BOINGO WIRELESS, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto included in "Item 1. Financial Statements" of this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto and the section titled "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year endedDecember 31, 2019 , filed with theSecurities Exchange Commission onMarch 2, 2020 . Forward-Looking Statements
This Quarterly Report on Form 10-Q and the documents incorporated herein by reference contain forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, as amended, based on our current expectations, estimates and projections about our operations, industry, financial condition, performance, results of operations, and liquidity. Statements containing words such as "may," "could," "believe," "anticipate," "expect," "intend," "plan," "project," "projections," "business outlook," "estimate," or similar expressions constitute forward-looking statements. These forward-looking statements include, but are not limited to, statements about future financial performance; revenues; metrics; operating expenses; operations and financial performance due to COVID-19; market trends, including those in the markets in which we compete; operating and marketing efficiencies; liquidity; cash flows and uses of cash; dividends; capital expenditures; depreciation and amortization; tax payments; foreign currency exchange rates; hedging arrangements; our ability to repay indebtedness, pay dividends and invest in initiatives; our products and services; pricing; competition; strategies; and new business initiatives, products, services, and features. Potential factors that could affect the matters about which the forward-looking statements are made include, among others, the factors disclosed in the section entitled "Risk Factors" in this Quarterly Report on Form 10-Q and additional factors that accompany the related forward-looking statements in this Quarterly Report on Form 10-Q and our other filings with theSecurities and Exchange Commission , including our Annual Report on Form 10-K for the year endedDecember 31, 2019 . Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as the date hereof. Any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that may cause actual performance and results to differ materially from those predicted. Reported results should not be considered an indication of future performance. Except as required by law, we undertake no obligation to publicly release the results of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence
of unanticipated events. Overview
Boingo helps the world stay connected to the people and things they love.
We acquire long-term wireless rights at large venues like airports,
transportation hubs, stadiums/arenas, military bases, multifamily properties,
universities, convention centers, and office campuses; we build high-quality
wireless networks such as distributed antenna systems ("DAS"), Wi-Fi, and small
cells at those venues; and we monetize the wireless networks through a number of
products and services.
For nearly 20 years, we have worked to build a global footprint of wireless networks that we estimate reaches more than a billion consumers annually. We operate 73 DAS networks containing approximately 40,800 DAS nodes, and believe we are the largest operator of indoor DAS networks in the world. Our Wi-Fi network, which includes locations we manage and operate ourselves (our "managed and operated locations") as well as networks managed and operated by third-parties with whom we contract for access (our "roaming" networks), includes over one million commercial Wi-Fi hotspots in more than 100 countries around the world.
We generate revenue from our wireless networks in a number of ways, including our DAS, small cells, multifamily and wholesale Wi-Fi offerings, which are targeted towards carriers and venues, and military, retail, and advertising offerings, which are targeted towards consumers.
We generate wholesale DAS revenue from telecom operators that pay us build-out fees and recurring access fees so that their cellular customers may use our DAS or small cell networks at locations where we manage and operate the wireless network. For the three months endedSeptember 30, 2020 , DAS revenue accounted for approximately 37% of our revenue. 29 Table of Contents
Military revenue, which is driven by military personnel who purchase Wi-Fi services on military bases, and multifamily revenue, which is driven by property owners who purchase network installation services and recurring monthly Wi-Fi services and support, accounted for approximately 41% of our total revenue for the three months endedSeptember 30, 2020 . As ofSeptember 30, 2020 , our military subscriber base was approximately 136,000, a 0.7% decrease over the prior year comparative period. Retail revenue, which is driven by consumers who purchase a recurring monthly subscription plan or one-time Wi-Fi access, accounted for approximately 4% of our total revenue for the three months endedSeptember 30, 2020 . As ofSeptember 30, 2020 , our retail subscriber base was approximately 49,000, a 42.4% decrease over the prior year comparative period. Our wholesale customers such as telecom operators, cable companies, technology companies, and enterprise software/services companies, pay us usage-based Wi-Fi network access and software licensing fees to allow their customers' access to our footprint worldwide. Wholesale Wi-Fi revenue also includes financial institutions and other enterprise customers who provide Boingo as a value-added service for their customers. For the three months endedSeptember 30, 2020 , wholesale Wi-Fi revenue accounted for approximately 17% of our revenue.
