple carriers. We did announce last quarter that we had our first small cell deployment outside of Chicago. And that’s still obviously operational but we're in planning mode with multiple carriers on multiple values, particularly there's a lot of interest in our military bases and improving cellular coverage for the men and women of our Armed Forces. Typically cellular coverage is quite weak on military bases because they are generally quite remote .So a lot of interest in small cell there. Plus on the entertainment venues that I just mentioned, so you'll see a lot of activity and certainly future commentary on small cell deployments as we get a little bit further down the road. Pete, you want to talk about lines of revenue and growth expectations?

[Pete Hovenier:]

Absolutely .So Scott, the way to think about our revenue guidance for 2017, so a couple pieces here to think about. So first off, our growth engines just like in 2016 and 2017, the key drivers will really be DAS followed by military and then wholesale. So military and DAS you should think about growing in the mid 20s, wholesale should be growing, call it, in the high teens, lower 20s and advertising flat to modest decline in single digits and then retail, call it, high single digit decline. And really the shift as we've talked about in the past, our advertising and retail customers, they're getting opportunities to use the network in a different way. So they're connecting really via wholesale whether it be Comes with Boingo product or a Wi-Fi offloading product. The other thing to think about is sequentially how does revenue ramp throughout the year and just like what we experienced in 2016 we think the revenue is going to ramp consistently with what we saw in 2016. So on average around 22% of our revenue in Q1, 24% in Q2, 26% in Q3 and be into 28% in Q4.

[Operator:]

Thank you. The next question is from Anthony Stoss with Craig Hallum.

[Anthony Stoss:]

Hey guys, I wanted to focus in on your second Wi-Fi offload customer at five airports. Can you give us a sense on when you expect to have complete the number of identified facilities that they want to upgrade? Is it by the end of 2017, is it going into 2018, how does it compare I guess at this point for the spread launch before also by them pushing the software in April and essentially going live and you can start booking revenue? Do you think that will help speed up the deployment et cetera? And then also I don't know if you have it handy, Pete, but your headcount at the end of 2016 versus 2015 and any commentary you can suggest in terms of more bodies being added, OpEx going up for 2017, at what point do you get more efficient where you can start to curtail the new hires? Thanks.

[David Hagan:]

Thanks Tony. So I will talk second carrier, we are -- and I know everybody is always anticipating what we're going to say about carrier number two and carrier offload in general. We're very pleased with where we are in terms of the rollout schedule, the Passpoint profiles are going to be pushed out. We're told by early April once that is done, I think they'll get very focused on rolling out additional footprint, additional venues with us and we're working with their local market teams as we speak on those rollout plans. The Passpoint has to happen first, otherwise there aren't any customers out there to connect. So that's job one. And then getting the networks out rolled to, I think we're comfortable saying by year end we think we'll have them on the majority of our networks but it's definitely going to be back loaded. So but we're very encouraged by that. The pricing amendment that we have in place is a great solution for both companies. They were looking for a specific price point on a per meg basis and we were happy to give that to them. We thought it was quite reasonable as long as it came with significant volumes. So we gave them pricing tiers, they got the price they wanted and as they move up those pricing tiers we get the volume commitments that we want. So we have steady revenue flow. So we think we're in a great spot and frankly right where we want to be. Pete, you want to talk about headcount and OpEx?

[Pete Hovenier:]

Yes, so on OpEx, Tony, the way I think about it for 2017 what we're projecting is our operating expenses excluding cost of goods which is for us is a network access, to grow about 10% in aggregate. And of that 10% about half of it is going to be cash based, about the other half of it is going to be non cash based. We ended 2016 with 315 employees which you'll see when we file our 10-K. And if I remember correctly that was about an add of almost 20 on a year to date basis. We're not planning on adding significant heads in 2017. We are adding selectively specifically in key areas to drive growth. But the way you think about this is we've made a lot of investments over the years ramping up our sales engine and our operational engine and now it's time to harvest and monetize those investments and we feel very confident in that.

[Anthony Stoss:]

And if I could sneak in another one on the DAS side; would you say your average DAS deal is getting bigger, about the same or what are your thoughts on DAS kind of towards the end of 2017 in terms of size?

