BOINGO WIRELESS, INC. The following discussion and analysis of our financial condition and results of operations should be read together with our audited consolidated financial statements and accompanying notes included elsewhere in this filing. This discussion contains forward-looking statements, based on current expectations and related to our plans, estimates, beliefs and anticipated future financial performance. These statements involve risks and uncertainties and our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under "Risk Factors," "Forward-Looking Statements" and elsewhere in this filing.
Overview
We believe we are the leading global provider of neutral host commercial mobile Wi-Fi Internet solutions and indoor DAS services in the world. Our software applications and solutions enable individuals to access our extensive global Wi-Fi networks. We operate 74 DAS networks containing approximately 41,200 nodes. Our offerings provide compelling cost and performance advantages to our customers and partners. Revenue decreased 10.0% from$263.8 million in 2019 to$237.4 million in 2020. Our net loss attributable to common stockholders increased from$10.3 million in 2019 to$17.1 million in 2020. Adjusted EBITDA increased from$82.6 million in 2019 to$83.5 million in 2020, an increase of 1.0%. For a discussion of Adjusted EBITDA and a reconciliation of net loss attributable to common stockholders to Adjusted EBITDA, see "Adjusted EBITDA" section in this Item 7. The proliferation of smartphones, tablets, laptops, wearables, and other Wi-Fi enabled devices-in conjunction with the increased consumption of high-bandwidth activities like video, online gaming, streaming, cloud-based applications and mobile apps-has created a demand for high-speed, high-bandwidth Internet access in public places both large and small. We believe these trends present us with opportunities to generate significant growth in revenue and profitability.
Merger
On
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 obligation 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 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 our 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. For a summary of the transaction, please refer to Note 22-Subsequent Events in our consolidated financial statements of this Annual Report and to our Form 8-K filed with theU.S. Securities and Exchange Commission (the "SEC") onMarch 1, 2021 .
Impact of COVID-19 on Our Business
On
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
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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 new customer sales due to COVID-19. Certain states, includingCalifornia , 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.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity withU.S. GAAP and rules and regulations of theSEC requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as the disclosure of contingent assets and liabilities, at the date of the financial statements. Such estimates and assumptions also affect the reported amounts of revenues and expenses during the reporting period. Although we believe these estimates are reasonable, actual results could differ from these estimates. On a regular basis, we evaluate our assumptions, judgments and estimates. We also discuss our critical accounting policies and estimates with the Audit Committee of the Board of Directors.
We believe that the assumptions and estimates associated with revenue recognition, goodwill, measuring recoverability of long-lived assets, stock-based compensation and income taxes have the greatest potential impact on our consolidated financial statements. Therefore, we believe the accounting policies discussed below are paramount to understanding our historical and future performance, as these policies relate to the more significant areas involving our management's judgments, assumptions and estimates.
Revenue Recognition
We generate revenue from several sources including: (i) telecom operators under
long-term contracts for access to our DAS, macro tower, small cell, and Wi-Fi
networks at our managed and operated locations, (ii) military and retail
customers under subscription plans for month-to-month network access that
automatically renew, and military and retail single-use access from sales of
hourly, daily or other single-use access plans, (iii) arrangements with property
owners for multifamily properties that provide for network installation and
monthly Wi-Fi services and support for residents and employees or
network-as-a-service ("NaaS"), (iv) arrangements with wholesale Wi-Fi customers
that provide software licensing, network access, and/or professional services
fees, and (v) display advertisements and sponsorships on our walled garden
sign-in pages. Software licensed by our wholesale platform services customers
can only be used during the term of the service arrangements and has no utility
to them upon termination of the service arrangement.
Revenues are recognized when a contract with a customer exists and control of
the promised goods or services is transferred to our customers, in an amount
that reflects the consideration we expect to be entitled to in exchange for
those goods or services and the identified performance obligation has been
satisfied. Contracts entered into at or near the same time with the same
customer are combined and accounted for as a single contract if the contracts
have a single commercial objective, the amount of consideration is dependent on
the price or performance of the other contract, or the services promised in the
contracts are a single performance obligation. Contract amendments are routine
in the performance of our DAS, tower, small cell, wholesale Wi-Fi, and
advertising contracts. Contracts are often amended to account for changes in
contract specifications or requirements to expand network access services. In
most instances, our DAS, tower, small cell, and wholesale Wi-Fi contract
amendments are for additional goods or services that are distinct, and the
contract price increases by an amount that reflects the standalone selling price
of the additional goods or services; therefore, such contract amendments are
accounted for as separate contracts. Contract amendments for our advertising
contracts are also generally for additional goods or services that are distinct;
however, the contract price does not increase by an amount that reflects the
standalone selling price of the additional goods or services. Advertising
contract amendments are therefore generally accounted for as contract
modifications under the prospective method. Contract amendments to transaction
prices with no change in remaining services are accounted for as contract
modifications under the cumulative catch-up method.
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A performance obligation is a promise in a contract to transfer a distinct good
or service to the customer and is the unit of account in Accounting Standards
Codification ("ASC") 606, Revenue from Contracts with Customers. A contract's
transaction price is allocated to each distinct performance obligation and is
recognized as revenue when, or as, the performance obligation is satisfied,
which typically occurs when the services are rendered. Determining whether
products and services are considered distinct performance obligations that
should be accounted for separately versus together may require significant
judgment. Our contracts with customers may include multiple performance
obligations. For such arrangements, we allocate revenue to each performance
obligation based on its relative standalone selling price. We generally
determine standalone selling prices based on the prices charged to customers.
Judgment may be used to determine the standalone selling prices for items that
are not sold separately, including services provided at no additional charge.
Most of our performance obligations are satisfied over time as services are
provided. We generally recognize revenue on a gross basis as we are primarily
responsible for fulfilling the promises to provide the specified goods or
services, we are responsible for paying all costs related to the goods or
services before they have been transferred to the customer, and we have
discretion in establishing prices for the specified goods or services. Revenue
is presented net of any sales and value added taxes.
Payment terms vary on a contract-by-contract basis, although terms generally
include a requirement of payment within 30 to 60 days for non-recurring
payments, the first day of the monthly or quarterly billing cycle for recurring
payments for DAS, tower, small cell, and wholesale Wi-Fi contracts, and the
first day of the month prior to the month that services are provided for
Multifamily contracts. We apply a practical expedient for purposes of
determining whether a significant financing component may exist for our
contracts if, at contract inception, we expect that the period between when we
transfer the promised good or service to the customer and when the customer pays
for that good or service will be one year or less. In instances where the
customer pays for a good or service one year or more in advance of the period
when we transfer the promised good or service to the customer, we have
determined our contracts generally do not include a significant financing
component. The primary purpose of our invoicing terms is not to receive
financing from our customers or to provide customers with financing but rather
to maximize our profitability on the customer contract. Specifically, inclusion
of non-refundable upfront fees in our long-term customer contracts increase the
likelihood that the customer will be committed through the end of the
contractual term and ensures recoverability of the capital outlay that we incur
in expectation of the customer fulfilling its contractual obligations. We may
also provide service credits to our customers if we fail to meet contractual
monthly system uptime requirements and we account for the variable consideration
related to these service credits using the most likely amount method.
For contracts that include variable consideration, we estimate the amount of
consideration at contract inception under the expected value method or the most
likely amount method and include the amount of variable consideration that is
not considered to be constrained. Significant judgment is used in constraining
estimates of variable consideration. We update our estimates at the end of each
reporting period as additional information becomes available.
Timing of revenue recognition may differ from the timing of invoicing to
customers. We record unbilled receivables (contract assets) when revenue is
recognized prior to invoicing, deferred revenue (contract liabilities) when
revenue is recognized after invoicing, and receivables when we have an
unconditional right to consideration to invoice and receive payment in the
future. We present our DAS, Multifamily, and Legacy wholesale Wi-Fi contracts in
our consolidated balance sheet as either a contract asset or a contract
liability with any unconditional rights to consideration presented separately as
a receivable. Our other customer contracts generally do not have any significant
contract asset or contract liability balances. Generally, a significant portion
of the billing for our DAS contracts occurs prior to revenue recognition,
resulting in our DAS contracts being presented as contract liabilities. In
contrast, our Legacy wholesale Wi-Fi contracts and Multifamily
network-as-a-service ("NaaS") contracts that contain recurring fees with annual
escalations are generally presented as contract assets as revenue is recognized
prior to invoicing. Our Multifamily network construction, service and support
contracts can be presented as either contract liabilities or contract assets
primarily as a result of timing of invoicing for the network installations.