We also generate revenue from advertisers that seek to reach consumers via
sponsored Wi-Fi access. For the three months ended
In support of our overall business strategy, we are focused on the following objectives:
?leverage our neutral-host business model to grow DAS, small cell, and wholesale roaming partnerships;
?expand our carrier offload relationships;
? expand our footprint of managed and operated and aggregated networks; and
?increase our brand awareness.
Key Business Metrics
In addition to monitoring traditional financial measures, we also monitor our operating performance using key performance indicators. Our key performance indicators follow:
DAS nodes. This metric represents the number of active DAS nodes as of the end of the period. A DAS node is a single communications endpoint, typically an antenna, which transmits or receives radio frequency signals wirelessly. This measure is an indicator of the reach of our DAS network. Subscribers- military and Subscribers-retail. These metrics represent the number of paying customers who are on a month-to-month subscription plan at a given period end. Connects. This metric shows how often individuals connect to our global Wi-Fi network in a given period. The connects include wholesale and retail customers in both customer pay locations and customer free locations where we are paid a service provider or receive sponsorship or promotion fees. We count each connect as a single connect regardless of how many times that individual accesses the network at a given venue during their 24-hour period. This measure is an indicator of paid activity throughout our network. Revenue
Our revenue consists of DAS revenue, military/multifamily revenue, retail revenue, wholesale Wi-Fi revenue, and advertising and other revenue.
DAS. We generate revenue from telecom operator partners that pay us network build-out fees, inclusive of network upgrades, and access fees for our DAS and small cell networks.
Military/multifamily and retail. We generate revenue from sales to military and retail individuals of month-to-month network access subscriptions that automatically renew and hourly, daily or other single-use access, primarily through charge card
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transactions. 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.
Wholesale-Wi-Fi. 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.
Advertising and other. We generate revenue from 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. In addition, we receive revenue from partners
in certain venues where we manage and operate the Wi-Fi network.
Impact of COVID-19 on Our Business
The pandemic caused by an outbreak of a new strain of coronavirus ("COVID-19")
has resulted, and is likely to continue to result, in significant national and
global economic disruption and may adversely affect our business. Uncertainty
exists concerning the magnitude of the impact and duration of the COVID-19
pandemic. As of the date of this filing, we have seen 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 has directly
contributed to a decline in new retail single-use access transactions and
recurring monthly subscription sign-ups, a decline in revenues generated from
wholesale Wi-Fi partners who pay usage-based fees, a decline in available
advertising inventory, and a decline in revenue received from tenants at our
managed and operated venue locations resulting from the cancellation of Wi-Fi
and other services. Although we continue to close and launch new customer deals,
we have also experienced an overall reduction in new deal flow due to COVID-19.
Certain states, including California , issued executive orders requiring all
workers to remain at home, unless their work is critical, essential, or
life-sustaining. While some restrictions have been lifted in certain states,
many restrictions continue to remain in place and some restrictions that have
previously been lifted have been reinstituted. We transitioned our corporate
employees to a work from home model and our employees continue to perform their
functions in the new environment. 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.
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Results of Operations
The following tables set forth our results of operations for the specified
periods:
Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
(unaudited)
(in thousands)
Consolidated Statements of Operations Data:
Revenue $ 58,754 $ 64,707 $ 177,312 $ 199,734
Costs and operating expenses:
Network access 28,458 29,155 85,102 90,368
Network operations 12,907 13,682 39,743 42,073
Development and technology 6,277 8,182 19,760 25,534
Selling and marketing 4,903 5,721 16,334 17,782
General and administrative 5,878 5,021 19,917 20,330Amortization of intangible assets 1,060 1,103 3,276 3,365 Total costs and operating expenses 59,483 62,864 184,132 199,452 (Loss) income from operations (729) 1,843 (6,820) 282 Interest expense and amortization of debt discount (2,282) (2,191) (7,404) (6,741) Interest income and other expense, net 101 388 476 1,600 (Loss) income before income taxes (2,910)
40 (13,748) (4,859)
Income tax expense (109) (143) (225) (254)
Net loss (3,019) (103) (13,973) (5,113)Net (loss) income attributable to non-controlling interests (108) 84 (589) 11 Net loss attributable to common stockholders$ (2,911)
$ (187) $ (13,384) $ (5,124) Depreciation and amortization expense included in costs and operating expenses: Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 (unaudited) (in thousands) Network access$ 12,067 $ 9,463 $ 34,615 $ 30,527 Network operations 5,086 4,361 14,735 13,069 Development and technology 2,647 2,782 8,104 8,369 General and administrative 223 261 744 785 Total(1)$ 20,023 $ 16,867 $ 58,198 $ 52,750
The
of property and equipment for the three and nine months ended
respectively, is primarily a result of our increased fixed assets from our
DAS build-out projects, Wi-Fi networks, and software development in 2019 and
2020.
