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Edited Transcript of WIFI earnings conference call or presentation 1-Nov-18 8:30pm GMT

Q3 2018 Boingo Wireless Inc Earnings Call

LOS ANGELES Nov 9, 2018 (Thomson StreetEvents) -- Edited Transcript of Boingo Wireless Inc earnings conference call or presentation Thursday, November 1, 2018 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David Hagan

Boingo Wireless, Inc. - Chairman & CEO

* Kimberly Orlando

Boingo Wireless, Inc. - Associate - Addo Communications

* Peter Hovenier

Boingo Wireless, Inc. - CFO & Secretary

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Conference Call Participants

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* Anthony Joseph Stoss

Craig-Hallum Capital Group LLC, Research Division - Managing Partner & Senior Research Analyst

* Paul Richard Penney

Northland Capital Markets, Research Division - MD& Senior Research Analyst

* Scott Wallace Searle

Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, greetings, and welcome to the Boingo Wireless Third Quarter 2018 Earnings Call. (Operator Instructions) As a reminder, this program is being recorded.

It is now my pleasure to introduce your host, Kim Orlando of ADDO Investor Relations. Thank you, you may begin.

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Kimberly Orlando, Boingo Wireless, Inc. - Associate - Addo Communications [2]

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Thank you, and welcome to the Boingo Wireless Third Quarter 2018 Earnings Conference Call. By now everyone should have access to the earnings press release, which was issued today at approximately 4:00 p.m. Eastern time. In addition, an earnings supplement has been made available on the Investor Relations portion of Boingo's website at www.boingo.com by clicking on the Investor tab. This call is being webcast and it is available for replay.

In our remarks today, we will include statements that are considered forward-looking within the meaning of securities laws, including forward-looking statements about guidance and future results of operations, business strategies and plans, our relationships with our venue partners and market and potential growth opportunities.

In addition, management may make additional forward-looking statements in response to your questions. Forward-looking statements are based on management's current knowledge and expectations as of today, November 1, 2018 and are subject to certain risks and uncertainties that may cause the actual results to differ materially from the forward-looking statements. A detailed discussion of such risks and uncertainties are contained in our most recent Form 10-K for the year ended December 31, 2017, filed with the SEC on March 12, 2018; Form 10-Q for the quarter ended March 31, 2018, filed with the SEC on May 8, 2018; Form 10-Q for the quarter ended June 30, 2018, filed with the SEC on August 6, 2018; and our other filings with the SEC. The company undertakes no obligation to update any forward-looking statements.

On this call, we will refer to non-GAAP measures such as adjusted EBITDA and free cash flow that, when used in combination with GAAP results, provide us with the additional analytical tools to understand our operations. We have provided reconciliations to the most directly comparable GAAP financial measures in our earnings press release and which will be posted on our Investor Relations section of our website at Boingo.com.

And with that, I'll hand the call over to Boingo's Chief Executive Officer, David Hagan.

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David Hagan, Boingo Wireless, Inc. - Chairman & CEO [3]

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Thanks, Kim. Good afternoon, everyone, and thanks for joining us to discuss Boingo's Third Quarter 2018 Financial Results. I'm pleased to share that Boingo's strong results and momentum continue. We've extended our streak of double-digit revenue growth to 16th consecutive quarters. Third quarter revenue was up 22% year-over-year to $65.3 million, which was above the high end of our guidance range. This top line growth is a result of consistent execution against our overall strategy to leverage the explosive growth of mobile data.

We do this by acquiring long-term wireless rights at venues, building DAS, WiFi and small cell network at those venues and then overlaying our unique mix of products and services to monetize those networks.

In addition to exceeding the high end of our revenue guidance range, we also exceeded the high-end of our EBITDA guidance range. EBITDA for the third quarter was $23.3 million, a year-over-year increase of nearly 18%, reflecting ongoing momentum from our main business drivers, DAS, carrier offload, military and now multifamily.

We're very pleased with these results, as they reflect the continued strength of Boingo's core business, and we're equally buoyed to be a part of the wireless infrastructure industry at this very exciting point in time.

We're currently testing several new 5G technologies, including a trial of 3.5 CBRS spectrum at Dallas Love Field, which was the first known CBRS deployment at a major U.S. airport. For this deployment, the SEC granted Boingo Special Temporary Authority, or an STA, in order to launch the deployment.

Data authority has now been updated to an initial commercial deployment status from the SEC. We believe this technical demonstration is an important step forward for the wireless industry, as the shared spectrum technology will help accommodate connectivity in the 5G era.

CBRS took a big step forward in Q3, as Federated Wireless filed an application with the SEC for commercial deployment, with a broad mix of mobile operators, cable operators and wireless ISPs. If approved, initial deployments could be underway next month. We think this is incredibly positive for Boingo, as it enables ongoing product and market expansion.

Speaking of market expansion, I also want to touch on our recent acquisition, Elauwit Networks, which we now refer to as Boingo Multifamily. Recent developers know how crucial it is for their multifamily properties to have a top-notch wireless solution for both the residents it attracts and the rents they can charge. Almost 95% of residents say high-speed Internet is a top amenity. What's more, 92% of renters want reliable cell reception and 78% of them will not rent without it. The multifamily market is highly fragmented and underserved.

Our research indicates that REIT developers and property management companies are largely unhappy with existing wireless providers, as they're typically either a cable co, which doesn't provide nationwide coverage solutions, or they're smaller operators that tend to be underfunded with less-than-cutting-edge technology.