We recognize an asset for the incremental costs of obtaining a contract with a
customer if we expect the benefit of those costs to be longer than one year. We
have determined that certain sales incentive programs meet the requirements to
be capitalized. Total capitalized costs to obtain a contract were immaterial
during the years ended December 31, 2020 and 2019 and are included in prepaid
expenses and other current assets and non-current other assets on our
consolidated balance sheets. We apply a practical expedient to expense costs as
incurred for costs to obtain a contract with a customer when the amortization
period would have been one year or less. Contract costs are evaluated for
impairment in accordance with ASC 310, Receivables.
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Carrier services
DAS, towers, and small cells
We enter into long-term contracts with telecom operators for access to our DAS,
tower, and small cell networks at our managed and operated locations. The
initial term of our DAS, tower, and small cell contracts with telecom operators
can range up to 20 years and the agreements generally contain renewal options.
Some of our contracts provide termination for convenience clauses that may or
may not include substantive termination penalties. We apply judgment in
determining the contract term, the period during which we have present and
enforceable rights and obligations. Our DAS, tower, and small cell customer
contracts generally contain a single performance obligation-provide
non-exclusive access to our DAS, tower, and small cell networks to provide
telecom operators' customers with access to the licensed wireless spectrum,
together with providing telecom operators with construction, installation,
optimization/engineering, maintenance services and agreed-upon storage space for
the telecom operators' transmission equipment, each related to providing such
licensed wireless spectrum to the telecom operators. The performance obligation
is considered a series of distinct services as the performance obligation is
satisfied over time and the same time-based input method would be used to
measure our progress toward complete satisfaction of the performance obligation
to transfer each distinct service in the series to the customer. Our contract
fee structure generally includes a non-refundable upfront fee and we evaluated
whether customer options to renew services give rise to a material right that
should be accounted for as a separate performance obligation because of those
non-refundable upfront fees. We apply significant judgment in determining
whether the customer options to renew services give rise to a material right
that should be accounted for as a separate performance obligation. We believe
that a material right generally does not exist for our DAS, tower, and small
cell customer contracts that contain renewal options because the telecom
operators' decision to renew is highly dependent upon our ability to maintain
our exclusivity as the DAS, tower, and small cell service provider at the venue
location and our limited operating history with venue and customer renewals. The
telecom operators will make the decision to incur the capital improvement costs
at the venue location irrespective of our remaining exclusivity period with the
venue as the telecom operators expect that the assets will continue to be
serviced regardless of whether we will remain such exclusive DAS, tower, and
small cell service provider. Our contracts also provide our DAS, tower, and
small cell customers with the option to purchase additional future services such
as upgrades or enhancements. This option is not considered to provide the
customer with a material right that should be accounted for as a separate
performance obligation since the cost of the additional future services depends
entirely on the market rate of such services at the time such services are
requested, and we are not automatically obligated to stand ready to deliver
these additional goods or services as the customer may reject our proposal.
Periodically, we install and sell DAS, tower, and small cell networks to
customers where we do not have service contracts or remaining obligations beyond
the installation of those networks, and we recognize build-out fees for such
projects as revenue when the installation work is completed and the network has
been accepted by the customer or using a cost-to-cost method over the network
installation period depending on when control is transferred to the customer.
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Our contract fee structure may include varying components of an upfront
build-out fee and recurring access, maintenance, and other fees. The upfront
build-out fee is generally structured as a firm-fixed price or cost-plus
arrangement and becomes payable as certain contract and/or construction
milestones are achieved. Our DAS, tower, and small cell networks are generally
neutral host networks that can accommodate multiple telecom operators. Some of
our DAS customer contracts provide for credits that may be issued to existing
telecom operators for additional telecom operators subsequently joining the DAS
network. The credits are generally based upon a fixed dollar amount per
additional telecom operator, a fixed percentage amount of the original build-out
fee paid by the telecom operator per additional telecom operator, or a
proportionate share based upon the split among the relevant number of telecom
operators for the actual costs incurred by all telecom operators to construct
the DAS network. In most cases, there is significant uncertainty on whether
additional telecom operator contracts will be executed at inception of the
contract with the existing telecom operator. We believe that the upfront
build-out fee is fixed consideration once the build-out is complete and any
subsequent credits that may be issued would be accounted for in a manner similar
to a contract modification under the prospective method because (i) the
execution of customer contracts with additional telecom carriers is at our sole
election and (ii) we would not execute agreements with additional telecom
carriers if it would not increase our revenues and gross profits at the venue
level. Further, the credits issued to the existing telecom operator changes the
transaction price on a go-forward basis, which corresponds with the decline in
service levels for the existing telecom operator once the neutral host DAS
network can be accessed by the additional telecom operator. The recurring
access, maintenance, and other fees generally escalate on an annual basis. The
recurring fees are variable consideration until the contract term and annual
escalation dates are fixed. We estimate the variable consideration for our
recurring fees using the most likely amount method based on the expected
commencement date for the services. We evaluate our estimates of variable
consideration each period and record a cumulative catch-up adjustment in the
period in which changes occur for the amount allocated to satisfied performance
obligations.
We generally recognize revenue related to our single performance obligation for
our DAS, tower, and small cell customer contracts monthly over the contract term
once the customer may access the DAS, tower, and small cell network and we
commence maintenance on the DAS, tower, and small cell network.
Wi-Fi offload
We enter into contracts with telecom operators to move traffic from their licensed cellular networks onto our Wi-Fi networks at our managed and operated locations. Our offload contracts generally contain a single performance obligation-provide non-exclusive rights to access our Wi-Fi networks to provide telecom operators' end customers with access to the high-speed broadband network that may be bundled together with integration services, support services, and/or performance of standard maintenance. The performance obligation is considered a series of distinct services as the performance obligation is satisfied over time and the same time-based input method or usage-based output method would be used to measure our progress toward complete satisfaction of the performance obligation to transfer each distinct service in the series to the customer. Our contract fee structure includes recurring fees that are accounted for as fixed consideration. We generally recognize revenue related to our single performance obligation for our offload customer contract monthly over the contract term
once services have launched. Military Retail Military retail customers must review and agree to abide by our standard "Customer Agreement (With Acceptable Use Policy) and End User License Agreement" before they are able to sign up for our subscription or single-use Wi-Fi network access services. Our Military retail customer contracts generally contain a single performance obligation-provide non-exclusive access to Wi-Fi services, together with performance of standard maintenance, customer support, and the Wi-Finder app to facilitate seamless connection to the Company's Wi-Fi network. The performance obligation is considered a series of distinct services as the performance obligation is satisfied over time and the same time-based input method would be used to measure our progress toward complete satisfaction of the performance obligation to transfer each distinct service in the series to the customer. Our contracts also provide our Military retail subscription customers with the option to renew the agreement when the subscription term is over. We do not consider this option to provide the customer with a material right that should be accounted for as a separate performance obligation because the customer would not receive a discount if it decided to renew and the option to renew is cancellable within 5 days' notice prior to the end of the then current term by either party.
The contract transaction price is determined based on the subscription or single-use plan selected by the customer. Our Military retail service plans are for fixed price services as described on our website. From time to time,
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we offer promotional discounts that result in an immediate reduction in the price paid by the customer. Subscription fees from Military retail customers are paid monthly in advance. We provide refunds for our Military retail services on a case-by-case basis. Refunds and credit card chargeback amounts are not significant and are recorded as contra-revenue in the period the refunds are made, or chargebacks are received.
Subscription fee revenue is recognized ratably over the subscription period. Revenue generated from Military retail single-use access is recognized when access is provided, and the performance obligation is satisfied.
