The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our unaudited condensed
consolidated financial statements and notes thereto included in "Item 1.
Financial Statements" of this Quarterly Report on Form 10-Q and the audited
consolidated financial statements and notes thereto and the section titled "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations" in our Annual Report on Form 10-K for the year ended December 31,
2020, filed with the Securities Exchange Commission on March 1, 2021, as amended
through the Form 10-K/A filed with the SEC on April 28, 2021.
Forward-Looking Statements
This Quarterly Report on Form 10-Q and the documents incorporated herein by
reference contain forward-looking statements within the meaning of the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995, as
amended, based on our current expectations, estimates and projections about our
operations, industry, financial condition, performance, results of operations,
and liquidity. Statements containing words such as "may," "could," "believe,"
"anticipate," "expect," "intend," "plan," "project," "projections," "business
outlook," "estimate," or similar expressions constitute forward-looking
statements. These forward-looking statements include, but are not limited to,
statements about future financial performance; revenues; metrics; operating
expenses; operations and financial performance due to COVID-19; market trends,
including those in the markets in which we compete; operating and marketing
efficiencies; liquidity; cash flows and uses of cash; dividends; capital
expenditures; depreciation and amortization; tax payments; foreign currency
exchange rates; hedging arrangements; our ability to repay indebtedness, pay
dividends and invest in initiatives; our products and services; pricing;
competition; strategies; and new business initiatives, products, services, and
features. Potential factors that could affect the matters about which the
forward-looking statements are made include, among others, the factors disclosed
in the section entitled "Risk Factors" in this Quarterly Report on Form 10-Q and
additional factors that accompany the related forward-looking statements in this
Quarterly Report on Form 10-Q and our other filings with the Securities and
Exchange Commission, including our Annual Report on Form 10-K for the year ended
December 31, 2020, as amended through the Form 10-K/A filed with the SEC on
April 28, 2021. Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's analysis only as the date
hereof. Any such forward-looking statements are not guarantees of future
performance or results and involve risks and uncertainties that may cause actual
performance and results to differ materially from those predicted. Reported
results should not be considered an indication of future performance. Except as
required by law, we undertake no obligation to publicly release the results of
any revision to these forward-looking statements that may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
Overview
Boingo helps the world stay connected to the people and things they love.
We acquire long-term wireless rights at large venues like airports,
transportation hubs, stadiums/arenas, military bases, multifamily properties,
universities, convention centers, and office campuses; we build high-quality
public and private wireless networks such as distributed antenna systems
("DAS"), towers, 5G, small cells, Citizens Broadband Radio Services ("CBRS"),
and Wi-Fi at those venues; and we monetize the wireless networks through a
number of products and services.
We believe we are unique in the market in several important ways:
? Our experience building multi-service converged technology networks gives us a
unique ability to build complex networks in the 5G era.
? Our economic engine is driven by shared infrastructure investment and multiple
revenue streams that drive long-term, recurring cash flows.
Our "neutral host" approach to building and operating wireless networks is
? designed to provide a solution that accommodates all carriers and offers all
venue guests or enterprise employees enhanced coverage, regardless of their
cellular provider.
With 76 DAS networks containing approximately 41,500 DAS nodes, we believe we
are the largest operator of indoor DAS networks in the world. Our Wi-Fi network
includes locations we manage and operate ourselves (our "managed and operated
locations") as well as networks managed and operated by third-parties with whom
we contract for access (our "roaming" networks) to commercial Wi-Fi hotspots
around the world. Our Passpoint connectivity enables carriers to seamlessly and
securely offload cellular traffic onto our carrier-grade Wi-Fi networks.
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Our business is organized into five segments and we derive revenue from various
products and services sold to customers within each segment. Our core segments
are Carrier Services, Military, and Private Networks and Emerging Technologies.
We also provide connectivity access to customers through our Multifamily and
Legacy businesses.
Our Carrier Services business is targeted toward helping wireless carriers,
large venues and enterprises meet growing needs for enhanced wireless
connectivity. We generate revenue from wireless carriers that pay us build-out
fees and/or recurring access fees so that their cellular customers may use our
DAS, tower, small cell, or Wi-Fi networks at locations where we manage and
operate the wireless networks. For the three months ended March 31, 2021,
revenue from our Carrier Services business accounted for approximately 45% of
our revenue.
Our Military business is primarily focused on providing a wireless broadband
solution to soldiers on military bases. Revenue from our military business,
which is driven by military personnel who purchase Wi Fi services on military
bases and short-term and long-term contracts with the U.S. government to provide
network installation services and Wi-Fi services at specified locations on
military bases on a bulk basis, accounted for approximately 34% of our total
revenue for the three months ended March 31, 2021. As of March 31, 2021, our
military subscriber base was approximately 137,000, a 1.5% increase over the
prior year comparative period.
Our Private Networks and Emerging Technologies business is primarily focused on
providing a converged wireless solution to venues and non-carrier customers in
verticals such as airports, logistics/fulfillment, industrial manufacturing,
sports stadiums, hospitals, on and off campus student housing, and military
bases. Our Private Networks and Emerging Technologies business offers a suite of
products and services including the design and installation of converged
networks for licensed, unlicensed, and shared spectrum including the provision
of network-as-a-service ("NaaS"), professional services, and data services that
are focused on delivering our core products for those converged networks. Our
private LTE networks are reliable carrier-grade cellular networks that provide
greater capacity, higher bandwidth, lower latency, and cellular grade network
and data security at lower cost than traditional DAS networks. Our private LTE
networks support multiple carriers and offer network segmenting options to
localize user traffic management based on types of devices connecting. For the
three months ended March 31, 2021, revenue from our Private Networks and
Emerging Technologies business accounted for approximately 2% of our revenue.