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Stock-based compensation expense included in costs and operating expenses:
Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
(unaudited)
(in thousands)
Network operations $ 379 $ 387 $ 1,119 $ 1,241
Development and technology 230 325 608 962
Selling and marketing 453 578 1,347 1,655
General and administrative 955 764 2,460 2,576
Total(2) $ 2,017 $ 2,054 $ 5,534 $ 6,434 Stock-based compensation expense remained relatively consistent and decreased
by
compared to the three and nine months ended
During the nine months ended
out-of-period adjustments that decreased stock-based compensation expense and
net loss attributable to common stockholders by
these out-of-period adjustments is not considered material, individually and (2) in the aggregate, to any of the current or prior annual periods. The
remaining decrease is primarily attributable to a decrease in the Company's
headcount resulting from the restructuring plan that was adopted in December
2019. We capitalized
compensation expense for each of the three and nine months ended September
30, 2020, respectively. We capitalized
stock-based compensation expense for each of the three and nine months ended
September 30, 2019 , respectively.
The following table sets forth our results of operations for the specified periods as a percentage of our revenue for those periods:
Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
(unaudited)
(as a percentage of revenue)
Consolidated Statements of Operations Data:
Revenue 100.0 % 100.0 % 100.0 % 100.0 %
Costs and operating expenses:
Network access 48.4 45.1 48.0 45.2
Network operations 22.0 21.1 22.4 21.1
Development and technology 10.7 12.6 11.1 12.8
Selling and marketing 8.3 8.8 9.2 8.9
General and administrative 10.0 7.8 11.2 10.2Amortization of intangible assets 1.8 1.7 1.8 1.7 Total costs and operating expenses 101.2 97.2 103.8 99.9 (Loss) income from operations (1.2) 2.8 (3.8) 0.1 Interest expense and amortization of debt discount (3.9) (3.4) (4.2) (3.4) Interest income and other expense, net 0.2 0.6 0.3 0.8 (Loss) income before income taxes (5.0) 0.1
(7.8) (2.4) Income tax expense (0.2) (0.2) (0.1) (0.1) Net loss (5.2) (0.2) (7.9) (2.6) Net (loss) income attributable to non-controlling interests (0.2) 0.1 (0.3) 0.0 Net loss attributable to common stockholders (5.0) % (0.3) %
(7.5) % (2.6) %
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Three Months ended
Revenue
Three Months Ended September 30,
2020 2019 Change % Change
(unaudited)
(in thousands, except percentages)
Revenue:
Military/multifamily $ 23,806 $ 23,641 $ 165 0.7
DAS 21,877 23,714 (1,837) (7.7)
Wholesale-WiFi 10,110 11,200 (1,090) (9.7)
Retail 2,060 3,646 (1,586) (43.5)
Advertising and other 901 2,506 (1,605) (64.0)
Total revenue $ 58,754 $ 64,707 $ (5,953) (9.2)
Key business metrics:
DAS nodes 40.8 37.2 3.6 9.7
Subscribers-military 136 137 (1) (0.7)
Subscribers-retail 49 85 (36) (42.4)
Connects 28,310 89,291 (60,981) (68.3)
Military/multifamily. Military/multifamily revenue increased$0.2 million , or 0.7%, for the three months endedSeptember 30, 2020 , as compared to the three months endedSeptember 30, 2019 , primarily due to a$0.4 million increase military revenue, which was driven primarily by a 2.9% increase in the average monthly revenue per military subscriber in 2020 compared to 2019. DAS. DAS revenue decreased$1.8 million , or 7.7%, for the three months endedSeptember 30, 2020 , as compared to the three months endedSeptember 30, 2019 , due to a$2.2 million decrease in access fees from our telecom operators, which was partially offset by a$0.4 million increase in build-out revenues. DAS build-out revenues for the three months endedSeptember 30, 2020 includes$0.8 million of short-term build projects that included the sales of equipment that was completed during this period. DAS access fees for the three months endedSeptember 30, 2019 include$1.8 million of one-time access fees. Wholesale-Wi-Fi. Wholesale Wi-Fi revenue decreased$1.1 million , or 9.7%, for the three months endedSeptember 30, 2020 , as compared to the three months endedSeptember 30, 2019 , primarily due to a$1.4 million decrease in partner usage based fees, which was partially offset by a$0.3 