[Pete Hovenier:]

Yes, it hasn't changed dramatically but it has -- in the last couple years but it has grown. So if you look -- depends on your perspective of time. So if your perspective of time is over a four or five year horizon it's grown substantially, over the past couple years it's not grown substantially but it does continue to grow. What we do see more often though is the upgrade cycle happens quicker. It used to be an upgrade was every, call it, 5-ish years and now we're seeing every three to five years you're seeing an upgrade cycle. So what that points to is more dense networks and more robust networks and carriers really trying to keep up with this mobile data consumption demand.

[David Hagan:]

Yeah I think just for a little more color on that. The challenge with answering a question like that is every venue is unique and every network that we have to build is unique and so when we talk about the number of venues that we have, there's a mix, right? There are some absolutely massive ones and then there are some that are average, if there is such a thing in this business and then there's some on the smaller size. So but as an overall mix they're quite comparable to what we've been in the past.

[Operator:]

Think you. The next question is from Stephen Ju of Credit Suisse.

[Chris Ford:]

Hey guys, this is Chris on for Stephen. So you just threw out about 20%, mid 20s for military growth next year. Do you have any kind of updates to the long term penetration outlook there? It's really encouraging to see you guys at 34% now and I think the value proposition to the consumers is clear there. So is there any reason to believe that kind of over the next three to five years you don't get materially higher than kind of the outlook that you’ve previously give us? And then now secondarily, have you guys stabilized the headcount in your media business in terms of your advertising sales force? Thanks.

[David Hagan:]

Thanks Chris. On the military penetration we're still communicating the same range 25% to 40%. We’re obviously solidly within that range but at this point we're still holding to that. Obviously we're incredibly encouraged by the results crossing over 34% for the quarter was amazing and that business remains very robust. But we're sticking to the 40% on the longer term. Pete, do you want to get the second part of the question?

[Pete Hovenier:]

Yes. So the next part was headcount on the media sales team. And yes, we have continued to hire additional sellers and they're continuing to produce and ramp up in the cycle, because we talked to you last time it takes on average about six months for a salesperson to completely ramp. What we've seen is -- while a year over year Q4 was still down significantly, it was down less than what we experienced in Q3 and we expect that trend to continue going forward.

[Operator:]

Thank you. The next question is from Walter Piecyk with BTIG.

[Walter Piecyk:]

Thanks. Pete, I may have misheard this but I think in your prepared remarks when you were talking about wholesale, you talked about like the one time I guess last year. Did you also say there was a decline in the carrier wholesale revenue in the fourth quarter that also contributed to that decline?

[Pete Hovenier:]

Yes. So what we had is a part of what we call our first provider revenue, so that actually went down in the fourth quarter of 2016 as compared to 2015.

[Walter Piecyk:]

So how does that business work, I guess, because you have the first carrier offloading and then you just signed up a new guy, that was only like one or two airports. But why would that have been a decrease if you added a carrier?

[David Hagan:]

Yes. So this is not carrier offload. So carrier offload is when a carrier -- so Sprint we talked about new carrier number two, they put traffic on the network and we monetize the network by the carrier putting traffic on. So we collect the revenue -- revenue per megabyte put on the network. Service provider is different, it’s where someone comes to us and we run the network on their behalf. And so it's typically a fixed monthly fee to run the network. So the reason -- on a year over year basis and one of the smaller networks that we operated we no longer operate, not material to the business but we no longer operate it.

[Walter Piecyk:]

So your offload guys were up but those other service guys were down.

[David Hagan:]

And offload wasn't dramatically up, so and remember I think we’ve talked about this previously but the way the revenue recognition works on our Sprint contract, it's a guaranteed amount over a period of time. So we straight line the revenue over a period of time. So while Sprint’s usage is dramatically growing the revenue contribution is not flowing through, because they -- on aggregate it is being straight lined.

[Walter Piecyk:]

But is it just built sequentially from here or like is there any type of step down that happens in the first quarter?

[David Hagan:]

No, there's no step down at all. So as they start to exceed their, you'll start to see it flow through and as tier 2 starts to ramp you'll see a flow through.