Our Multifamily business is primarily focused on providing a wireless broadband
solution to multi-dwelling properties including student housing, condominiums,
apartments, senior living, and hospitality properties throughout the U.S.
Multifamily revenue, which is driven by these multi-dwelling properties who
purchase network installation services and recurring monthly Wi-Fi services and
support or NaaS, accounted for approximately 9% of our revenue for the three
months ended March 31, 2021.
Our Legacy business is comprised of other product and service offerings to
wholesale and retail customers that are no longer considered core to our
business. We generate revenue from wholesale customers such as cable companies,
technology companies, and enterprise software/services companies, who pay us
usage-based Wi Fi network access and software licensing fees to allow their
customers' access to our worldwide footprint, financial institutions and other
enterprise customers who provide Boingo as a value added service for their
customers, retail consumers who purchase a recurring monthly subscription plan
or one-time Wi Fi access, advertisers that seek to reach consumers via sponsored
Wi Fi access, and venue partners and their tenants that require a turnkey Wi-Fi
solution through a Wi-Fi network infrastructure that we install, manage and
operate. For the three months ended March 31, 2021, revenue from our Legacy
business accounted for approximately 10% of our revenue.
In support of our overall business strategy, we are focused on the following
objectives:
? Leverage our neutral host business model to grow DAS, tower, small cell, and
wholesale roaming partnerships;
? Deploy Wi-Fi 6 and 5G networks with current and future venue partners;
? Expand our carrier offload relationships; and
? Expand our footprint of managed, operated and private networks.
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Merger
On February 26, 2021, we entered into an Agreement and Plan of Merger (the
"Merger Agreement") with White Sands Parent, Inc., a Delaware corporation
("Parent") and White Sands Bidco, Inc., a Delaware corporation and a wholly
owned subsidiary of Parent ("Merger Sub"), providing for the merger of Merger
Sub with and into our Company (the "Merger"), with our Company surviving the
Merger as a wholly owned subsidiary of Parent.
Under the terms of the agreement, our stockholders will receive $14.00 in cash
for each share of common stock they hold on the transaction closing date. The
obligations of the parties to consummate the acquisition is subject to customary
closing conditions, including the approval of the transaction by our
stockholders at a special meeting of the stockholders and the absence of legal
restraints and prohibitions against the transaction, among other conditions.
Following a 25-business day go-shop period, we are subject to customary
restrictions on or ability to solicit alternative acquisition proposals from
third parties and to provide non-public information to, and participate in
discussions and engage in negotiations with, third parties regarding alternative
acquisition proposals, with customary exceptions for superior proposals. The
go-shop period expired on April 2, 2021. The Merger Agreement requires the
Company to convene a special meeting of stockholders for purposes of obtaining
approval of the adoption of the Merger Agreement and to prepare and file with
the Securities and Exchange Commission (the "SEC") a proxy statement with
respect to such meeting. The Company filed its definitive proxy statement with
the SEC on April 28, 2021 and the special meeting is scheduled to be held on
June 1, 2021. For a summary of the transaction, please refer to Note
22-Subsequent Events in our annual report on Form 10-K and to our Form 8-K filed
with the SEC on March 1, 2021. Our annual report on Form 10-K was amended
through the Form 10-K/A filed with the SEC on April 28, 2021.
Impact of COVID-19 on Our Business
On March 12, 2020, the World Health Organization declared COVID-19 to be a
pandemic ("COVID-19"). In an effort to contain and mitigate the spread of
COVID-19, many countries, including the United States, have imposed
unprecedented restrictions on travel and business operations, and there have
been business closures and a substantial reduction in economic activity in
countries that have had significant outbreaks of COVID-19.
Uncertainty exists concerning the magnitude of the impact and duration of the
COVID-19 pandemic. We initially experienced some negative impacts primarily
related to travel bans and restrictions, quarantines, shelter-in-place or
stay-at-home orders, and business shutdowns. Specifically, the decrease in
passenger traffic at our managed and operated venue locations directly
contributed to a decline in new retail single-use access transactions and
recurring monthly subscription sign-ups, a decline in revenues generated from
wholesale Wi-Fi partners who pay usage-based fees, a decline in available
advertising inventory, and a decline in revenue received from tenants at our
managed and operated venue locations resulting from the cancellation of Wi-Fi
and other services. As the pandemic continues, we have seen some improvements in
passenger traffic at our managed and operated venue locations and remain hopeful
that this trend will continue. Although we continue to close and launch new
customer deals, we have also experienced an overall reduction in customer sales
due to COVID-19.
Certain states, including California, issued executive orders requiring all
workers to remain at home, unless their work is critical, essential, or
life-sustaining. While some restrictions have been lifted in certain states,
many restrictions continue to remain in place and some restrictions that have
previously been lifted have been reinstituted. We transitioned our corporate
employees to a work from home model and our employees have continued to
efficiently perform their functions throughout the pandemic. While we are unable
to determine or predict the nature, duration or scope of the overall impact that
the COVID-19 pandemic will have on our business, results of operations,
liquidity or capital resources, we will continue to actively monitor the
situation and may take further actions that alter our business operations as may
be required by federal, state, or local authorities or that we determine are in
the best interests of our employees, customers, and stockholders.
Key Business Metrics
In addition to monitoring traditional financial measures, we also monitor our
operating performance using key performance indicators. Our key performance
indicators follow:
DAS nodes.This metric represents the number of active DAS nodes as of the end of
the period. A DAS node is a single communications endpoint, typically an
antenna, which transmits or receives radio frequency signals wirelessly. This
measure is an indicator of the reach of our DAS network.