Bulk services
We enter into short-term and long-term contracts with theU.S. government to provide network installation services and Wi-Fi services at specified locations on military bases on a bulk basis. TheU.S. government may modify, curtail or terminate its contracts with us, either at its convenience or for default based on performance. Our Military bulk services customer contracts generally contain a single performance obligation-provide non-exclusive rights to access our Wi-Fi networks to provide military personnel with access to the high-speed broadband network that may be bundled together with integration services, support services, and/or performance of standard maintenance. The performance obligation is considered a series of distinct services as the performance obligation is satisfied over time and the same time-based input method would be used to measure our progress toward complete satisfaction of the performance obligation to transfer each distinct service in the series to the customer. Our contract fee structure generally includes a non-refundable upfront fee and we evaluated whether customer options to renew services give rise to a material right that should be accounted for as a separate performance obligation because of those non-refundable upfront fees. We apply significant judgment in determining whether the customer options to renew services give rise to a material right that should be accounted for as a separate performance obligation. We believe that a material right generally exists for our Military bulk services customer contracts that contain renewal options because of our successful history of renewing our contracts with theU.S. government. Our contract fee structure may include varying components of an upfront build-out fee and recurring access fees. The upfront build-out fee is generally structured as a firm-fixed price arrangement and becomes payable as certain contract and/or construction milestones are achieved. The recurring fees may include escalations and are variable consideration until the contract term becomes fixed. We generally recognize revenue related to our single performance obligation for our Military bulk services customer contract monthly on a straight-line basis, where applicable, over the contract term once the customer has accepted the network installation services, where applicable, and services have launched.
Private networks and emerging technologies
Our customer contracts for private networks and emerging technologies generally
contain two performance obligations: (i) install the network required to provide
licensed, unlicensed, and shared spectrum services; and (ii) provide management
services for those installed networks. Our contracts may also provide our
customers with the option to renew the agreement. We do not consider this option
to provide the customer with a material right that should be accounted for as a
separate performance obligation because the customer would not receive a
discount if it decided to renew and the option to renew is generally cancellable
by either party subject to the notice of non-renewal requirements specified in
the contract.
Our contract fee structure generally includes a network installation fee and
recurring service fees. The network installation fee is generally structured as
a firm-fixed price arrangement and becomes payable as certain contract and/or
installation milestones are achieved. Title to the equipment is generally owned
by the customer once it is delivered and/or installed. We generally recognize
revenue related to our network installation performance obligation using a
cost-to-cost method over the network installation period.
The recurring fees commence once the network is launched with recurring fees
generally based upon a fixed fee that may include annual escalations. We
recognize revenue related to the recurring fees on a monthly basis over the
contract term as the services are rendered and the performance obligation is
satisfied.
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Multifamily
We enter into long-term contracts with property owners for the installation of developer-owned or Boingo-owned Wi-Fi networks and the provision of recurring Wi-Fi services and technical support once the Wi-Fi networks are constructed. The initial term of our contracts with property owners can range up to ten years and the contracts may contain renewal options. Some of our contracts provide termination for convenience clauses that may or may not include substantive termination penalties. We apply judgment in determining the contract term, which is the period during which we have present and enforceable rights and obligations.
Developer-owned networks
Our customer contracts for developer-owned Wi-Fi networks that we construct and provide service and support for generally contain two performance obligations: (i) install the network required to provide Wi-Fi services; and (ii) provide Wi-Fi services and technical support to the residents and employees. Our contracts may also provide our property owners with the option to renew the agreement. We do not consider this option to provide the property owner with a material right that should be accounted for as a separate performance obligation because the property owner would not receive a discount if it decided to renew and the option to renew is generally cancellable by either party subject to the notice of non-renewal requirements specified in the contract. Our contracts may also provide our customers with the option to purchase additional future services. We do not consider this option to provide the customer with a material right that should be accounted for as a separate performance obligation since the cost of the additional future services are generally at market rates for such services and we are not automatically obligated to stand ready to deliver these additional goods or services because the customer may reject our proposal. Our contract fee structure generally includes a network installation fee and recurring Wi-Fi service and support fees. The network installation fee is generally structured as a firm-fixed price arrangement and becomes payable as certain contract and/or installation milestones are achieved. We generally estimate variable consideration for unpriced change orders using the most likely amount method based on the expected price for those services. If network installations are not completed by specified dates, we may be subject to network installation penalties. We estimate the variable consideration for our network installation fees using the most likely amount method based on the amount of network installation penalties we expect to incur. Title to the network generally transfers to the property owner once installation is completed and the network has been accepted. We generally recognize revenue related to our network installation performance obligation using a cost-to-cost method over the network installation period. We may provide latent defect warranties for materials and installation labor services related to our network installation services. Our warranty obligations are generally not accounted for as separate performance obligations as warranties cannot be separately purchased and warranties do not provide a service in addition to the assurance that the network will function as expected. The recurring fees commence once the network is launched with recurring fees generally based upon a fixed or variable occupancy rate. The recurring Wi-Fi service fees may be adjusted prospectively for changes in circuit and/or video content costs, and Wi-Fi support fees may escalate on an annual basis. We estimate the variable consideration for our recurring fees using the expected value method with the exception of the variable consideration related to actual occupancy rates, which we record when we have the contractual right to bill. We evaluate our estimates of variable consideration each period and record a cumulative catch-up adjustment in the period in which changes occur for the amount allocated to satisfied performance obligations. We recognize revenue related to the recurring fees on a monthly basis over the contract term as the Wi-Fi services and support is rendered, and the performance obligation is satisfied.
Boingo-owned networks / NaaS
Our customer contracts for Boingo-owned Wi-Fi networks are generally structured
as NaaS arrangements for the provision of Wi-Fi services and technical support
for residents and employees at the property as our Boingo-owned Wi-Fi networks
may be used by other retail and wholesale Wi-Fi customers. Our NaaS contracts
generally contain a single performance obligation-provide non-exclusive rights
to access our Wi-Fi networks to provide residents and employees of the property
with access to the high-speed broadband network that may be bundled together
with technical support services and/or performance of standard network
maintenance. The performance obligation is considered a series of distinct
services as the performance obligation is satisfied over time and the same
time-based input method or usage-based output method would be used to measure
our progress toward complete satisfaction of the performance obligation to
transfer each distinct service in the series to the customer. Our contract fee
structure generally includes recurring fees that generally escalate on an annual
basis that are accounted for as fixed
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consideration. We generally recognize revenue related to our single performance obligation for our NaaS contracts monthly on a straight-line basis, where applicable, over the contract term once services have launched.
Legacy
Comes with Boingo and Wholesale Wi-Fi
We enter into long-term contracts with financial institutions and other enterprise customers who provide access to our Wi-Fi footprint as a value-added service for their customers. We enter also into long-term contracts with enterprise customers such as cable companies, technology companies, and enterprise software/services companies, that pay us usage-based Wi-Fi network access and software licensing fees to allow their customers' access to our footprint worldwide. The initial term of our contracts with Comes with Boingo and wholesale Wi-Fi customers generally range up to five years and the agreements generally contain renewal options. Some of our contracts provide termination for convenience clauses that may or may not include substantive termination penalties. We apply judgment in determining the contract term, the period during which we have present and enforceable rights and obligations. Our Comes with Boingo and wholesale Wi-Fi customer contracts generally contain a single performance obligation-provide non-exclusive rights to access our Wi-Fi networks to provide wholesale Wi-Fi customers' end customers with access to the high-speed broadband network that may be bundled together with integration services, support services, and/or performance of standard maintenance. The performance obligation is considered a series of distinct services as the performance obligation is satisfied over time and the same time-based input method or usage-based output method would be used to measure our progress toward complete satisfaction of the performance obligation to transfer each distinct service in the series to the customer. Our contracts may also provide our enterprise customers with the option to renew the agreement. This option is not considered to provide the customer with a material right that should be accounted for as a separate performance obligation because the customer would not receive a discount if it decided to renew and the option to renew is generally cancellable by either party subject to the notice of non-renewal requirements specified in the contract. Our contracts may also provide our wholesale Wi-Fi customers with the option to purchase additional future services. We do not consider this option to provide the customer with a material right that should be accounted for as a separate performance obligation since the cost of the additional future services are generally at market rates for such services and we are not automatically obligated to stand ready to deliver these additional goods or services because the customer may reject our proposal. Our contract fee structure may include varying components of a minimum fee and usage-based fees. Minimum fees represent fixed price consideration while usage-based fees represent variable consideration. With respect to variable consideration, our commitment to our Comes with Boingo and wholesale Wi-Fi customers consists of providing continuous access to the network. It is therefore a single performance obligation to stand ready to perform and we allocate the variable fees charged for usage when we have the contractual right to bill. The variable component of revenue is recognized based on the actual usage during the period. Comes with Boingo and wholesale Wi-Fi revenue is recognized as it is earned over the relevant contract term with variable consideration recognized when we have the contractual right to bill.
Retail
Revenue recognition for our Legacy retail customers is the same as for our Military retail customers. Refer to the Military retail section for further information.