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. Retail. Retail revenue decreased$1.6 million , or 43.5%, for the three months endedSeptember 30, 2020 , as compared to the three months endedSeptember 30, 2019 , primarily due to a decrease in retail subscribers, which has been exacerbated by the significant declines in venue traffic due to COVID-19. Advertising and other. Advertising and other revenue decreased$1.6 million , or 64.0%, for the three months endedSeptember 30, 2020 , as compared to the three months endedSeptember 30, 2019 , primarily due to a$1.2 million decrease in advertising sales at our managed and operated locations resulting from a decline in the number of premium ad units sold and significant declines in venue traffic as a result of COVID-19. 34 Table of Contents Costs and Operating Expenses Three Months Ended September 30, 2020 2019 Change % Change (unaudited) (in thousands, except percentages) Costs and operating expenses: Network access$ 28,458 $ 29,155 $ (697) (2.4) Network operations 12,907 13,682 (775) (5.7) Development and technology 6,277 8,182 (1,905) (23.3) Selling and marketing 4,903 5,721 (818) (14.3) General and administrative 5,878 5,021 857 17.1
Amortization of intangible assets 1,060 1,103 (43)
(3.9)
Total costs and operating expenses
(5.4) Network access. Network access costs decreased$0.7 million , or 2.4%, for the three months endedSeptember 30, 2020 , as compared to the three months endedSeptember 30, 2019 , primarily due to a$2.0 million decrease in revenue share paid to venues in our managed and operated locations, a$0.5 million decrease in construction and support expenses related to our multifamily operations,$0.4 million decrease from customer usage at partner venues, and a$0.4 million decrease in direct and other cost of revenue. The decreases were partially offset by a$2.6 million increase in depreciation expense resulting from our increased fixed assets from our DAS build-out projects and Wi-Fi networks related to our venue partners who pay us to provide a Wi-Fi infrastructure that we install, manage, and operate at their venues. Other costs of revenue for the three months endedSeptember 30, 2020 included$0.5 million of costs directly related to our short-term DAS projects that were completed during this period. Network operations. Network operations expenses decreased$0.8 million , or 5.7%, for the three months endedSeptember 30, 2020 , as compared to the three months endedSeptember 30, 2019 , due to a$1.0 million decrease in personnel related expenses, a$0.2 million decrease in travel and entertainment expenses, and a$0.3 million decrease in other network operations expenses. The decreases were partially offset by a$0.7 million increase in depreciation expense. Development and technology. Development and technology expenses decreased$1.9 million , or 23.3%, for the three months endedSeptember 30, 2020 , as compared to the three months endedSeptember 30, 2019 , primarily due to a$1.1 million decrease in personnel related expenses, a$0.1 million decrease in cloud services, a$0.1 million decrease in travel and entertainment expenses, and a$0.1 million decrease in depreciation expense. Selling and marketing. Selling and marketing expenses decreased$0.8 million , or 14.3% for the three months endedSeptember 30, 2020 , as compared to the three months endedSeptember 30, 2019 , due to a$0.4 million decrease in travel and entertainment expenses, a$0.2 million decrease in personnel related expenses, and a$0.2 million decrease in marketing and advertising expenses. General and administrative. General and administrative expenses increased$0.9 million , or 17.1%, for the three months endedSeptember 30, 2020 , as compared to the three months endedSeptember 30, 2019 , primarily due to a$1.0 million decrease in the fair value of contingent consideration that was recorded in the three months endedSeptember 30, 2019 and a$0.3 million increase in personnel related expenses. The increases were partially offset by$0.5 million decrease in credit card and bank fees. Amortization of intangible assets. Amortization of intangible assets expense remained relatively consistent for the three months endedSeptember 30, 2020 , as compared to the three months endedSeptember 30, 2019 .