Subscribers- military. These metrics represent the number of paying Military
customers who are on a month-to-month subscription plan at a given period end.
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Revenue
Our revenue is generated from our Carrier Services, Military, Private Networks
and Emerging Technologies, Multifamily, and Legacy businesses.
Carrier services. We generate revenue from telecom operator partners that pay us
network build-out fees, inclusive of network upgrades, and access fees for our
DAS, tower, and small cell networks. We also generate revenue from telecom
operator partners that pay us to move traffic from their licensed cellular
networks onto our Wi-Fi networks at our managed and operated locations.
Military. We generate revenue from sales to Military retail individuals of
month-to-month network access subscriptions that automatically renew and hourly,
daily or other single-use access, primarily through charge card transactions. We
also generate revenue from the U.S. government for network installation services
and Wi-Fi services at specified locations on military bases on a bulk basis.
Private networks and emerging technologies. We generate revenue from venue
owners and non-telecom operator partners that pay us network build-out fees and
professional, management, and data service fees.
Multifamily. We generate Multifamily revenue from property owners who pay us a
recurring monthly fee for Wi-Fi services including building and maintaining the
network that supports these services and providing support for residents and
employees of the properties.
Legacy. We generate revenue from wholesale Wi-Fi partners that license our
software and pay usage-based monthly network access fees to allow their
customers to access our global Wi-Fi network. Usage-based network access fees
may be measured in minutes, connects, megabytes, or gigabytes, and in most cases
are subject to minimum volume commitments. Other wholesale Wi-Fi partners pay us
monthly fees to provide a Wi-Fi infrastructure that we install, manage and
operate at their venues for their customers under a service provider
arrangement. We also generate revenue from sales to Legacy retail individuals of
month-to-month network access subscriptions that automatically renew and hourly,
daily or other single-use access, primarily through charge card transactions,
advertisers that seek to reach visitors to our landing pages at our managed and
operated network locations with online advertising, promotional and sponsored
programs and at locations where we solely provide authorized access to a
partner's Wi-Fi network through sponsored access and promotional programs, and
partners in certain venues where we manage and operate the Wi-Fi network.
Results of Operations
In December 2019, the Company approved and adopted a plan to restructure the
Company's business operations to drive long term sustainable revenue growth,
better align resources, improve operational efficiencies and to increase
profitability. We completed our restructuring activities in October 2020. Prior
to the completion of the restructuring activities, we operated as one reportable
segment-a service provider of wireless connectivity solutions across our managed
and operated network and aggregated network for mobile devices such as laptops,
smartphones, tablets and other wireless-enabled consumer devices. This single
segment was consistent with the internal organizational structure and the manner
in which operations were reviewed and managed by our Chief Executive Officer,
the chief operating decision maker.
We currently have five reportable and operating segments: (i) carrier services
for the provision of wireless and cellular services to our wireless customers
("Carrier Services"); (ii) military for the provision of wireless services on
military bases ("Military"); (iii) private networks and emerging technologies
for the provision of licensed, unlicensed, and shared spectrum services for our
venue partners and non-telecom customers ("Private Networks and Emerging
Technologies"); (iv) multifamily for the provision of wireless services for our
multifamily property owners ("Multifamily"); and (v) legacy for the provision of
our other services such as retail, advertising, and wholesale Wi-Fi services to
enterprise customers ("Legacy"). Prior period segment results have been recast
to conform to the current presentation.
In August 2020, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") 2020-06, Debt - Debt with Conversion and
Other Options (Subtopic 470-20) and Derivatives and Hedging Contracts in
Entity's Own Equity (Subtopic 815-40), which eliminates the beneficial
conversion and cash conversion accounting models for convertible instruments,
amends the accounting for certain contracts in an entity's own equity that are
currently accounted for as derivatives because of specific settlement
provisions, and modifies how particular convertible instruments and certain
contracts that may be settled in cash or shares impact the diluted EPS
calculation. The standard is effective for annual periods beginning after
December 15, 2021, and interim periods within those reporting periods. Early
adoption is permitted, but no earlier than fiscal years beginning after December
15, 2020, including interim periods within those reporting periods. The standard
can be adopted under the modified retrospective method or the full retrospective
method. We adopted ASU 2020-06 on January 1, 2021 under the modified
retrospective method. Results for reporting periods beginning on January 1, 2021
are presented under ASU 2020-06, while prior period amounts are not adjusted.
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Adoption of ASU 2020-06 required us to record a cumulative effect adjustment,
net of tax, to accumulated deficit of $6,566 on January 1, 2021. In addition,
the adoption of the standard resulted in the following changes to the
consolidated balance sheet as of January 1, 2021:
January 1, 2021 Adjustment for January 1, 2021
(Unadjusted) Adoption (Adjusted)
Property and equipment, net $ 406,328 $ (6,076) $ 400,252
Long-term debt $ 171,695 $ 27,279 $ 198,974
Additional paid-in capital $ 241,868 $ (39,921) $ 201,947
The changes to the consolidated balance sheet as of January 1, 2021 were
primarily due to the following factors: (i) reclassification of the equity
component of our Convertible Notes related to the cash conversion feature to a
liability thereby eliminating the debt discount; (ii) reclassification of the
debt issuance costs for the equity component of our Convertible Notes to a
liability; (iii) adjustment of the amount of interest expense capitalized as
part of our property and equipment; and (iv) reversal of $5,686 of income tax
benefit related to the equity component of the Convertible Notes that was
recorded as additional paid-in capital. On January 1, 2021, we also reversed
$27,949 of gross deferred tax liabilities related to the equity component of our
Convertible Notes. The adoption of ASU 2020-06 did not have any impact on our
net deferred tax as of January 1, 2021 due to the valuation allowance. Effective
January 1, 2021, we calculate the dilutive effect of the Convertible Notes on
our diluted EPS using the if-converted method.