Tenant services
We offer our venue partners and their tenants the ability to implement a turnkey Wi-Fi solution through a Wi-Fi network infrastructure that we install, manage and operate. Our turnkey solutions for our venue partners include a variety of service models that are supported through a mix of wholesale Wi-Fi, retail and advertising revenue. Our managed services and tenant services contracts generally contain a single performance obligation-provide non-exclusive rights to access our Wi-Fi networks to provide end customers with access to the high-speed broadband network that may be bundled together with support services and/or performance of standard maintenance. The performance obligation is considered a series of distinct services as the performance obligation is satisfied over time and the same time-based input method or usage-based output method would be used to measure our progress toward complete satisfaction of the performance obligation to transfer each distinct service in the series to the customer. Our contract fee structure may include varying components of an upfront build-out fee and recurring access fees. The upfront build-out fee is generally structured as a firm-fixed price arrangement and becomes payable
as
certain
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contract and/or construction milestones are achieved. The recurring fees may
include escalations and are variable consideration until the contract term
becomes fixed. We generally recognize revenue related to our single performance
obligation for our managed services and tenant services customer contract
monthly on a straight-line basis, where applicable, over the contract term once
the customer has accepted the network installation services, where applicable,
and services have launched. Periodically, we install and sell Wi-Fi networks to
customers where we do not have service contracts or remaining obligations beyond
the installation of those networks, and we recognize build-out fees for such
projects as revenue when the installation work is completed and the network has
been accepted by the customer or using a cost-to-cost method over the network
installation period depending on when control is transferred to the customer.
Advertising
We generally enter into short-term cancellable insertion orders with our advertising customers for advertising campaigns that are served at our managed and operated locations and other locations where we solely provide authorized access to a partner's Wi-Fi network through sponsored and promotional programs. Our sponsorship advertising arrangements are generally priced under a cost per engagement structure, which is a set price per click or engagement, or a cost per install structure for third party application downloads. Our display advertising arrangements are priced based on cost per thousand impressions. Insertion orders may also include bonus items. Our advertising customer contracts may contain multiple performance obligations with each distinct service. These distinct services may include an advertisement video or banner impressions in the contract bundled with the requirement to provide network, space on the website, and integration of customer advertisement onto the website, and each is generally considered to be its own performance obligation. The performance obligations are considered a series of distinct services as the performance obligations are satisfied over time and the same action-based output method would be used to measure our progress toward complete satisfaction of the performance obligation to transfer each distinct service in the series to the customer. The contract transaction price is comprised of variable consideration based on the stated rates applied against the number of units delivered inclusive of the bonus units subject to the maximums provided for in the insertion order. It is customary for us to provide additional units over and above the amounts contractually required; however, there are a number of factors that can also negatively impact our ability to deliver the units required by the customer such as service outages at the venue resulting from power or circuit failures and customer cancellation of the remaining undelivered units under the insertion order due to campaign performance or budgetary constraints. Typically, the advertising campaign periods are short in duration. We therefore use the contractual rates per the insertion orders and actual units delivered to determine the transaction price each period end. The transaction price is allocated to each performance obligation based on the standalone selling price of each performance obligation.
Advertising revenue is recognized ratably over the service period based on actual units delivered subject to the maximums provided for in the insertion order.
Goodwill Goodwill represents the excess of purchase price over fair value of net assets acquired.Goodwill is not amortized but instead is tested annually for impairment, or more frequently when events or changes in circumstances indicate that fair value of the reporting unit has been reduced to less than its carrying value. We perform our impairment test annually as ofDecember 31st . Entities have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the goodwill impairment test described in ASC 350, Intangibles-Goodwill and Other. If, after assessing qualitative factors, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the impairment test is unnecessary. The impairment loss, if any, is measured by comparing the implied fair value of the reporting unit goodwill with the carrying amount of goodwill. InOctober 2020 , we completed our restructuring activities, which were initiated inDecember 2019 . Prior to the completion of the restructuring activities, we had one reporting unit. We currently have five reporting units: (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 47
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retail, advertising, and wholesale Wi-Fi services to enterprise customers
("Legacy"). In October 2020 , we reallocated our goodwill to the five reporting
units using the relative fair value approach. On October 31, 2020 , we tested our
goodwill for impairment using an income-based approach and no impairment was
identified as the fair value of our five reporting units were substantially in
excess of their carrying amounts. On December 31, 2020 , we tested our goodwill
for impairment using a qualitative assessment and no impairment was identified.
Measuring Recoverability of Long-Lived Assets
Our long-lived assets are depreciated and amortized over the estimated useful
lives of the related asset type using the straight-line method. The estimated
useful lives for property and equipment are as follows:
Software 2 to 5 years
Computer equipment 3 to 5 years
Furniture, fixtures and office equipment 3 to 5 years
Leasehold improvements The shorter of the estimated useful life
or the remaining term of the agreements,
generally ranging from 2 to 25 years
We perform an impairment review of long-lived assets held and used whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider important that could trigger an impairment review include, but are not limited to, significant under-performance relative to projected future operating results, significant changes in the manner of our use of the acquired assets or our overall business and/or product strategies and significant industry or economic trends. When we determine that the carrying value of a long-lived asset may not be recoverable based upon the existence of one or more of these indicators, we determine the recoverability by comparing the carrying amount of the asset to net future undiscounted cash flows that the asset is expected to generate or other indices of fair value. We would then recognize an impairment charge equal to the amount by which the carrying amount exceeds the fair market value of the asset.
Stock-based Compensation
Stock-based compensation consists of stock options and restricted stock units
("RSUs"), which are granted to employees and non-employees. We have shifted our
stock-based compensation from stock options to RSUs and no stock options have
been granted since 2014. We recognize compensation expense equal to the grant
date fair value on a straight-line basis, net of forfeitures, over the employee
requisite service period. We recognize stock-based compensation expense for
performance-based RSUs when we believe that it is probable that the performance
objectives will be met.
Income Taxes
Income taxes are provided based on the liability method, which results in income
tax assets and liabilities arising from temporary differences. Temporary
differences are differences between the tax basis of assets and liabilities and
their reported amounts in the financial statements that will result in taxable
or deductible amounts in future years. The liability method requires the effect
of tax rate changes on current and accumulated deferred income taxes to be
reflected in the period in which the rate change was enacted. The liability
method also requires that deferred tax assets be reduced by a valuation
allowance unless it is more likely than not that the assets will be realized.
We may recognize the tax benefit from uncertain tax positions only if it is at
least more likely than not that the tax position will be sustained on
examination by the taxing authorities, based on the technical merits of the
position. The tax benefits recognized in the financial statements from such a
position should be measured based on the largest benefit that has a greater than
50% likelihood of being realized upon settlement with the taxing authorities.
We establish valuation allowances when necessary to reduce deferred tax assets
to the amounts expected to be realized. We evaluate the need for, and the
adequacy of, valuation allowances based on the expected realization of our
deferred tax assets. The factors used to assess the likelihood of realization
include historical earnings, our latest forecast of taxable income and available
tax planning strategies that could be implemented to realize the net deferred
tax assets.
Our effective tax rates are primarily affected by changes in our valuation allowances, the amount of our taxable income or losses in the various taxing jurisdictions in which we operate, the amount of federal and state net operating
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losses and tax credits, the extent to which we can utilize these net operating
loss carryforwards and tax credits and certain benefits related to stock option
activity.
Recent Accounting Pronouncements
Information regarding recent accounting pronouncements is contained in Note 2
"Significant Accounting Policies" to the accompanying consolidated financial
statements included in Part II, Item 8, which is incorporated herein by this
reference.
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:
December 31,
2020 2019
(in thousands)
DAS nodes 41.2 38.1
Subscribers-military 128 133
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. We continue to experience strong customer demand from telecom operators to gain access to our DAS networks; accordingly, we expect to continue to invest in securing, building out and upgrading our DAS networks to meet this demand. Subscribers-military. These metrics represent the number of paying customers who are on a month-to-month subscription plan at a given period end. Military subscribers are generally expected to increase when we deploy our service on new military bases. We also expect to see modest increases in Military subscribers as we increase signups for new customers on existing military bases through targeted marketing and by continuing to build the Boingo brand in the Military vertical. Military subscribers are also impacted by the overall number of active military personnel living in base barracks, military troop movements and training schedules.