Interest Expense and Amortization of Debt Discount
Interest expense and amortization of debt discount remained relatively consistent for the three months endedSeptember 30, 2020 , as compared to the three months endedSeptember 30, 2019 . During the three months endedSeptember 30, 2020 and 2019, we capitalized$1.5 million and$0.8 million , respectively, of interest expense. 35 Table of Contents
Interest Income and Other Expense, Net
Interest income and other expense, net decreased$0.3 million , or 74.0% for the three months endedSeptember 30, 2020 , as compared to the three months endedSeptember 30, 2019 , primarily due to a decrease in interest income related to our cash equivalents and marketable securities balances in 2020. Income Tax Expense There were no significant changes in income tax expense for the three months endedSeptember 30, 2020 , as compared to the three months endedSeptember 30, 2019 . The change in our effective tax rate to 3.7% for the three months endedSeptember 30, 2020 , as compared to 357.5% for the three months endedSeptember 30, 2019 , is primarily due to minimum state taxes. Non-controlling Interests
Non-controlling interests decreased
Net Loss Attributable to Common Stockholders
Net loss attributable to common stockholders increased$2.7 million for the three months endedSeptember 30, 2020 , as compared to the three months endedSeptember 30, 2019 , primarily due to the$6.0 million decrease in revenues, which was partially offset by the$3.4 million decrease in costs and operating expenses.
Nine Months ended
Revenue
Nine Months Ended September 30,
2020 2019 Change % Change
(unaudited)
(in thousands, except percentages)
Revenue:
Military/multifamily $ 70,226 $ 73,934 $ (3,708) (5.0)
DAS 66,287 75,431 (9,144) (12.1)
Wholesale-WiFi 29,559 32,938 (3,379) (10.3)
Retail 7,387 11,419 (4,032) (35.3)
Advertising and other 3,853 6,012 (2,159) (35.9)
Total revenue $ 177,312 $ 199,734 $ (22,422) (11.2)
Key business metrics:
DAS nodes 40.8 37.2 3.6 9.7
Subscribers-military 136 137 (1) (0.7)
Subscribers-retail 49 85 (36) (42.4)
Connects 108,572 253,757 (145,185) (57.2)
Military/multifamily. Military/multifamily revenue decreased$3.7 million , or 5.0%, for the nine months endedSeptember 30, 2020 , as compared to the nine months endedSeptember 30, 2019 , due to a$2.6 million decrease in multifamily revenues primarily resulting from a decrease in the number of properties under construction, and a$1.4 million decrease in military subscriber revenue, which was driven primarily by the decrease in military subscribers partially offset by a 3.0% increase in the average monthly revenue per military subscriber in 2020 compared to 2019. DAS. DAS revenue decreased$9.1 million , or 12.1%, for the nine months endedSeptember 30, 2020 , as compared to the nine months endedSeptember 30, 2019 , due to a$6.2 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$2.9 million decrease in DAS access fees from our telecom operators. DAS build-out revenues for the nine months endedSeptember 30, 2020 includes$2.8 million of short-term build projects that included the sales of equipment that was completed during this period. DAS access fees for the nine months endedSeptember 30, 2019 include$4.8 million of one-time access fees. 36 Table of Contents
Wholesale- Wi-Fi. Wholesale Wi-Fi revenue decreased$3.4 million , or 10.3%, for the nine months endedSeptember 30, 2020 , as compared to the nine months endedSeptember 30, 2019 , primarily due to a$3.8 million decrease in partner usage-based fees, which was partially offset by a$0.4 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. Retail. Retail revenue decreased$4.0 million , or 35.3%, for the nine months endedSeptember 30, 2020 , as compared to the nine months endedSeptember 30, 2019 , primarily due to a decrease in retail subscribers, which has been exacerbated by the significant declines in venue traffic due to COVID-19. Advertising and other. Advertising and other revenue decreased$2.2 million , or 35.9% for the nine months endedSeptember 30, 2020 , as compared to the nine months endedSeptember 30, 2019 , primarily due to a$1.7 million decrease in advertising sales at our managed and operated locations resulting from a decline in the number of premium ad units sold and significant declines in venue traffic as a result of COVID-19. Costs and Operating Expenses Nine Months Ended September 30, 2020 2019 Change % Change (unaudited) (in thousands, except percentages) Costs and operating expenses: Network access$ 85,102 $ 90,368 $ (5,266) (5.8) Network operations 39,743 42,073 (2,330) (5.5) Development and technology 19,760 25,534 (5,774) (22.6) Selling and marketing 16,334 17,782 (1,448) (8.1) General and administrative 19,917 20,330 (413) (2.0)
