Boingo Wireless, Inc.
Q4 2014 Earnings Call Transcript

Published: 27 Feb 2015

[Operator:]

Greetings, and welcome to the Boingo Wireless Fourth Quarter and Full Year 2014 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. Laura Bainbridge of Addo Communications. Thank you, Ms. Bainbridge. You may now begin.

[Laura Bainbridge:]

Thank you and welcome to the Boingo Wireless fourth quarter and full year 2014 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. If you have yet to receive the release, it is 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. 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, February 26, 2015, 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, 2014 filed with the SEC on November 10, 2014. The company undertakes no obligation to update any forward-looking statements. On this call, we will refer to non-GAAP measures that when used in combination with GAAP results, provide us with additional analytical tools to understand our operations. We have provided reconciliations of non-GAAP to GAAP measures in our earnings release. And with that, I’ll hand the call over to Boingo’s Chief Executive Officer, David Hagan.

[Dave Hagan:]

Thanks, Laura. Good afternoon everyone, and thanks for joining us to discuss our fourth quarter and full year 2014 results. 2014 was a monumental year for Boingo. After 2 years of single digit revenue growth and laying the foundation for a transformation of our business, 2014 was the year we turned the corner and began to reap the rewards of our investments and hard work. I’m pleased to announce we delivered an all-time revenue high of $119.3 million, an increase of approximately 12% over last year, and a return to the double-digit revenue growth we’re poised to deliver again in 2015. EBITDA was $20.3 million for the year, a decrease from 2013, reflecting the ongoing investments we’re making in the military network build outs. Speaking of military, a year ago today we had exactly one military base launched with our high-speed Wi-Fi and IPTV solution. By the end 2014 we had built out 29 bases, covering more than 130,000 beds. This is the most ambitious build project in our history, with approximately $25 million invested in 2014 alone. Our military plant covers more than 500 miles of fiber, 650 buildings, and 29,000 Access Points. To put it in perspective, if you stacked that many Access Point’s, it would reach the height of the Empire State Building, ten times over. But the best part, is the response we’re getting from soldiers, airmen and marines across the country. By year-end, we had reached nearly 20% subscriber penetration at bases in market for more than 60 days, with overall penetration just over 15%. These results are right in line with our business case, but we got there quicker than expected. We’re incredibly excited for the year ahead and the opportunity the military business represents. Our military story was just the beginning of our accomplishments in 2014. We more than doubled the DAS networks in our pipeline, including wins at the World Trade Center, Philips Arena, EnergySolutions Arena, Kansas State, and the University of Houston among others. We launched our first true carrier offload deal – a step years in the making - with a Tier 1 carrier in a market trial on 3 million handsets. We demonstrated our worldwide leadership in Hotspot 2.0, launching Passpoint seamless connectivity at 26 airports that reach half a billion people and unveiling the world’s first co-roaming Passpoint relationship with Time Warner Cable. Our Media team set new records for revenue booked, campaigns run, and sponsored sessions. And the readers of Global Traveler named Boingo the “World’s Best Wi-Fi service” for a record setting fifth time. While we are gratified by everything we accomplished, 2015 looks to be an even more exciting year to come. We believe we are extremely well positioned to take advantage of pivotal market trends. To begin with, the “Wi-Fi First” world is a reality. There is now more mobile data traffic on Wi-Fi than cellular, and that is expected to accelerate over the next several years. Wi-Fi First products that were being led by start-ups like Republic Wireless and FreedomPop are now amplified by heavyweights such as Cablevision and T-Mobile. And these services will leverage Hotspot 2.0 and Passpoint to make Wi-Fi as seamless as cellular roaming. The DAS market is changing too. For the first time in our history, carriers other than AT&T and Verizon are leading DAS deals with us. In fact, this quarter we signed a new Tier 1 carrier to a master services agreement that will enable them to take the lead position on many new DAS deals currently in our pipeline. We believe this is not only a game changer for Boingo, but for the industry as well, because it signals increased competition among the carriers for quality of service in major venues, Boingo’s sweet spot. We have long believed that DAS was the “first wave” of carrier offload, but it is clear that with skyrocketing mobile data traffic on cellular networks, the promise of carrier Wi-Fi offload has now arrived. I’m pleased to announce that, based on the success of their market trial, we’ve extended our agreement with the tier one carrier and have gone up to 5 million handsets auto connecting to our M&O passpoint enabled network that reaches half a billion people. We expect to sign a long term deal soon to enable them to expand to cover their entire smart phone customer base. This is a milestone we have been working toward for years, and we believe it’s just the first step in what’s to come. Before handing the call off to Pete, I want to comment on the recent FCC Spectrum auction. The carriers bid a record $44.9 billion dollars for AWS-3 spectrum, about double what was forecast based on prior auctions. So while it doesn’t impact Boingo directly, it does demonstrate the increasing value of wireless spectrum and infrastructure, given the relentless growth of mobile data traffic. DAS and Wi-Fi infrastructure is only going to become more valuable over time, and Boingo is well positioned to capitalize on this trend. With that, I’d like to turn it over to Pete Hovenier, our Chief Financial Officer for a detailed look at fourth quarter and full year financial results, as well as our outlook for 2015. Pete?