The following tables set forth our results of operations for the specified
periods:
Three Months Ended
March 31,
2021 2020(1)
(unaudited)
(in thousands)
Consolidated Statements of Operations Data:
Revenue $ 59,929 $ 59,886
Cost of sales 29,702 28,759
Gross profit 30,227 31,127
Selling, general and administrative expenses 35,148 32,601
Amortization of intangible assets 937 1,111
Loss from operations (5,858) (2,585)
Interest expense and amortization of debt discount (657) (2,349)
Interest income and other expense, net (2) 254
Loss before income taxes (6,517) (4,680)
Income tax expense (119) (45)
Net loss (6,636) (4,725)
Net loss attributable to non-controlling interests (192) (92)
Net loss attributable to common stockholders $ (6,444) $ (4,633)
Depreciation and amortization expense included in the above
line items:
Depreciation and amortization expense
$ 20,745 $ 18,646
Stockbased compensation expense included in the above line
items:
Stock-based compensation expense
$ 2,277 $ 1,537
(1) As noted above, prior period amounts have not been adjusted upon adoption of
ASU 2020-06 under the modified retrospective method.
Depreciation and amortization expense
Depreciation and amortization of property and equipment increased $2.1 million,
or 11.3% for the three months ended March 31, 2021, as compared to the three
months ended March 31, 2020, primarily as a result of our increased fixed assets
from our DAS build-out projects, Wi-Fi networks, and software development in
2020 and 2021.
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Stock-based compensation expense
Stock-based compensation expense increased $0.7 million, or 48.1% for the three
months ended March 31, 2021, as compared to the three months ended March 31,
2020. During the three months ended March 31, 2020, the Company recorded certain
out-of-period adjustments that decreased stock-based compensation expense and
net loss attributable to common stockholders by $0.5 million. The impact of
these out-of-period adjustments is not considered material, individually and in
the aggregate, to any of the current or prior annual periods. For each of the
three months ended March 31, 2021 and 2020, we capitalized $0.1 million,
respectively.
The following table sets forth our results of operations for the specified
periods as a percentage of our revenue for those periods:
Three Months Ended
March 31,
2021 2020(2)
(unaudited)
(as a percentage of revenue)
Consolidated Statements of Operations Data:
Revenue 100.0 % 100.0 %
Cost of sales 49.6 48.0
Gross profit 50.4 52.0
Selling, general and administrative expenses 58.6 54.4
Amortization of intangible assets 1.6 1.9
Loss from operations (9.8) (4.3)
Interest expense and amortization of debt discount (1.1) (3.9)
Interest income and other expense, net (0.0) 0.4
Loss before income taxes (10.9) (7.8)
Income tax expense (0.2) (0.1)
Net loss (11.1) (7.9)
Net loss attributable to non-controlling interests (0.3) (0.2)
Net loss attributable to common stockholders (10.8) % (7.7) %
(2) As noted above, prior period amounts have not been adjusted upon adoption of
ASU 2020-06 under the modified retrospective method.
Three Months ended March 31, 2021 and 2020
Revenue
Three Months Ended March 31,
2021 2020 Change % Change
(unaudited)
(in thousands, except percentages)
Revenue:
Carrier services $ 26,883 $ 26,848 $ 35 0.1
Military 20,645 18,002 2,643 14.7
Multifamily 5,304 5,224 80 1.5
Legacy 6,204 9,302 (3,098) (33.3)
Private networks and emerging technologies 893 510 383 75.1
Total revenue $ 59,929 $ 59,886 $ 43 0.1
Key business metrics:
DAS nodes 41.5 39.5 2.0 5.1
Subscribers-military 137 135 2 1.5
Carrier services. Carrier Services revenue remained relatively consistent for
the three months ended March 31, 2021, as compared to the three months ended
March 31, 2020. Build-out revenues for the three months ended March 31, 2020
includes a $1.1 million short-term build project that included the sale of
equipment that was completed during this period.
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Military. Military revenue increased $2.6 million, or 14.7%, for the three
months ended March 31, 2021, as compared to the three months ended March 31,
2020, primarily due to a $1.6 million increase in military retail revenue, which
was driven primarily by the increase in military subscribers and a 7.6% increase
in the average monthly revenue per military subscriber in 2021 compared to 2020.
The remaining increase in attributable to a $1.0 million increase in bulk
services sold to the military.
Multifamily. Multifamily revenue remained relatively consistent for the three
months ended March 31, 2021, as compared to the three months ended March 31,
2020.
Legacy. Legacy revenue decreased $3.1 million, or 33.3%, for the three months
ended March 31, 2021, as compared to the three months ended March 31, 2020,
primarily due to a $1.3 million decrease in retail revenue primarily due to a
decrease in retail subscribers, a $1.1 million decrease in advertising sales at
our managed and operated locations primarily due to a decline in the number of
premium ad units sold, and a $0.8 million decrease in fees earned from our venue
partners who pay us to provide a Wi-Fi infrastructure that we install, manage,
and operate at their venues. The decreases in retail and advertising revenue
have been exacerbated by the significant declines in venue traffic due to
COVID-19.
Private networks and emerging technologies. Private networks and emerging
technologies revenue increased $0.4 million, or 75.1%, for the three months
ended March 31, 2021, as compared to the three months ended March 31, 2020, due
to a $0.4 million increase in network installation revenues for venue owned
build projects.