Amortization of intangible assets 3,276 3,365 (89)
(2.6)
Total costs and operating expenses
(7.7) Network access. Network access costs decreased$5.3 million , or 5.8%, for the nine months endedSeptember 30, 2020 , as compared to the nine months endedSeptember 30, 2019 . The decrease is primarily due to a$4.8 million decrease in revenue share paid to venues in our managed and operated locations, a$3.1 million decrease in construction and support expenses related to our multifamily operations and a$1.5 million decrease from customer usage at partner venues. The decreases were partially offset by a$4.1 million increase in depreciation expense resulting from our increased fixed assets from our DAS build-out projects and Wi-Fi networks related to our venue partners who pay us to provide a Wi-Fi infrastructure that we install, manage, and operate at their venues. Other costs of revenue for the nine months endedSeptember 30, 2020 included$2.1 million of costs directly related to our short-term DAS projects that were completed during this period. Network operations. Network operations expenses decreased$2.3 million , or 5.5%, for the nine months endedSeptember 30, 2020 , as compared to the nine months endedSeptember 30, 2019 , due to a$2.9 million decrease in personnel related expenses, a$0.6 million decrease in travel and entertainment expenses, a$0.3 million decrease in other network operations expenses, and a$0.2 million decrease in consulting expenses. The decreases were partially offset by a$1.7 million increase in depreciation expense. Development and technology. Development and technology expenses decreased$5.8 million , or 22.6%, for the nine months endedSeptember 30, 2020 , as compared to the nine months endedSeptember 30, 2019 , due to a$3.8 million decrease in personnel related expenses, a$0.7 million decrease in other development and technology expenses, a$0.5 million decrease in consulting expenses, a$0.3 million decrease in travel and entertainment expenses, a$0.3 million decrease in depreciation expense, and a$0.2 million decrease in computer supplies expenses. Selling and marketing. Selling and marketing expenses decreased$1.4 million , or 8.1%, for the nine months endedSeptember 30, 2020 , as compared to the nine months endedSeptember 30, 2019 , due to a$1.3 million decrease in personnel related expenses, a$0.8 million decrease in travel and entertainment expenses, and a$0.6 million decrease in marketing expenses. These decreases were partially offset by a$1.1 million increase in litigation loss contingency accruals related to a claim of damages at one of our venues inBrazil and a$0.2 million increase in consulting expenses. 37 Table of Contents General and administrative. General and administrative expenses decreased$0.4 million , or 2.0%, for the nine months endedSeptember 30, 2020 , as compared to the nine months endedSeptember 30, 2019 , primarily due to a$0.6 million decrease in personnel related expenses, a$0.5 million decrease in credit card and bank fees, a$0.5 million decrease in consulting expenses, a$0.4 million decrease in professional fees, a$0.4 million decrease in employee incentives, and a$0.3 million decrease in license and tax fees. These decreases were partially offset by a$1.2 million increase in non-recurring transaction costs during the nine months endedSeptember 30, 2020 and a$1.0 million decrease in the fair value of contingent consideration that was recorded in the nine months endedSeptember 30, 2019 . Amortization of intangible assets. Amortization of intangible assets expense remained relatively consistent for the nine months endedSeptember 30, 2020 , as compared to the nine months endedSeptember 30, 2019 .
Interest Expense and Amortization of Debt Discount
Interest expense and amortization of debt discount increased$0.7 million , or 9.8% for the nine months endedSeptember 30, 2020 , as compared to the nine months endedSeptember 30, 2019 , primarily due to interest expense incurred on the$100.0 million we drew down on our Revolving Line of Credit inMarch 2020 . During the nine months endedSeptember 30, 2020 and 2019, we capitalized$3.5 million and$2.1 million , respectively, of interest expense.