[Pete Hovenier:]

Thanks, Dave. I’d like to begin by sharing that effective this quarter, we’ll break out our diversified revenue streams differently, as well as some updates to our key operating metrics. These changes are in better alignment with how we manage the business, and we trust you’ll find them helpful as well. Our revenue streams will now be broken out into five categories

[Dave Hagan:]

Thanks, Pete. As you can see, we’re extremely excited about 2015. We’ve successfully expanded beyond our core airport vertical into military, universities, stadiums and arenas. The heavy investments we’ve made in military and DAS are beginning to pay off, and will continue to pay dividends not only this year, but for years to come. And we’re well positioned for small cell growth and carrier offload onto Wi-Fi, which is fast becoming a reality. We could not be more excited about the year ahead and the direction of the company. Thanks for listening today. With that, I’d 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 James Breen of William Blair. Please go ahead.

[James Breen:]

Thanks for taking the question. Just a couple of questions, one, I'm not sure Dave, if you talked about that but can you just talk about the number of DAS builds you have in process, and if you added any in the quarter? And then just secondly into financials, I think the full year guidance for revenue and EBITDA for 2015 was based in level consensus, but the first quarter guidance seemed lower, just – help us think about how revenue – sorry, how EBITDA will basically ramp from that $1 million to $2.5 million in the first quarter to get to that full year guidance. Thanks.

[Dave Hagan:]

Thanks Jim. On the DAS question, so we have about – or excuse me, we have 8,400 deployed, so those were live, so 8.400 live and about 4,000 in development. So the pipeline is very robust. Pete, why don't you handle the other questions?

[Pete Hovenier:]

Sure. On EBITDA Jim, so as you did comment EBITDA is a little on the lighter side for the first half, we are projecting about a third of our EBITDA to come in the first half of 2015 and about 2/3rds to come in the second half. And it's really coming from primarily in the military base built as we take more bases live and we have more subs for longer period of time, which will earn more EBITDA. In addition, we have a lot of DAS builds in process which will be taking live during the first half of 2015, we will see that contribution more meaningful so in the second half of 2015.

[James Breen:]

From an accounting stand point in the military side, as you build it out either cost will get capitalized and then the day the [bed] [ph] or the barracks of the base goes up and you can actually sell the product does then that become an expense and so there is just sort of immediate upfront expense before you reach that 15% to 20% penetration?

[Pete Hovenier:]

You got it. In fact that's a big portion of what you are seeing in Q1, so you are seeing some additional expenses that we cannot no longer capitalize because we are still in that. I would say the base where you are doing [indiscernible] items so that's expense. And it's part of the normal ramp progress. We also have some normal cost we see very Q1 such as annual audit fees which is skewed towards the first half of the year.

[James Breen:]

And then I guess Dave – just one question for Dave on the military side, you talked about seeing – I think you said 20% penetration after 60 days, any indication sort of where the average APRU is there, is it somewhere net $25 to $35 range? Thanks.

[Dave Hagan:]

Yes. So in my script I talked about for bases that have been up and running more than 60 days and I think as you know Jim, we did a mass launch late in the year on October 1 and then in several more bases in Q4. So the amount of time that we are in market with each base really matters and we have a lot of really young bases. So but for those that had been over 60 days where hitting that 20% penetration rate which is within our range that we have communicated between 15% and 30%, take rate is our – penetration rate is our estimate on where we will be. So we have gotten there much sooner than we expected, so that's good news. And then our overall percentage penetration was about 15%, so that takes into account even a base just launched, right? So you have basically no penetration. And then what is the second part of the question?

[James Breen:]

Just seeing to the ARPUs that you are saying there.

[Dave Hagan:]

So yes, ARPUs as it has been in the mid-30s.

[James Breen:]

Great. Thank you very much.

[Dave Hagan:]

You bet.

[Operator:]

Thank you. The next question is from James Moorman of D.A. Davidson. Please go ahead.

[James Moorman:]

Yes. Thanks for taking the question. I just wondered if you could talk a little bit more about Wi-Fi offload, it sounds like it's moving well, but can you tell anything you can give us in terms of the volumes you are seeing especially having gone through a peak holiday season?