Cost of Sales and Gross Profit
Three Months Ended March 31,
2021 2020 Change % Change
(unaudited)
(in thousands, except percentages)
Cost of sales:
Carrier services $ 17,737 $ 16,175 $ 1,562 9.7
Military 4,757 4,505 252 5.6
Multifamily 3,905 3,732 173 4.6
Legacy 3,035 4,336 (1,301) (30.0)
Private networks and emerging technologies 268 11 257 2,336.4
Total cost of sales $ 29,702 $ 28,759 $ 943 3.3
Three Months Ended March 31,
2021 2020 Change % Change
(unaudited)
(in thousands, except percentages)
Gross profit:
Carrier services 34.0 % 39.8 % (5.7) % (14.4)
Military 77.0 75.0 2.0 2.6
Multifamily 26.4 28.6 (2.2) (7.6)
Legacy 51.1 53.4 (2.3) (4.3)
Private networks and emerging technologies 70.0 97.8 (27.9) (28.5)
Total gross profit
50.4 % 52.0 % (1.5) % (3.0)
Carrier services. Carrier Services cost of sales increased $1.6 million, or
9.7%, for the three months ended March 31, 2021, as compared to the three months
ended March 31, 2020, primarily due to a $2.0 million increase in depreciation
expense resulting from our increased fixed assets from our build-out projects.
The increase was partially offset by a $0.4 million decrease in direct and other
cost of revenue. Other costs of revenue for the three months ended March 31,
2020 included $0.9 million of costs directly related to a short-term project
that was completed during this period. Carrier Services gross profit decreased
570 basis points for the three months ended March 31, 2021, as compared to the
three months ended March 31, 2020, primarily due to the increase in depreciation
expense.
Military. Military cost of sales increased $0.3 million, or 5.6%, for the three
months ended March 31, 2021, as compared to the three months ended March 31,
2020, primarily due to a $0.6 million increase in revenue share paid to our
military bases, partially offset by $0.3 million decrease in direct and other
cost of revenue. Military gross profit increased 200 basis points for the three
months
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ended March 31, 2021, as compared to the three months ended March 31, 2020,
primarily due to the increase in our average monthly revenue per military
subscriber in 2021 compared to 2020.
Multifamily. Multifamily cost of sales and gross profit remained relatively
consistent for the three months ended March 31, 2021, as compared to the three
months ended March 31, 2020.
Legacy. Legacy cost of sales decreased $1.3 million, or 30.0%, for the three
months ended March 31, 2021, as compared to the three months ended March 31,
2020, primarily due to a $0.4 million decrease in revenue share paid to venues
in our managed and operated locations, a $0.4 million decrease in direct and
other cost of revenue, a $0.3 million decrease in depreciation expense, and a
$0.2 million decrease from customer usage at partner venues. Legacy gross profit
decreased 230 basis points for the three months ended March 31, 2021, as
compared to the three months ended March 31, 2020, primarily due to the decrease
in our higher margin retail subscriber revenue.
Private networks and emerging technologies. Private networks and emerging
technologies cost of sales increased $0.3 million for the three months ended
March 31, 2021, as compared to the three months ended March 31, 2020, due to a
$0.3 million increase in construction costs for our network installation
projects. Private networks and emerging technologies gross profit decreased to
70.0% in 2021, as compared to 97.8% for the three months ended March 31, 2020
primarily due to higher costs incurred on these network installation projects.
Selling, General and Administrative Expenses
Three Months Ended March 31,
2021 2020 Change % Change
(unaudited)
(in thousands, except percentages)
Selling, general and administrative expenses
Carrier services $ 6,334 $ 4,552 $ 1,782 39.1
Military 8,493 8,568 (75) (0.9)
Multifamily 2,503 2,779 (276) (9.9)
Legacy 3,436 4,280 (844) (19.7)
Private networks and emerging technologies 550 60 490 816.7
Corporate 13,832 12,362 1,470 11.9
Total selling, general and administrative expenses $ 35,148 $ 32,601 $ 2,547 7.8
Carrier services. Carrier services selling, general and administrative expenses
increased $1.8 million, or 39.1%, for the three months ended March 31, 2021, as
compared to the three months ended March 31, 2020, primarily due to a $0.7
million increase in marketing and advertising expenses, a $0.4 million increase
in depreciation expense, a $0.4 million increase in personnel related expenses,
and a $0.2 million increase in network maintenance expenses.
Military. Military selling, general and administrative expenses decreased
slightly for the three months ended March 31, 2021, as compared to the three
months ended March 31, 2020, primarily due to a $0.4 million increase in
depreciation expense and a $0.4 million increase in personnel related expenses,
which were partially offset by a $0.3 million decrease in hardware and software
maintenance expenses and a $0.2 million decrease in cloud services.
Multifamily. Multifamily selling, general and administrative expenses decreased
$0.3 million, or 9.9%, for the three months ended March 31, 2021, as compared to
the three months ended March 31, 2020, due to a $0.1 million decrease in
consulting expense, a $0.1 million decrease in rent and facilities, and a $0.1
million decrease in cloud services.
Legacy. Legacy selling, general and administrative expenses decreased $0.8
million, or 19.7% for the three months ended March 31, 2021, as compared to the
three months ended March 31, 2020, primarily due to a $0.3 million decrease in
depreciation expense, a $0.3 million decrease in cloud services, and a $0.2
million decrease in network maintenance expenses.
Private networks and emerging technologies. Private networks and emerging
technologies selling, general and administrative expenses increased $0.5 million
for the three months ended March 31, 2021, as compared to the three months ended
March 31, 2020, primarily due to an increase in personnel related expenses.