Interest Income and Other Expense, Net
Interest income and other expense, net decreased
Income Tax Expense
There were no significant changes in income tax expense and our effective tax
rate for the nine months ended
Non-controlling Interests
Non-controlling interests decreased$0.6 million for the nine months endedSeptember 30, 2020 , as compared to the nine months endedSeptember 30, 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 for the nine months endedSeptember 30, 2020 increased$8.3 million as compared to the nine months endedSeptember 30, 2019 , primarily due to the$22.4 million decrease in revenues, the$1.1 million decrease in interest income and other expense, net, and the$0.7 million increase in interest expenses and amortization of debt discount. The changes were partially offset by the$15.3 million decrease in costs and operating expenses and the$0.6 million increase in net loss attributable to non-controlling interests.
Reconciliation of Non-GAAP Financial Measures
We define Adjusted EBITDA as net loss attributable to common stockholders plus
depreciation and amortization of property and equipment, stock-based
compensation expense, amortization of intangible assets, income tax expense,
interest expense and amortization of debt discount, interest income and other
expense, net, non-controlling interests, and excludes charges or gains that are
non-recurring, infrequent, or unusual.
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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) 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:
Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
(unaudited)
(in thousands)Net loss attributable to common stockholders$ (2,911) $ (187) $ (13,384) $ (5,124) Depreciation and amortization of property and equipment 20,023 16,867 58,198 52,750 Stock-based compensation expense 2,017 2,054 5,534 6,434 Amortization of intangible assets 1,060 1,103 3,276 3,365 Income tax expense 109 143 225 254 Interest expense and amortization of debt discount 2,282 2,191 7,404 6,741 Interest income and other expense, net (101) (388)
(476) (1,600)
Non-controlling interests (108) 84 (589) 11
Transaction costs 121 - 1,193 -
Litigation loss contingencies - - 1,100 -
Adjusted EBITDA $ 22,492 $ 21,867 $ 62,481 $ 62,831 Adjusted EBITDA was$22.5 million for the three months endedSeptember 30, 2020 , an increase of 2.9% from$21.9 million recorded in the three months endedSeptember 30, 2019 . As a percent of revenue, Adjusted EBITDA was 38.3% for the three months endedSeptember 30, 2020 , up from 33.8% of revenue for the three months endedSeptember 30, 2019 . The Adjusted EBITDA increase was primarily due to the$3.1 million increase in depreciation and amortization expense. The change was partially offset by the$2.7 million increase in net loss attributable to common stockholders. 39 Table of Contents Adjusted EBITDA was$62.5 million for the nine months endedSeptember 30, 2020 , a decrease of 0.6% from$62.8 million recorded in the nine months endedSeptember 30, 2019 . As a percent of revenue, Adjusted EBITDA was 35.2% for the nine months endedSeptember 30, 2020 , up from 31.5% of revenue for the nine months endedSeptember 30, 2019 . The Adjusted EBITDA decrease was due primarily to the$8.3 million increase in our net loss attributable to common stockholders, the$0.9 million decrease in stock-based compensation expense, and the$0.6 million change in non-controlling interests. The changes were partially offset by the$5.4 million increase in depreciation and amortization expense, the$1.1 million decrease in interest income and other expense, net, and the$0.7 million increase in interest expense and amortization of debt discount, for the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 . Adjusted EBITDA for the nine months endedSeptember 30, 2020 also excludes$1.2 million of non-recurring transaction costs and$1.1 million of litigation loss contingencies.