[Walter Piecyk:]

And then on the CapEx side of things, I think when we talked after the last quarter you were thinking that the reimbursable CapEx was going to be $25 million. I know early in the year you thought for the year it would be $100 million and we came in at like $76 million. Are there projects that are effectively rolling into Q1 and on reimbursable CapEx, can you give us any sense of how big that's going to be in 2017? I know that you talked a lot on the call about a number of different types of opportunities, so I'm just curious what that will look like in 2017?

[Pete Hovenier:]

Sure, we don't typically give guidance on carrier CapEx because it's so much dependent on the carrier cycles and then cut offs and such .It was a little lighter in Q4 than I initially had anticipated. But that said the carrier cash collections was stronger. So what it really came down to be is we actually had more profit from our build projects we initially anticipated. So I look at this as a positive overall, is that our margins came in stronger, we still got to the overall net capital contribution that we're looking for but with less CapEx.

[Walter Piecyk:]

You've had a couple years of growth right in that line. So is this -- can you grow it again 2017, or is this kind of annual number of $75 million, $80 million more like what we should expect going forward?

[Pete Hovenier:]

No, we absolutely should grow and as you see from the number of venues we have, so if you look at -- as we talked about, we just now added 38 or just now in 2016 added 38 new venues, add that to the venues, we are adding backlog, we have 50 venues to go out and deploy and that's just for the initial anchor. And then we have additional venues that are -- the 36 venues we have live adding subsequent carriers to the network.

[David Hagan:]

That’s our future CapEx from the carriers.

[Pete Hovenier:]

So we're seeing massive demand -- demand at levels we really haven't seen historically. But it does take carrier cycles and does take big budget cycles and cut off. And so that's what we're dealing with.

[Walter Piecyk:]

Understood. And then just one last one on the non-reimbursable side of CapEx. I think also earlier in the year we were thinking maybe it would be $35 million to $40 million, I guess it came in at $30 million. I know in this call you talked about $20 million to $25 million for 2017. What are the puts and takes that might turn that into $15 million or $30 million, like that would not put you within that range of $20 million to $25 million, which is kind of what happened this year, right?

[Pete Hovenier:]

No, great question, Walt. So I think some of it again comes at the time of cut off, so we launched a bunch of beds in Q4 2016 but they launched later in the quarter and as a result some of that capital expenditures did come forward into 2017, which meant less CapEx in 2016 and then some incremental CapEx in 2017. In the grand scheme of things it’s all in our projections but it did -- there is some cut-off.

[Operator:]

Thank you. The next question is from Mark Argento of Lake Street Capital Markets.

[Mark Argento:]

Hi, good afternoon. Just wanted to circle back to the military installations. Sounds like you're at 58 bases now. Can you help us understand the opportunity with some of the tier 1 carriers in terms of rolling out more services throughout those bases? How many currently are you guys -- do you have contracts with and what the opportunity is there?

[David Hagan:]

So Mark, the opportunity now is that we've basically gotten the bases built out, right? So we talked about for the last three years we had 300,000 bases -- excuse me, 300,000 beds on about 60 bases. So you see the numbers that we just communicated 58 bases and 315,000 to 318,000 beds. So the massive part of the build out is over in terms of the wireless infrastructure, the Wi-Fi infrastructure. So now the opportunity is overlaying additional services and as I mentioned in my comments there's a lot of interest from the carriers in putting small cells and/or doing carrier offload on those bases to improve their coverage. So that's what we're focused on with the carriers. We’re having pretty detailed conversations, including walk-in bases, getting input from the carriers, looking at the infrastructure that we have in place and working with them to think through what's the best deployment strategy for the various technologies that we can bring to bear on their behalf. So a lot of interest there. It will turn into a great business for us but I will just caution everybody who's working on their models we don't have a lot of revenue in the 2017 plan for small cell. We will get a lot of work done in 2017 but we don't think it's going to manifest itself in a lot of revenue but it will certainly be building the pipeline for 2018 and beyond.

[Pete Hovenier:]

And I think the only thing to add to that would really be, as Dave said, think of this as we will be paid per venue on a per node basis. So it's all about how fast we start deploying and really getting running with these carriers. So it becomes just a phenomenal growth engine and very predictable and highly accretive growth engine, because it's leveraging all of our existing infrastructure.