Corporate. Corporate selling, general and administrative expenses increased $1.5
million, or 11.9%, for the three months ended March 31, 2021, as compared to the
three months ended March 31, 2020, primarily due to a $3.2 million increase in
transaction costs, which was partially offset by a $1.3 million decrease in
personnel related expenses, a $0.3 million decrease in depreciation expense, and
a $0.2 million decrease in outside services fees.
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Amortization of Intangible Assets
Amortization of intangible assets expense remained relatively consistent for the
three months ended March 31, 2021, as compared to the three months ended March
31, 2020.
Interest Expense and Amortization of Debt Discount
Interest expense and amortization of debt discount decreased $1.7 million, or
72.0%, for the three months ended March 31, 2021, as compared to the three
months ended March 31, 2020, primarily due to the adoption of ASU 2020-06
effective January 1, 2021. During the three months ended March 31, 2021 and
2020, we capitalized $0.4 million and $0.8 million, respectively, of interest
expense.
Interest Income and Other Expense, Net
Interest income and other expense, net decreased $0.3 million, or 100.8% for the
three months ended March 31, 2021, as compared to the three months ended March
31, 2020, primarily due to a decrease in interest income related to our
marketable securities balances in 2021.
Income Tax Expense
There were no significant changes in income tax expense for the three months
ended March 31, 2021, as compared to the three months ended March 31, 2020. The
change in our effective tax rate to 1.8% for the three months ended March 31,
2021, as compared to 1.0% for the three months ended March 31, 2020, is
primarily due to minimum state taxes.
Non-controlling Interests
Non-controlling interests remained relatively consistent for the three months
ended March 31, 2021, as compared to the three month ended March 31, 2020.
Net Loss Attributable to Common Stockholders
Net loss attributable to common stockholders increased $1.8 million for the
three months ended March 31, 2021, as compared to the three months ended March
31, 2020, primarily due to the $2.5 million increase in selling, general and
administrative expenses, the $0.9 million increase in cost of sales, and the
$0.3 million decrease in interest income and other expense, net. The charges
were partially offset by the $1.7 million decrease in interest expense and
amortization of debt discount. Our diluted net loss per share increased
primarily as a result of the increase in our net loss.
Reconciliation of Non-GAAP Financial Measures
We define Adjusted EBITDA as net loss attributable to common stockholders plus
depreciation and amortization of property and equipment, stock-based
compensation expense, amortization of intangible assets, income tax expense,
interest expense and amortization of debt discount, interest income and other
expense, net, non-controlling interests, and excludes charges or gains that are
non-recurring, infrequent, or unusual.
We believe that Adjusted EBITDA is useful to investors and other users of our
financial statements in evaluating our operating performance because it provides
them with an additional tool to compare business performance across companies
and across periods. We believe that:
Adjusted EBITDA provides investors and other users of our financial information
consistency and comparability with our past financial performance, facilitates
? period-to-period comparisons of operations and facilitates comparisons with
other companies, many of which use similar non-generally accepted accounting
principles in the United States ("GAAP") financial measures to supplement their
GAAP results; and
it is useful to exclude (i) non-cash charges, such as depreciation and
amortization of property and equipment, amortization of intangible assets and
stock-based compensation, from Adjusted EBITDA because the amount of such
expenses in any specific period may not directly correlate to the underlying
? performance of our business operations, and these expenses can vary
significantly between periods as a result of full amortization of previously
acquired tangible and intangible assets or the timing of new stock-based awards
and (ii) transaction costs because they represent non-recurring charges and are
not indicative of the underlying performance of our business operations.
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We use Adjusted EBITDA in conjunction with traditional GAAP measures as part of
our overall assessment of our performance, for planning purposes, including the
preparation of our annual operating budget and quarterly forecasts, to evaluate
the effectiveness of our business strategies and to communicate with our board
of directors concerning our financial performance.
We do not place undue reliance on Adjusted EBITDA as our only measure of
operating performance. Adjusted EBITDA should not be considered as a substitute
for other measures of financial performance reported in accordance with GAAP.
There are limitations to using non-GAAP financial measures, including that other
companies may calculate these measures differently than we do.
We compensate for the inherent limitations associated with using Adjusted EBITDA
through disclosure of these limitations, presentation of our financial
statements in accordance with GAAP and reconciliation of Adjusted EBITDA to the
most directly comparable GAAP measure, net loss attributable to common
stockholders.
The following provides a reconciliation of net loss attributable to common
stockholders to Adjusted EBITDA:
Three Months Ended
March 31,
2021 2020(3)
(unaudited)
(in thousands)
Net loss attributable to common stockholders $ (6,444) $ (4,633)
Depreciation and amortization of property and equipment 20,745 18,646
Stock-based compensation expense
2,277 1,537
Amortization of intangible assets 937 1,111
Income tax expense 119 45
Interest expense and amortization of debt discount 657 2,349
Interest income and other expense, net 2 (254)
Non-controlling interests (192) (92)
Transaction costs 3,204 -
Adjusted EBITDA $ 21,305 $ 18,709
(3) As noted above, prior period amounts have not been adjusted upon adoption of
ASU 2020-06 under the modified retrospective method.
Adjusted EBITDA was $21.3 million for the three months ended March 31, 2021, an
increase of 13.9% from $18.7 million recorded in the three months ended March
31, 2020. As a percent of revenue, Adjusted EBITDA was 35.6% for the three
months ended March 31, 2021, up from 31.2% of revenue for the three months ended
March 31, 2020. The Adjusted EBITDA increase was primarily due to the $3.2
million increase in transaction costs, the $2.1 million increase in depreciation
and amortization of property and equipment, and the $0.7 million increase in
stock based compensation expense. The changes were partially offset by the $1.8
million increase in net loss attributable to common stockholders and the $1.7
million decrease in interest expense and amortization of debt discount.