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 ofSeptember 30, 2020 consisted of$47.0 million of cash and cash equivalents,$7.6 million of marketable securities, and$150.0 million available for borrowing under our Credit Facility,$13.4 million of which is reserved for our outstanding Letter of Credit Authorization agreements. InMarch 2020 , we drew down$100.0 million from our Revolving Line of Credit. During the three months endedSeptember 30, 2020 , we repaid the full amount outstanding under the Revolving Line of Credit. As ofSeptember 30, 2020 , we had$2.1 million outstanding under the Term Loan and no amounts outstanding under the Revolving Line of Credit. Our principal uses of liquidity have been to fund our operations, working capital requirements, capital expenditures and acquisitions. We expect that these requirements will be our principal needs for liquidity over the near term. Our capital expenditures in the nine months endedSeptember 30, 2020 were$85.8 million , of which$66.6 million will be reimbursed through revenue for DAS 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. 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. 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 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$1,000 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. 40 Table of Contents 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 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. 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 2020 will range from$100.0 million to$125.0 million , including$80.0 million to$100.0 million of capital expenditures for DAS build-out projects which are reimbursed through revenue from our telecom operator customers. We anticipate the majority of our 2020 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. We are subject to customary covenants, including a minimum quarterly consolidated leverage ratio, a maximum quarterly consolidated fixed charge coverage ratio, and monthly liquidity minimums. We were in compliance with all such financial covenants as ofSeptember 30, 2020 and through the date of this report. We are subject to certain non-financial covenants, and we were also in compliance with all such non-financial covenants as ofSeptember 30, 2020 and through the date of this report. The Credit Facility provides us with significant additional flexibility and liquidity for our strategic objectives involving capital expenditures and acquisitions that we may pursue from time to time. The following table sets forth cash flow data for the nine months endedSeptember 30 : 2020 2019 (unaudited) (in thousands)
Net cash provided by operating activities
(5,297) (42,807)
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Net Cash Provided by Operating Activities
For the nine months endedSeptember 30, 2020 , we generated$64.9 million of net cash from operating activities, a decrease of$16.1 million from 2019. The decrease is primarily due to a$13.1 million decrease in our operating assets and liabilities, which is primarily driven by decreased billings to our customers, a$8.9 million increase in our net loss, and a$0.9 million decrease in stock based compensation expenses. These changes were partially offset by a$5.4 million increase in depreciation and amortization expense, a$1.0 million change in fair value of contingent consideration in 2019, and a$0.5 million decrease in gains and amortization of premiums/discounts for marketable securities.
For the nine months endedSeptember 30, 2020 , we used$53.2 million in investing activities, a decrease of$84.3 million from 2019. The decrease is due to a$68.7 million increase in net proceeds from maturities of marketable securities and a$15.6 million decrease in purchases of property and equipment in 2020.
For the nine months endedSeptember 30, 2020 , we used$5.3 million of cash in financing activities, a decrease of$37.5 million from 2019. This change is primarily due to a$32.8 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$1.6 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$3.5 million increase in net payments on our Credit Facility.
Contractual Obligations and Commitments
The following table sets forth our contractual obligations and commitments as ofSeptember 30, 2020 : Payments Due by Period Less than More than Total 1 Year 2 3 Years 4 5 Years 5 Years (in thousands)
Venue revenue share minimums(1)$ 38,273 $ 9,756 $ 15,760 $ 8,701 $ 4,056 Operating and finance leases(2) 18,983 3,767
6,057 6,742 2,417 Open purchase commitments(3) 43,371 43,242 129 - - Convertible Notes(4) 201,250 - - 201,250 - Credit Facility(5) 2,138 778 1,360 - - Notes payable(6) 218 218 - - - Total$ 304,233 $ 57,761 $ 23,306 $ 216,693 $ 6,473
(1) Payments under exclusive long-term, non-cancellable contracts to provide
wireless communications network access to venues such as airports.
Non-cancellable operating leases for office and other spaces and finance (2) leases for equipment, primarily for data communication equipment and database
software.
Open purchase commitments for the purchase of property and equipment, (3) supplies and services. They are not recorded as liabilities on our condensed
consolidated balance sheet as of
the related goods or services.
(4) Long-term debt associated with our Convertible Notes are based on contractual
terms and intended timing of repayments of long-term debt.
(5) Debt associated with our Credit Agreement with
are based on contractual terms and intended timing of repayments.
(6) Payments under notes payable related to purchases of prepaid maintenance
service.
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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.
Critical Accounting Policies and Estimates
There have been no material changes to our critical accounting policies and estimates from the information provided for the year endedDecember 31, 2019 in "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in our annual report on Form 10-K filed by us with theSEC onMarch 2, 2020 .
Recently Issued Accounting Standards
Information regarding recent accounting pronouncements is contained in Note 2 "Summary of Significant Accounting Policies" to the accompanying condensed consolidated financial statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q and under "Critical Accounting Policies and Estimates" in Part I, Item II, of this Quarterly Report on Form 10-Q, the information of which is incorporated herein by this reference.
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