[David Hagan:]

And I will say this more color commentary on the carriage. The DAS business, we sign up a venue and then have to go pull the carriers in, the small cell business they are coming to us and saying we want to deploy thousands of small cell nodes, where can you help us? So sort of the tone of those conversations is very different from the DAS business and that's incredibly encouraging when you have carriers calling you and saying we want to deploy networks with you. So there's a huge opportunity but it is carrier base and it will take some time.

[Mark Argento:]

Great, that's helpful and then just transitioning back, so the 38 venues I know it sounds like more concert hall venues. But what's the overall mix that you're seeing right now and where are you seeing opportunity to add venues?

[David Hagan:]

Yes, our mix really hasn’t changed, the same categories, so we're focused on transportation so that can be airports to subway type of installations, stadiums and arenas and add entertainment to that, so sports entertainment, obviously the big military buildout. So those are the categories that we look at. We have a couple deals in the commercial real estate/enterprise; office park space if you will; we've got a couple hospitals that we've done. So we're looking at other categories but until we know the carriers want to deploy capital there we keep very focused on the ones that we've been targeted.

[Operator:]

Thank you. The next question is from Paul Penny of Northland Capital Markets.

[Paul Penny:]

Hey guys, just a clarification on carrier offload. Is there a contract difference between in terms of how carrier number two offloads its price versus your first with Sprint? Just what you've learned from that and how you expect that to change going forward? And how soon until you can put Wi-Fi offload into its own revenue bucket?

[David Hagan:]

Great, thanks Paul. I will start. So the pricing differences between the two deals are actually pretty small, same structure, same construct, similar in tiers, it’s all per megabyte based. So there's more -- frankly there's more similarity than difference there. Pete, you want to add color commentary there.

[Pete Hovenier:]

Yes, I mean the thing to add and think about Paul is in the Sprint contract they elected a volume commitment and got to their rate. And carrier number twos they have the ability to do the exact same, they can go with a higher rate per unit with no volume commitment but -- or they can make a volume commitment to get a lower price per unit. So Sprint made the election to get a lower rate, we expect carrier two also do the same thing but they have not yet made it commercial [ph].

[David Hagan:]

And then I missed the second part of the question.

[Pete Hovenier:]

Yes. So once it becomes meaningful, so at this stage it's not meaningful enough yet to break out and become its own line. And we will continue to evaluate when it makes sense, we will.

[Paul Penny:]

Okay, fair enough. And then last one, is there a major CapEx difference in a DAS venue, DAS versus a small cell build-out in terms of just can you give us a general range in terms of the CapEx spend?

[David Hagan:]

Pete, do you want to take that one?

[Pete Hovenier:]

Sure. So yes there is a difference. I mean the way I like to think of it is, it's hard to do a DAS for less than $1 million. And so I tend to think of DAS networks as multi-carrier, if you’re going to leverage the infrastructure across multiple carriers and to a million plus range in CapEx, and many times well above that. In small cells today it's typically single carrier nodes and the cost differential is substantial. So you're looking in the hundreds of thousands of dollars range to deploy small cell networks versus -- and could even be less depending on how many nodes to the millions range for DAS.

[Paul Penny:]

Okay great, one last one. On the military, your 34% penetration, in a fully stabilized world where do you think that can go in terms of a range, in terms of penetration and do you think you have to tinker with price in order to get higher penetration?

[David Hagan:]

Obviously we're very pleased with the 34% penetration, we haven't raised the long term model on the military, up 40%. We don't think we’re going to have to tweak with pricing, the demand is very strong, we are doing some product testing with different kind of levels of service but those would be incremental positives, not lower in price. So we're quite comfortable with where we are in the military penetration at this point. End of Q&A

[Operator:]

Thank you. We have no further questions at this time. I would like to turn the conference back over to Mr. Hagan for closing remarks.

[David Hagan:]

Thanks for your questions and for participating in today's call. We have a full slate of investor conferences we will be attending in the coming quarter, including the Jefferies Technology Conference in Miami and William Blair’s Annual Growth Conference in Chicago. 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.