Key Components of our Results of Operations
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 theU.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
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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. InApril 2020 , T-Mobile US Inc. announced that it had officially completed its merger with Sprint Corporation to create the New T-Mobile (collectively, "T-Mobile"). For the years endedDecember 31, 2020 and 2019, entities affiliated with T-Mobile accounted for 21% and 20%, respectively, of total revenue. For the years endedDecember 31, 2020 and 2019, entities affiliated with AT&T Inc. accounted for 13% and 12%, respectively, of total revenue. For the years endedDecember 31, 2020 and 2019, entities affiliated with Verizon Communications Inc. accounted for 11% and 11%, respectively, of total revenue. The loss of these groups and the customers could have a material adverse impact on our consolidated statements of operations.
Cost of Sales
Cost of sales consist of revenue share payments to venue owners where our managed and operated hotspots are located, usage-based fees to our roaming network partners for access to their networks, depreciation of equipment related to network build-out projects in our managed and operated locations, sale of equipment, bandwidth and other Internet connectivity expenses in our managed and operated locations, and network installation, service and support costs for our Multifamily properties.
Selling, General and Administrative Expenses
Selling, general and administrative costs consist of costs related to our customer service department and our customer service provider that handles customer care inquiries; operations staff and network operations contractors who design, build, monitor and maintain our networks; product development and engineering departments, developers and our information systems services staff; business development and marketing employees and executives; executive, finance and accounting, legal and human resources personnel; depreciation of our equipment and internal-use software; cloud computing arrangements; software and hardware maintenance fees; travel and entertainment; marketing programs; legal, accounting, tax and other professional service fees; and other corporate expenses such as charge card processing fees and bad debt expense. Personnel costs include salaries, bonuses, stock-based compensation and employee benefits.
Amortization of Intangible Assets
Amortization of intangible assets consists primarily of acquired venue contracts, backlog, customer and partnership relationships, non-compete agreements, technology, and patents and trademarks.
Interest Expense and Amortization of Debt Discount
Interest expense and amortization of debt discount primarily consists of interest expense and amortization of debt discount and debt issuance costs, net of amounts capitalized.
Interest Income and Other Expense, Net
Interest income and other expense, net, primarily consists of interest income offset by other income (expense), net.
Income Tax (Expense) Benefit
We established a full valuation allowance as a result of our assessment that it
was more likely than not that certain federal and state deferred tax assets
would not be realized, and we have continued to maintain the full valuation
allowance as of
Non-controlling Interests
Non-controlling interests are comprised of minority holdings by third parties in our subsidiariesChicago Concourse Development Group, LLC ("CCDG") and Boingo Holding Participacoes Ltda. ("BHPL"). 50
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We are generally required to pay a portion of allocated net profits less capital expenditures of the preceding year to the non-controlling interest holders of CCDG. The limited liability company agreement for CCDG does not have a term. CCDG can be dissolved upon the unanimous agreement of the members, upon the sale of CCDG, upon declaration of bankruptcy, or upon the termination of the license agreement between CCDG and theCity of Chicago . We attributed profits and losses to the non-controlling interest in BHPL under the terms of the limited liability company agreement in proportion to their holdings. The limited liability company agreement with BHPL does not have a term. We, by resolution of the members, may distribute profits against retained earnings or profit reserves existing on the most recent annual balance sheet or may draw up financial statements and distribute profits in shorter periods. BHPL can be dissolved by resolution of the members and as otherwise provided for
by law. Results of Operations InDecember 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 inOctober 2020 . Restructuring charges, which were comprised of employee severance and benefits expense, recorded in selling, general and administrative expenses in the consolidated statement of operations for the year endedDecember 31, 2019 were$2.3 million . 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. We evaluate reportable and operating segment performance based on revenues and income (loss) from operations. The income (loss) from operations of each of the reportable and operating segments include only those costs which are specifically related to each reportable and operating segment, which consist primarily of cost of sales, sales and marketing, depreciation, and the direct costs of employees within those reportable and operating segments. We do not allocate corporate overhead costs or non-operating income and expenses to reportable and operating segments, which include unallocable overhead costs associated with our corporate offices, certain executive 51
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compensation including stock compensation, costs related to our accounting, finance, legal, engineering, marketing, and human resources departments, among others.
The following tables set forth our results of operations for the specified
periods.
Year Ended December 31,
2020 2019 2018
(in thousands, except per share amounts)
Consolidated Statements of Operations Data:
Revenue $ 237,416 $ 263,790 $ 250,821
Cost of sales 114,784 119,613 113,572
Gross profit 122,632 144,177 137,249
Selling, general and administrative expenses 127,461 143,310 136,536
Amortization of intangible assets 4,288 4,571 3,710
Loss from operations (9,117) (3,704) (2,997)
Interest expense and amortization of debt discount (9,004) (8,618) (2,400)
Interest income and other expense, net 538 2,017 513 Loss before income taxes (17,583) (10,305) (4,884) Income tax (expense) benefit (157) 28 5,153 Net (loss) income (17,740) (10,277) 269
Net (loss) income attributable to non-controlling interests (647) 19 1,489 Net loss attributable to common stockholders$ (17,093) $ (10,296) $ (1,220) Depreciation and amortization expense included in the above line items: Depreciation and amortization expense$ 78,313 $ 70,862 $ 78,837 Stockbased compensation expense included in the above line items: Stock-based compensation expense $
7,606 $ 8,596$ 12,268
Depreciation and amortization expense
Depreciation and amortization of property and equipment increased$7.5 million , or 10.5%, in 2020, as compared to 2019, primarily as a result of our increased fixed assets from our DAS build-out projects, Wi-Fi networks, and software development in 2019 and 2020. Depreciation and amortization of property and equipment decreased$8.0 million , or 10.1%, in 2019, as compared to 2018, primarily due to a decrease in depreciation expense related to certain DAS build-out projects that were depreciated over a longer estimated useful life resulting from the successful extension of certain venue agreements, which was partially offset by depreciation expense for new DAS build-out projects that were completed and launched in 2018 and 2019.
Stock-based compensation expense
Stock-based compensation expense decreased$1.0 million , or 11.5%, in 2020, as compared to 2019. During the year endedDecember 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. The remaining decrease is primarily attributable to decrease in the Company's headcount resulting from the restructuring plan that was adopted inDecember 2019 . Stock-based compensation expense decreased$3.7 million , or 29.9%, in 2019, as compared to 2018, primarily due to the decrease of stock-based compensation expense related to the multi-year 2016 RSUs granted to our previous Chief Executive Officer and our Chief Financial Officer, the performance conditions of which vested in 2018, but which became fully vested inFebruary 2019 . No similar multi-year RSUs have been granted to any of our executives after 2016.
We issue RSUs that vest over a specified service period. We also issue
performance based RSUs to executive personnel. We recognize stock-based
compensation expense for performance-based RSUs when we believe that it is
probable that the performance objectives will be met and based on the expected
achievement levels. In 2020 and 2019, we capitalized
At
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The following table sets forth our results of operations for the specified periods as a percentage of our revenue for those periods.