Liquidity and Capital Resources
We have financed our operations primarily through cash provided by operating
activities and borrowings under our Convertible Notes (defined below) and credit
facilities. Our primary sources of liquidity as of March 31, 2021 consisted of
$36.3 million of cash and cash equivalents and $150.0 million available for
borrowing under our Credit Facility, $12.9 million of which is reserved for our
outstanding Letter of Credit Authorization agreements.
Our principal uses of liquidity have been to fund our operations, working
capital requirements, capital expenditures and acquisitions. We expect that
these requirements will be our principal needs for liquidity over the near term.
Our capital expenditures in the three months ended March 31, 2021 were $22.1
million, of which $18.5 million will be reimbursed through revenue for Carrier
Services build-out projects from our telecom operators.
In February 2019, we entered into a Credit Agreement (the "Credit Agreement")
and related agreements with Bank of America, N.A. acting as agent for lenders
named therein, including Bank of America, N.A., Silicon Valley Bank, Bank of the
West, Zions Bancorporation, N.A. dba California Bank & Trust, and Barclays Bank
PLC (the "Lenders"), for a secured credit facility in the form of a revolving
line of credit up to $150.0 million (the "Revolving Line of Credit") and a term
loan of $3.5 million (the "Term Loan" and together with the Revolving Line of
Credit, the "Credit Facility"). Our Credit Facility will mature on April 3,
2023. Amounts borrowed under the Revolving Line of Credit and Term Loan will
bear variable interest at the greater of LIBOR plus 1.75% - 2.75%
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or Lender's Prime Rate plus 0.75% - 1.75% per year and we will pay a fee of
0.25% - 0.5% per year on any unused portion of the Revolving Line of Credit. As
of March 31, 2021, we had $1.7 million outstanding under the Term Loan, and we
had no amounts outstanding under the Revolving Line of Credit. The Term Loan
requires quarterly payments of interest and principal, amortizing fully over the
term such that it is repaid in full on the maturity date of April 3, 2023. For
the three months ended March 31, 2021, the interest rate for our Credit Facility
was 2.0%.
Repayment of amounts borrowed under the Credit Facility may be accelerated in
the event that we are in violation of the representation, warranties and
covenants made in the Credit Agreement, including certain financial covenants
set forth therein, and under other specific default events including, but not
limited to, non-payment or inability to pay debt, breach of cross default
provisions, insolvency provisions, and change in control. We are subject to
customary covenants, including a minimum quarterly consolidated senior secured
leverage ratio, a minimum quarterly consolidated total leverage ratio, a maximum
quarterly consolidated fixed charge coverage ratio, and cash on hand minimums.
We complied with all such financial and non-financial covenants through the date
of this report. The Credit Facility provides us with significant additional
flexibility and liquidity to pursue our strategic objectives for capital
expenditures and acquisitions that we may pursue from time to time.
In October 2018, we sold, through the initial purchasers, convertible senior
notes ("Convertible Notes") to qualified institutional buyers pursuant to Rule
144A of the Securities Act of 1933, as amended, for gross proceeds of $201.25
million. The Convertible Notes are senior, unsecured obligations with interest
payable semi-annually in cash at a rate of 1.00% per annum on April 1st and
October 1st of each year. The Convertible Notes will mature on October 1, 2023
unless they are redeemed, repurchased or converted prior to such date. Prior to
April 1, 2023, the Convertible Notes are convertible at the option of holders
only during certain periods and upon satisfaction of certain conditions.
Thereafter, the Convertible Notes will be convertible at any time until the
close of business on the second scheduled trading day immediately preceding the
maturity date. Upon conversion, the Convertible Notes may be settled in shares
of our common stock, cash or a combination of cash and shares of our common
stock, at our election.
The Convertible Notes have an initial conversion rate of 23.6323 shares of
common stock per $1 principal amount of the Convertible Notes, which will be
subject to customary anti-dilution adjustments in certain circumstances. This
represents an initial effective conversion price of approximately $42.31 per
share.
We may redeem all or any portion of the Convertible Notes, at our option, on or
after October 5, 2021, at a redemption price equal to 100% of the principal
amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest
to, but excluding, the redemption date, if the last reported sale price of our
stock has been at least 130% of the conversion price then in effect for at least
20 trading days (whether or not consecutive) during any 30 consecutive trading
day period (including the last trading day of such period) ending on, and
including, the trading day immediately preceding the date on which we provide
written notice of redemption.
Holders of Convertible Notes may require us to repurchase their Convertible
Notes upon the occurrence of certain events that constitute a fundamental change
under the indenture governing the Convertible Notes at a fundamental change
repurchase price equal to 100% of the principal amount thereof, plus accrued and
unpaid interest to, but excluding, the date of repurchase. In connection with
certain corporate events or if we issue a notice of redemption prior to the
maturity date, it will, under certain circumstances, increase the conversion
rate for holders who elect to convert their Convertible Notes in connection with
such corporate event or notice of redemption.
In connection with the pricing of the Convertible Notes, we entered into
privately negotiated capped call transactions with a financial institution. The
capped call transactions initially cover, subject to customary anti-dilution
adjustments, the number of shares of our common stock that initially underlie
the Convertible Notes. The cap price of the capped call transactions is
initially $65.10 per share of our common stock, and is subject to certain
adjustments under the terms of the capped call transactions. The capped call
transactions are expected generally to reduce potential dilution to our common
stock upon conversion of the Convertible Notes and/or offset the potential cash
payments that we could be required to make in excess of the principal amount of
any converted Convertible Notes upon conversion thereof, with such reduction
and/or offset subject to a cap based on the cap price.