[Dave Hagan:]

Sure. Thanks for the question Jim. So the way to think about it is, we've expanded and we had a couple of million handsets and we have with 3 million handsets at the end of the year, now, we are up to about 5 million handsets that's from the carriers customer side. And then we have expanded from a handful of our M&O networks now to our – and this is still happening as we speak, but we are expanding to our entire M&O Passpoint enabled network. So those are largely airports, it's about 26 of them and they about 0.5 billion people. And so what we are seeing is very nice and again, this is automatic, right? So this is the carriers customer walks into one of our venues and we auto connect them on to the network and then everything they do from that point on is data that's going over to the Wi-Fi network. So we are seeing very nice ramp up in traffic in those venues where we have been in for a period of time, the traffic continues to increase. It becomes very quickly significant part of traffic within that single venue. Again, because everybody from that carrier's customer base who walks into the venue is – 100% of them are connected and are very close to 100%, at least ones with the smartphone. So we are seeing all of the – kind of meeting all of our expectations in terms of volumes as we get further into this we can certainly communicate more statistics about it. At this point, the traffic is flowing, we are encouraged by the results, the technology is working as expected. And the customer response has been very positive.

[James Moorman:]

Okay. So just I think you said you have now – you are up to 5 million and you are doing a handful of bases and now you come to the whole network, is that true, not bases airports?

[Dave Hagan:]

So we are on 4 or 5 and I think 3 were airports and other one or two was a different type of venue. And so we are expanding out to the entire Passpoint enabled M&Os that's managing operated networks that we control that we have done our Passpoint technology upgrade in. And those reach about 0.5 billion people. So it's the big venues for us and we hope to continue to expand that. So the data that I have been talking about is really from those first venues where we saw traffic coming in. And we expect that to grow as we open up more venues.

[James Moorman:]

Great. Thanks a lot.

[Dave Hagan:]

Yes.

[Operator:]

Thank you. Our next question is from Tudor Mustata of Jefferies. Please go ahead.

[Tudor Mustata:]

Hi, guys. Two questions if I may, first, can you discuss how much of the 4Q holds of DAS revenue consisted of [indiscernible] sites versus ongoing revenue? And how much of that was in 2014 and how much that is account in 2015? And then secondly, how should we just think of LTE over online since impacting your business – encouraging using dataset of Wi-Fi uploading?

[Dave Hagan:]

Let me – I will start with the second question because that's in my ballpark then I will hand it over to Pete for the DAS specific revenue. So the second question, how does LTE impact us, actually LTE upgrades are positive for us because on our DAS networks those are retrofitted network builds that we do. So the move to LTE is clear a benefit for our DAS business. On the Wi-Fi side, we are seeing very little impact. So if you look at all of the public statistics about mobile data usage whether it's on cellular or Wi-Fi, it's exponential growth on both. So I think what we have all experienced ourselves in our daily usage and what the market – what we are seeing from market data is that. As soon as you get a bump up in speed that's your bandwidth. That bandwidth is very quickly consumed by what the consumer wants to do with it. So more higher speed data networks like LTE have not had any negative impact on Wi-Fi. In fact –

[Tudor Mustata:]

I was more referring to Verizon and T-Mobile commentary about using LTE overall license spectrum in dense areas?

[Dave Hagan:]

Yes. I think it's a – I think it will be interesting to see how it develops. We are certainly plugged into those discussions. I think the overall belief and premise here is, more bandwidth gets consumed, right? So there is an insatiable demand and desire for more bandwidth. And we don't see LTE been anything that's negative to our business.

[Tudor Mustata:]

Okay.

[Pete Hovenier:]

And Tudor going to your question on the allocation between access fees and built fees on our DAS business. In 2014 about 35% was the access fees so 65% would be the built fees. We see that's increasing in terms of the ongoing access fees in 2015 not dramatically by a couple of points.

[Tudor Mustata:]

Any sense how much was in the fourth quarter?

[Pete Hovenier:]

In the fourth quarter it was – it's not the same percentage 35%, 65%.

[Tudor Mustata:]

Thank you.

[Dave Hagan:]

Thanks Tudor.

[Operator:]

Thank you. Our next question is from Bo Yang of Credit Suisse. Please go ahead.

[Nick Hrynkiewicz:]

Hey, guys. It's actually Nick in for Bo. Just a kind of question about the military uptake beyond that initial 60 days in some of the older cohorts are you seeing penetration beyond that and as you were kind of move along here is – should we expect similar up tick in the newer ones?

[Dave Hagan:]

Thanks for the question Nick. We are seeing continued growth in bases that have been opened for an extended period of time. So we haven't seen anything – we haven't had a single base that's flattened out. So growth continues and we have even seen some bases that have exceeded the range of penetration that we have given to the market. So all signs are good on what our potential penetration could be. So we are very excited about what we are seeing.

[Nick Hrynkiewicz:]

Thanks for the color.

[Operator:]

Thank you. Ladies and gentlemen, that is all the time we had for questions. This does conclude today's teleconference. And you may disconnect your lines at this time. And thank you for your participation.