Year Ended December 31,
2020 2019 2018
(as a percentage of revenue)
Consolidated Statements of Operations Data:
Revenue 100.0 % 100.0 % 100.0 %
Cost of sales 48.3 45.3 45.3
Gross profit 51.7 54.7 54.7
Selling, general and administrative expenses 53.7 54.3 54.4
Amortization of intangible assets 1.8 1.7 1.5
Loss from operations (3.8) (1.4) (1.2)
Interest expense and amortization of debt discount (3.8) (3.3) (1.0)
Interest income and other expense, net 0.2 0.8 0.2 Loss before income taxes (7.4) (3.9) (1.9) Income tax (expense) benefit (0.1) 0.0 2.1 Net (loss) income (7.5) (3.9) 0.1 Net (loss) income attributable to non-controlling interests (0.3) 0.0 0.6 Net loss attributable to common stockholders (7.2) %
(3.9) % (0.5) %
Years ended
Revenue
Year Ended December 31,
2020 2019 Change % Change
(in thousands, except percentages)
Revenue:
Carrier services $ 107,746 $ 115,806 $ (8,060) (7.0)
Military 76,753 74,911 1,842 2.5
Multifamily 21,567 25,008 (3,441) (13.8)
Legacy 29,134 46,058 (16,924) (36.7)Private networks and emerging technologies 2,216 2,007
209 10.4
Total revenue $ 237,416 $ 263,790 $ (26,374) (10.0)
Key business metrics:
DAS nodes 41.2 38.1 3.1 8.1
Subscribers-military 128 133 (5) (3.8)
Carrier services. Carrier Services revenue decreased$8.1 million , or 7.0%, in 2020, as compared to 2019, due to a$4.9 million decrease in build-out revenues primarily due to the successful renewal of certain of our customer contracts resulting in the reamortization of the remaining deferred build revenue over a longer contract term in 2019 and a$3.2 million decrease in access fees from our telecom operators. Build-out revenues for the year endedDecember 31, 2020 includes$4.3 million of short-term build projects that included the sales of equipment that was completed during this period. Access fees in 2019 included$4.8 million of one-time access fees. Military. Military revenue increased$1.8 million , or 2.5%, in 2020, as compared to 2019, primarily due to a$2.5 million increase in bulk services sold to the military. The increase was partially offset by a$0.7 million decrease in military retail revenue, which was driven primarily by the decrease in military subscribers partially offset by a 3.4% increase in the average monthly revenue per military subscriber in 2020 compared to 2019. 53
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Multifamily. Multifamily revenue decreased
Legacy. Legacy revenue decreased$16.9 million , or 36.7%, in 2020, as compared to 2019, primarily due to a$6.2 million decrease in partner usage based fees, a$5.5 million decrease in retail revenue primarily due to a decrease in retail subscribers, a$4.1 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$2.4 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. These decreases were partially offset by a$1.6 million increase in private services revenue. Private networks and emerging technologies. Private networks and emerging technologies revenue increased$0.2 million , or 10.4%, in 2020, as compared to 2019, due to$0.2 million of short-term build projects for non-telecom operators that included the sales of equipment that was completed during this period.
Cost of Sales and Gross Profit
Year Ended December 31,
2020 2019 Change % Change
(in thousands, except percentages)
Cost of sales:
Carrier services $ 67,867 $ 64,340 $ 3,527 5.5
Military 18,252 18,299 (47) (0.3)
Multifamily 15,756 19,569 (3,813) (19.5)
Legacy 12,385 17,361 (4,976) (28.7)Private networks and emerging technologies 524 44
480 1,090.9
Total cost of sales $ 114,784 $ 119,613 $ (4,829) (4.0)
Year Ended December 31,
2020 2019 Change % Change
(in thousands, except percentages)
Gross profit:
Carrier services 37.0 % 44.4 % (7.4) % (16.7)
Military 76.2 75.6 0.6 0.9
Multifamily 26.9 21.7 5.2 23.9
Legacy 57.5 62.3 (4.8) (7.7)
Private networks and emerging technologies 76.4 97.8 (21.4) (21.9)
Total gross profit 51.7 % 54.7 % (3.0) % (5.5)
Carrier services. Carrier Services cost of sales increased$3.5 million , or 5.5%, in 2020, as compared to 2019, primarily due to a$5.1 million increase in depreciation expense resulting from our increased fixed assets from our build-out projects and a$1.6 million increase in direct and other cost of revenue. The increases were partially offset by a$3.2 million decrease in revenue share paid to venues in our managed and operated locations. Other costs of revenue for 2020 included$3.6 million of costs directly related to our short-term projects that were completed during this period. Carrier Services gross profit decreased 740 basis points in 2020, as compared to 2019, primarily due to the reamortization of build-out revenue and the increase in depreciation expense.
Military. Military cost of sales and gross profit remained relatively consistent in 2020, as compared to 2019.
Multifamily. Multifamily cost of sales decreased$3.8 million , or 19.5%, in 2020, as compared to 2019, primarily due to a$3.2 million decrease in construction costs for our network installation projects and a$0.4 million decrease in our service and support costs. Multifamily gross profit increased 520 basis points in 2020, as compared to 2019, primarily due to the decrease in network installation revenue from 2019 as network installation revenue has lower profit margins than support revenue.
Legacy. Legacy cost of sales decreased
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decrease from customer usage at partner venues, and a$1.0 million decrease in direct and other cost of revenue. The decreases were partially offset by a$0.5 million increase in depreciation expense resulting from our increased fixed assets from our Wi-Fi networks and software development. Legacy gross profit decreased 480 basis points in 2020, as compared to 2019 primarily due to the decrease in partner usage-based fees and retail subscriber revenue, which generally have higher profit margins. Private networks and emerging technologies. Private networks and emerging technologies cost of sales increased$0.5 million in 2020, as compared to 2019, due to$0.5 million of costs directly related to short-term builds that were completed during the period. Private networks and emerging technologies gross profit decreased to 76.4% in 2020, as compared to 97.8% in 2019 primarily due to higher costs incurred on these short-term builds.
Selling, General and Administrative Expenses
Year Ended December 31,
2020 2019 Change % Change
(in thousands, except percentages)
Selling, general and administrative
expenses:
Carrier services $ 19,187 $ 20,351 $ (1,164) (5.7)
Military 33,959 35,334 (1,375) (3.9)
Multifamily 10,039 10,047 (8) (0.1)
Legacy 16,417 22,741 (6,324) (27.8)
Private networks and emerging
technologies 425 - 425 100.0
Corporate 47,434 54,837 (7,403) (13.5)
Total selling, general and
administrative expenses $ 127,461 $ 143,310 $ (15,849) (11.1)
Carrier services. Carrier Services selling, general and administrative expenses
decreased $1.2 million , or 5.7%, in 2020, as compared to 2019, primarily due to
a $2.1 million decrease in personnel related expenses, a $0.6 million decrease
in travel and entertainment expenses, and a $0.4 million decrease in credit card
and bank fees. These decreases were partially offset by a $1.1 million increase
in depreciation expense and a $0.9 million increase in marketing and advertising
expenses.
Military. Military selling, general and administrative expenses decreased $1.4
million , or 3.9%, in 2020, as compared to 2019, primarily due to a $2.2 million
decrease in personnel related expenses and a $0.5 million decrease in travel and
entertainment expenses. These decreases were partially offset by a $1.3 million
increase in depreciation expense.
Multifamily. Multifamily selling, general and administrative expenses remained relatively consistent in 2020, as compared to 2019.
Legacy. Legacy selling, general and administrative expenses decreased$6.3 million , or 27.8%, in 2020, as compared to 2019, primarily due to a$3.6 million decrease in personnel related expenses, a$0.9 million decrease in marketing and advertising expense, a$0.8 million decrease in depreciation expense, a$0.6 million decrease in network maintenance expenses, and a$0.4 million decrease in our third-party call center costs. Private networks and emerging technologies. Private networks and emerging technologies selling, general and administrative expenses increased$0.4 million in 2020, as compared to 2019, primarily due to an increase in personnel related expenses. Corporate. Corporate selling, general and administrative expenses decreased$7.4 million , or 13.5%, in 2020, as compared to 2019, primarily due to a$2.9 million decrease in personnel related expenses, a$1.5 million decrease in consulting expense, a$0.8 million decrease in travel and entertainment expenses, a$0.7 million decrease in professional fees, a$0.5 million decrease in computers and hardware software expenses, a$0.4 million decrease in depreciation expense, and a$0.3 million decrease in marketing and advertising expense.
Amortization of Intangible Assets
Amortization of intangible assets expense remained relatively consistent in 2020, as compared to 2019.
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Interest Expense and Amortization of Debt Discount
Interest expense and amortization of debt discount increased$0.4 million , or 4.5%, in 2020, as compared to 2019, primarily due to interest expense incurred on the$100.0 million we drew down on our Revolving Line of Credit inMarch 2020 . During 2020 and 2019, we capitalized$5.3 million and$3.3 million , respectively, of interest expense. InAugust 2020 , the FASB issued 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. Adoption of ASU 2020-06 will eliminate the debt discount and reduce interest expense, thereby reducing the interest expense eligible to be capitalized as part of our property and equipment. We have selectedJanuary 1, 2021 as our effective date and will be adopting the standard under the modified retrospective method. Refer to Footnote 2 in the notes to our consolidated financial statements for further discussion.
Interest Income and Other Expense, Net
Interest income and other expense, net decreased
Income Tax (Expense) Benefit
Income tax expense was$0.2 million in 2020, as compared to a slight income tax benefit in 2019. In 2020 and 2019, our effective tax rate was 0.9% and 0.3%, respectively. Our effective tax rate differs from the statutory rate primarily due to our valuation allowance for the years endedDecember 31, 2020 and 2019. Our future effective tax rate depends on various factors, such as our level of future taxable income, tax legislation and credits and the geographic compositions of our pre-tax income. We do not expect to incur any significant income taxes until such time that we reverse our valuation allowance against our federal and state deferred tax assets upon return to sustained profitability.