We believe that our existing cash and cash equivalents, cash flow from
operations and availability under the Credit Facility will be sufficient to fund
our operations and planned capital expenditures for at least the next 12 months
from the date of issuance of our financial statements. Specifically, the Company
generally has long-term contracts with its customers that generate significant
recurring cash flows that can be used to fund operations and the Company has
$150.0 million available for borrowing under the Credit Facility as of March 31,
2021. One of the Company's largest uses of cash is for capital expenditures,
which are generally discretionary in nature. There can be no assurance, however,
that future industry-specific or other developments, general economic trends, or
other matters will not adversely affect our operations or our ability to meet
our future cash requirements. Our future capital requirements will depend on
many factors, including our rate of revenue growth and corresponding timing of
cash collections, the timing and size of our managed and operated location
expansion efforts, the timing and extent of spending to support product
development efforts, the timing of introductions of new solutions and
enhancements to existing solutions and the continuing market acceptance of our
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solutions. We expect our capital expenditures for 2021 will range from $125.0
million to $140.0 million, including $100.0 million to $110.0 million of capital
expenditures for Carrier Services build-out projects which are reimbursed
through revenue from our telecom operator customers. We anticipate the majority
of our 2021 capital expenditures will be used to build out and upgrade Wi-Fi and
DAS networks at our managed and operated venues.
We have contracts with the U.S. government. The U.S. government may modify,
curtail or terminate its contracts with us, either at its convenience or for
default based on performance. Any such modification, curtailment, or termination
of one or more of our government contracts could have a material adverse effect
on our earnings, cash flow and/or financial position. We may also enter into
other acquisitions of complementary businesses, applications or technologies,
which could require us to seek additional equity or debt financing. Additional
funds may not be available on terms favorable to us, or at all.
The following table sets forth cash flow data for the three months ended March
31:
2021 2020
(unaudited)
(in thousands)
Net cash provided by operating activities $ 18,966 $ 19,033
Net cash used in investing activities (17,640) (11,659)
Net cash (used in) provided by financing activities (1,168) 98,177
Net Cash Provided by Operating Activities
For the three months ended March 31, 2021, we generated $19.0 million of net
cash from operating activities, a decrease of $0.1 million from 2020. The
decrease is primarily due to a $1.9 million decrease in amortization of debt
discount and a $1.9 million increase in our net loss. These changes were offset
by a $2.1 million increase in depreciation and amortization expense, a $1.0
million increase in our operating assets and liabilities, and a $0.7 million
increase in stock based compensation expense.
Net Cash Used in Investing Activities
For the three months ended March 31, 2021, we used $17.6 million in investing
activities, an increase of $6.0 million from 2020. The increase is due to a $6.4
million decrease in net proceeds from maturities of marketable securities, which
was partially offset by a $0.4 million decrease in purchases of property and
equipment in 2021.
Net Cash (Used in) Provided by Financing Activities
For the three months ended March 31, 2021, we used $1.2 million of cash in
financing activities, compared to $98.2 million of cash provided by financing
activities in 2020. This change is primarily due to a $100.0 million decrease in
proceeds from our Credit Facility, which was partially offset by a $0.8 million
decrease in principal payments for our finance leases and notes payable.
Contractual Obligations and Commitments
We have the following contractual obligations and commitments as of March 31,
2021: (i) payments under exclusive long-term, non-cancellable contracts to
provide wireless communications network access to venues such as airports; (ii)
non-cancellable operating leases for office and other spaces and finance leases
for equipment, primarily for data communication equipment and database software;
(iii) open purchase commitments are for the purchase of property and equipment,
supplies and services; (iv) long-term debt associated with our Convertible Notes
are based on contractual terms and intended timing of repayments of long-term
debt; (v) debt associated with our Credit Agreement with Bank of America N.A.
Payments are based on contractual terms and intended timing of repayments; and
(vi) payments under notes payable related to purchases of prepaid maintenance
services. Payments to our venues and open purchase commitments are not recorded
as liabilities on our condensed consolidated balance sheet as of March 31, 2021
as these are not lease arrangements accounted for in accordance with ASC 842,
Leases, and we have not received the related goods or services. As of March 31,
2021, we have $34.5 million of commitments to our venues that will primarily be
paid to our venue partners over the next seven years and $39.0 million of
purchase commitments that will primarily be paid to our suppliers over the next
one-year period.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet financing arrangements and we do not have
any relationships with unconsolidated entities or financial partnerships, such
as entities often referred to as structured finance or special purpose entities,
which have been established for the purpose of facilitating off-balance sheet
arrangements or other contractually narrow or limited purposes.
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Critical Accounting Policies and Estimates
There have been no material changes to our critical accounting policies and
estimates from the information provided for the year ended December 31, 2020 in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," included in our annual report on Form 10-K filed by us with the SEC
on March 1, 2021, as amended through the Form 10-K/A filed with the SEC on April
28, 2021.
Recently Issued Accounting Standards
Information regarding recent accounting pronouncements is contained in Note 2
"Summary of Significant Accounting Policies" to the accompanying condensed
consolidated financial statements included in Part I, Item 1, of this Quarterly
Report on Form 10-Q and under "Critical Accounting Policies and Estimates" in
Part I, Item II, of this Quarterly Report on Form 10-Q, the information of which
is incorporated herein by this reference.
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