Non-controlling Interests
Non-controlling interests decreased$0.7 million in 2020, as compared to 2019, primarily due to a$1.1 million increase in litigation losses related to a claim of damages for back charges for port usage at one of our venues inBrazil , which contributed to an increase in net losses in ourBrazil subsidiaries and decreased net income for ourChicago subsidiary from DAS build-out projects that were completed in 2019.
Net Loss Attributable to Common Stockholders
Our net loss attributable to common stockholders in 2020 increased$6.8 million as compared to 2019, primarily due to the$26.4 million decrease in revenues, the$1.5 million decrease in interest income and other expense, net, and the$0.4 million increase in interest expenses and amortization of debt discount. The charges were partially offset by the$15.8 million decrease in selling, general and administrative expenses, the$4.8 million decrease in cost of sales and the$0.7 million decrease in net loss attributable to non-controlling interests. Our diluted net loss per share increased primarily as a result of the increase in our net loss. 56 Table of Contents
Years ended
Revenue
Year Ended December 31,
2019 2018 Change % Change
(in thousands, except percentages)
Revenue:
Carrier services $ 115,806 $ 117,953 $ (2,147) (1.8)
Military 74,911 67,342 7,569 11.2
Multifamily 25,008 11,228 13,780 122.7
Legacy 46,058 54,248 (8,190) (15.1)Private networks and emerging technologies 2,007 50
1,957 3,914.0 Total revenue$ 263,790 $ 250,821 $ 12,969 5.2 Key business metrics: DAS nodes 38.1 29.9 8.2 27.4 Subscribers-military 133 138 (5) (3.6)
Carrier services. Carrier Services revenue decreased$2.1 million , or 1.8%, in 2019, as compared to 2018, primarily due to a$9.8 million decrease from build-out projects in our managed and operated locations and a$4.4 million decrease in Wi-Fi offload revenues. The decreases were partially offset by a$12.1 million increase in access fees from our telecom operators. Access fees in 2019 include$4.8 million of one-time access fees. Military. Military revenue increased$7.6 million , or 11.2%, in 2019, as compared to 2018, primarily due to a$6.4 million increase in military retail revenue, which was driven primarily by an 11.1% increase in the average monthly revenue per military subscriber in 2019 compared to 2018 and a$1.1 million increase in bulk services sold to the military. Multifamily. Multifamily revenue increased$13.8 million , or 122.7%, in 2019, as compared to 2018, primarily due to a$9.6 million increase in support revenues and a$4.2 million increase in multifamily network installation revenues resulting from the acquisition of our Multifamily business inAugust 2018 . Legacy. Legacy revenue decreased$8.2 million , or 15.1%, in 2019, as compared to 2018, primarily due to a$3.5 million decrease in advertising sales at our managed and operated locations resulting from a decline in the number of premium ad units sold, a$2.9 million decrease in retail revenue primarily due to a 33.6% decrease in retail subscribers in 2019 as compared to 2018, a$2.0 million decrease in partner usage-based fees, and a$1.8 million decrease in private services revenue. The decreases were partially offset by a$1.9 million increase 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.
Private networks and emerging technologies. Private networks and emerging
technologies revenue increased
Cost of Sales and Gross Profit
Year Ended December 31,
2019 2018 Change % Change
(in thousands, except percentages)
Cost of sales:
Carrier services $ 64,340 $ 68,022 $ (3,682) (5.4)
Military 18,299 17,047 1,252 7.3
Multifamily 19,569 9,439 10,130 107.3
Legacy 17,361 18,996 (1,635) (8.6)Private networks and emerging technologies 44 68
(24) (35.3) Total cost of sales$ 119,613 $ 113,572 $ 6,041 5.3 57 Table of Contents Year Ended December 31, 2019 2018 Change % Change (in thousands, except percentages) Gross profit: Carrier services 44.4 % 42.3 % 2.1 % 5.0 Military 75.6 74.7 0.9 1.2 Multifamily 21.7 15.9 5.8 36.5 Legacy 62.3 65.0 (2.7) (4.1) Private networks and emerging technologies 97.8 (36.0) 133.8 371.7 Total gross profit 54.7 % 54.7 % (0.0) % (0.1)
Carrier services. Carrier Services cost of sales decreased$3.7 million , or 5.4%, in 2019, as compared to 2018, primarily due to a$9.1 million decrease in depreciation expense resulting from our decreased fixed assets from our build-out projects. The decrease was partially offset by a$3.9 million increase in revenue share paid to venues in our managed and operated locations and a$1.5 million increase in direct and other cost of revenue. Carrier Services gross profit increased 210 basis points in 2019, as compared to 2018, primarily due to the reamortization of certain build-out projects over a longer estimated useful life resulting from the successful extension of certain venue agreements offset by a decrease in depreciation expense. Military. Military cost of sales increased$1.3 million , or 7.3%, in 2019, as compared to 2018 primarily due to a$0.6 million increase in revenue share paid to our military bases and a$0.4 million increase in direct and other cost of sales. Military gross profit remained relatively consistent in 2019, as compared to 2018. Multifamily. Multifamily cost of sales increased$10.1 million , or 107.3%, in 2019, as compared to 2018, primarily due to a$5.7 million increase in our service and support costs and a$4.1 million increase in construction costs for our network installation projects resulting from the acquisition of our Multifamily business inAugust 2018 . Multifamily gross profit increased 580 basis points in 2019, as compared to 2018, primarily due to improved margins related to our network installation revenue. Legacy. Legacy cost of sales decreased$1.6 million , or 8.6%, in 2019, as compared to 2018, primarily due to a$1.1 million decrease from customer usage at partner venues and a$1.1 million decrease in revenue share paid to venues in our managed and operated locations. The decreases were partially offset by a$0.4 million increase in direct cost of sales. Legacy gross profit decreased 270 basis points in 2019, as compared to 2018, primarily due to the decrease in retail subscriber revenue and partner usage-based fees, which generally have higher profit margins. Private networks and emerging technologies. Private networks and emerging technologies cost of sales remained relatively consistent in 2019, as compared to 2018. Private networks and emerging technologies gross profit increased to 97.8% in 2019 primarily due to new contracts entered into with new customers for professional, management, and data services, which have higher profit margins than build-out projects.
Selling, General and Administrative Expenses
Year Ended December 31,
2019 2018 Change % Change
(in thousands, except percentages)
Selling, general and administrative expenses:
Carrier services $ 20,351 $ 16,994 $ 3,357 19.8
Military 35,334 35,374 (40) (0.1)
Multifamily 10,047 3,775 6,272 166.1
Legacy 22,741 28,800 (6,059) (21.0)Private networks and emerging technologies - 7 (7) (100.0) Corporate 54,837
51,586 3,251 6.3
Total selling, general and administrative expenses
Carrier services. Carrier Services selling, general and administrative expenses increased$3.4 million , or 19.8%, in 2019, as compared to 2018, primarily due to a$1.7 million increase in personnel related expenses, a$0.6 million increase in network maintenance charges, a$0.5 million increase in restructuring charges, a$0.3 million increase in project impairment losses, and a$0.2 million increase in credit card and bank fees. 58
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Military. Military selling, general and administrative expenses remained relatively consistent in 2019, as compared to 2018.
Multifamily. Multifamily selling, general and administrative expenses increased$6.3 million , or 166.1%, in 2019, as compared to 2018, primarily due to a$5.7 million increase in personnel related expenses, a$0.3 million increase in travel and entertainment expenses, a$0.2 million increase in cloud services, a$0.2 million increase in hardware and software maintenance expenses, and a$0.2 million increase in rent and facilities expenses. These increases were partially offset by a$1.0 million decrease in the fair value of contingent consideration. Our Multifamily business was acquired inAugust 2018 .
Legacy. Legacy selling, general and administrative expenses decreased
Private networks and emerging technologies. Private networks and emerging technologies selling, general and administrative expenses remained relatively consistent in 2019, as compared to 2018.
Corporate. Corporate selling, general and administrative expenses increased$3.3 million , or 6.3%, in 2019, as compared to 2018, primarily due to a$1.4 million increase in restructuring charges, a$1.1 million increase in depreciation expense, and a$1.1 million increase in hardware and software maintenance. These increases were partially offset by a$0.5 million decrease in consulting expenses.
Amortization of Intangible Assets
Amortization of intangible assets expense increased$0.9 million , or 23.2%, in 2019, as compared to 2018, primarily due to a$1.6 million increase in multifamily amortization of intangible assets resulting from ourElauwit acquisition inAugust 2018 . This increase was offset by a$0.6 million decrease in carrier services amortization of intangible assets resulting from the full amortization of certain intangible assets in 2018.
Interest Expense and Amortization of Debt Discount
Interest expense and amortization of debt discount increased$6.2 million in 2019, as compared to 2018, primarily due to interest expense incurred in connection with the Convertible Notes we issued inOctober 2018 . During 2019 and 2018, we capitalized$3.3 million and$1.1 million , respectively, of interest expense.
Interest Income and Other Expense, Net
Interest income and other expense, net increased
Income Tax Benefit
Income tax benefit decreased$5.1 million in 2019, as compared to 2018. In 2019, our effective tax rate was 0.3%. In 2018, our effective tax rate was 105.5%, which included a$5.7 million benefit related to the reversal of our valuation allowance for the tax effect on the equity component of our Convertible Notes. Our effective tax rate also differs from the statutory rate primarily due to our valuation allowance for the years endedDecember 31, 2019 and 2018, as well as minimum state taxes and foreign tax expense for the year endedDecember 31, 2018 . Income tax benefit for the year endedDecember 31, 2018 included an increase of$0.4 million resulting from the adoption of ASC 606 as ofJanuary 1, 2018 . Non-controlling Interests Non-controlling interests decreased$1.5 million , or 98.7%, in 2019, as compared to 2018 resulting from decreased net income for a subsidiary from DAS build-out projects that were completed in 2018.
Net Loss Attributable to Common Stockholders
Our net loss attributable to common stockholders in 2019 increased$9.1 million as compared to 2018, primarily due to the$13.7 million increase in costs and operating expenses, the$6.2 million increase in interest expense and amortization of debt discount, and the$5.1 million decrease in income tax benefit, which were partially offset by the$13.0 million increase in revenues, the$1.5 million increase in interest income and other expense, net, and the$1.5 59 Table of Contents
million decrease in non-controlling interests. Our diluted net loss per share increased primarily as a result of the increase in our net loss.
Adjusted EBITDA
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 (benefit), 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
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) restructuring charges, transaction costs, and litigation loss contingencies because they represent non-recurring charges and are not indicative of the underlying performance of our business operations. 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:
Year Ended December 31,
2020 2019 2018
(in thousands)
Net loss attributable to common stockholders $ (17,093) $ (10,296) $ (1,220)
Depreciation and amortization of property and
equipment 78,313 70,862 78,837
Stockbased compensation expense 7,606 8,596 12,268
Amortization of intangible assets 4,288 4,571 3,710
Income tax expense (benefit) 157 (28) (5,153)
Interest expense and amortization of debt
discount 9,004 8,618 2,400
Interest income and other expense, net (538) (2,017) (513)
Noncontrolling interests (647) 19 1,489
Restructuring charges - 2,298 -
Transaction costs 1,270 - -
Litigation loss contingencies 1,100 - -
Adjusted EBITDA $ 83,460 $ 82,623 $ 91,818 Adjusted EBITDA was
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EBITDA increase was due primarily to the net$7.2 million increase in depreciation and amortization of property and equipment and intangible assets, the$1.5 million decrease in interest income and other expense, net, the$1.3 million of non-recurring transaction costs, the$1.1 million of litigation loss contingencies, and the$0.4 million increase in interest expense and amortization of debt discount. These changes were partially offset by the$6.8 million increase in our net loss attributable to common stockholders, the$2.3 million restructuring charges that was recorded in 2019, the$1.0 million decrease in stock-based compensation expense, and the$0.7 million change in non-controlling interests. Adjusted EBITDA was$82.6 million in 2019, a decrease of 10.0% from$91.8 million recorded in 2018. As a percent of revenue, Adjusted EBITDA was 31.3% in 2019, down from 36.6% of revenue in 2018. The Adjusted EBITDA decrease was due primarily to the$9.1 million increase in our net loss attributable to common stockholders, the$7.1 million decrease in depreciation and amortization expense, the$3.7 million decrease in stock based compensation expense, the$1.5 million increase in interest income and other expense, net, and the$1.5 million decrease in non-controlling interests, which were partially offset by the$6.2 million increase in interest expense and amortization of debt discount, the$5.1 million decrease in income tax benefit, and the$2.3 million increase in restructuring charges in 2019 compared to 2018.
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 ofDecember 31, 2020 consisted of$36.1 million of cash and cash equivalents,$4.6 million of marketable securities,$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 2020 were$106.3 million , of which$86.4 million was reimbursed through revenue for Carrier Services build-out projects from our telecom operators. InFebruary 2019 , we entered into a Credit Agreement (the "Credit Agreement") and related agreements withBank of America, N.A . acting as agent for lenders named therein, includingBank of America, N.A .,Silicon Valley Bank ,Bank of the West , Zions Bancorporation, N.A. dbaCalifornia 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 onApril 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% 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 ofDecember 31, 2020 , we had$1.9 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 ofApril 3, 2023 . For the year endedDecember 31, 2020 , interest rates for our Credit Facility ranged from 3.0% to 4.0%. 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. InOctober 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 onApril 1st andOctober 1st of each year. The Convertible Notes will mature onOctober 1, 2023 unless they are redeemed, repurchased or converted prior to such date. Prior toApril 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 61
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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 afterOctober 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 paid approximately$24.0 million for the capped call transactions using a portion of the gross proceeds from the sale of the Convertible Notes. We believe that our existing cash and cash equivalents, marketable securities, 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 ofDecember 31, 2020 . 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 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 theU.S. government. TheU.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. 62
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The following table sets forth cash flow data for the periods indicated therein:
Year Ended December 31,
2020 2019
(in thousands)
Net cash provided by operating activities
(70,629) (173,280)
Net cash used in financing activities (6,309) (44,428)
Net Cash Provided by Operating Activities
In 2020, we generated$72.5 million of net cash from operating activities, a decrease of$36.2 million from 2019. The decrease is primarily due to a$35.7 million decrease in our operating assets and liabilities, which is primarily driven by decreased billing to our customers, a$7.5 million increase in our net loss, and a$1.0 million decrease in our stock-based compensation expenses. These changes were partially offset by a$7.2 million increase in depreciation and amortization of property and equipment and intangible assets, a$1.0 million change in fair value of contingent consideration in 2019, and a$0.6 million decrease in gains and amortization of premiums/discounts on marketable securities in 2020.
In 2020, we used$70.6 million in investing activities, a decrease of$102.7 million from 2019. The decrease is primarily due to a$75.2 million increase in net proceeds from maturities of marketable securities and a$27.4 million decrease in purchases of property and equipment in 2020.
In 2020, we used$6.3 million of cash in financing activities, a decrease of$38.1 million from 2019. This change is primarily due to a$32.7 million decrease in payments for federal, state, and local employment payroll taxes related to our RSUs that vested during the period, a$3.0 million decrease in payments of acquisition related consideration, a$1.8 million decrease in cash paid for debt issuance costs, a$2.4 million decrease in principal payments for our finance leases and notes payable, a$0.7 million decrease in cash paid for stock repurchases, and a$0.7 million decrease in cash payments to our non-controlling interest owner. These changes were offset by a$3.5 million increase in net payments on our Credit Facility.
Contractual Obligations and Commitments
We have the following contractual obligations and commitments as ofDecember 31, 2020 : (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 withBank 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 service. Payments to our venues and open purchase commitments are not recorded as liabilities on our consolidated balance sheet as ofDecember 31, 2020 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 ofDecember 31, 2020 , we have$32.6 million of purchase commitments that will primarily be paid to our suppliers over the next one-year period. Refer to the notes to our consolidated financial statements for further discussion of our venue commitments and our contractual obligations and commitments that are recorded on our consolidated balance sheet as ofDecember 31, 2020 .
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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Transactions with Related Parties
Under our Audit Committee charter, our Audit Committee is responsible for reviewing and approving all related party transactions on a quarterly basis. In addition, our Board of Directors determines annually whether any related party relationships exist among the directors which would interfere with the judgment of individual directors in carrying out his responsibilities as director.
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