Boingo represents a quality-oriented, well-capitalized wireless operator entering the multifamily market. We provide service coast-to-coast, which is an important attribute for the larger nationwide builders and property managers. We also are a proven technology leader they can reply upon to help future-proof their wireless solutions.

We believe there's a big upside with this vertical for a few reasons. First, we believe there's ample opportunity to layer on additional products and services, like small cell, for accretive monetization. We've already had conversations with some of the largest REITs about this and they're very excited about the opportunity, because it addresses one of the core issues for them, as referenced by the research.

Second, while Elauwit has done extremely well growing their business with property owners funding the network builds, we think there is an opportunity to grow market share by putting our own capital to work on a selective basis. This is a market that is growing 20% annually, so there's plenty of opportunity for organic growth. By putting our own capital to work, we believe we can increase our share of wins.

To that end, we were very pleased to raise significant capital through our recent sale of senior convertible notes last month. By strengthening our balance sheet on very attractive terms, we're better prepared to respond to market opportunities to win new business faster and to more rapidly build and deploy wireless networks.

Before I turn it over to Pete to discuss our financial results in more detail, let me take a moment to review some of the key highlights of our main business drivers in the third quarter starting with DAS.

Our DAS product continues to be very robust. We currently have 54 DAS venues live, an increase of 7 venues from Q2, with an average of 3.3 carriers for venues that have been live for at least 3 years. We're very proud of this stat and believe it's the best in the industry. On the carrier contracts front, we closed 12 new Tier 1 carrier contracts during the quarter, which brings our total to 88 carrier contracts for the year, this compares to 34 during the same 9-month period last year. So we're up nicely year-over-year, and activity levels are very high.

We ended the third quarter with 27,400 DAS nodes live, which we believe makes us the largest provider of indoor DAS networks in the world. We now have 73 DAS venues and 11,200 DAS nodes in backlog. This means that we have more DAS network deployments ahead of us than what we've deployed in our entire company history. So we believe we have a lot of growth runaway ahead of us.

Carrier offload also continues to be strong. We had a record number of connects in Q3, driven by the fact that carrier offload is now enabled with 2 carriers on a growing number of airport and military bases, and mobile data usage at those locations continues to grow. We believe that with the continued explosive growth of mobile data, all carriers will utilize WiFi, which is less expensive on a cost per bit basis compared to licensed spectrum. As we've said many times in the past, we believe it's not a question of if, but when additional carriers will leverage WiFi as a supplemental connectivity solution.

Finally, military broadband continues to deliver. For starters, we built and launched another 3,000 beds in Q3, including the launch of Fort Jackson in Columbia, South Carolina. This brings the total number of beds in service to 340,000, up from 324,000 last year.

Military subscribers slightly declined quarter-over-quarter, which reflects both the seasonality we see during the summer period as well as unplanned churn due to hurricane Florence. Many bases in the Southeast required evacuation, which impacted our subscriber numbers for a short time. I'm happy to preview that October sales have rebounded nicely.

As we've shared with you in the past, we expect military growth to be modest going forward, given our deep penetration levels. However, we expect to be able to continue to drive military revenue by increasing ARPU. 7 out of 10 subscribers now purchase our highest tariff service. We've also been cross-selling additional products to help raise ARPU incrementally. In fact, ARPU is up nearly 11% since the beginning of the year.

Overall, we're very pleased with our Q3 results, delivered better-than-expected performance against both our revenue and EBITDA guidance, as it reflects the strength of our business model and our success in executing against Boingo's strategic plan.

Now I'll turn it over to Pete Hovenier, our Chief Financial Officer, to walk you through our third quarter financials in detail. Pete?

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Peter Hovenier, Boingo Wireless, Inc. - CFO & Secretary [4]

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Thanks, Dave. I will begin by reviewing our financial results and key operating metrics for the third quarter ended September 30, 2018 and will conclude with our financial outlook for the full year of 2018.

Total revenue for the third quarter increased 21.6% year-over-year to a record $65.3 million. Revenue growth reflected strong performance in the military multifamily, wholesale WiFi, DAS and was partially offset by year-over-year declines in retail and advertising and other revenue.

As a percentage of revenue across our diversified revenue streams compared to the prior year quarter, DAS represent 38% of revenue, down from 41%; military multifamily was 33%, up from 26%; wholesale WiFi was 18%, up from 15%; retail was 6%, down from 12%; and advertising and other accounted for the remaining 5%, down from 6%.

In terms of total revenue contribution by category for the quarter, DAS revenue was $24.4 million, representing a 12.2% increase over the prior year period. Total DAS revenue was comprised of $18.2 million of build-out project revenue and $6.2 million of access fee revenue. The year-over-year improvement in total DAS revenue was primarily related to increased revenues from new DAS build-out projects, which included $1.1 million of benefit from the adoption with a new revenue recognition standard, ASC 606 as well as increased access fee revenue from our telecom operator partners.

Military multifamily revenue was $21.7 million, representing an increase of 55.9% versus the prior year period. Growth was driven primarily by $5.1 million of multifamily revenue from our acquisition of Elauwit Networks as well as increases in average monthly revenue per subscriber and total military subscribers.

During the quarter, we added 3,000 beds to our military network bringing our total footprint to 340,000 beds as of September 30. Wholesale WiFi revenue was $11.7 million, representing a 41.4% increase over the prior year period, primarily due to higher partner usage-based fees, and to a lesser extent, an increase of managed service fees from our venue partners who pay us to install, manage and operate the network infrastructure at their venues.

Retail revenue was $4.1 million, representing a 34.4% decline over the prior year period, primarily due to the reduced number of retail subscribers and decreased retail single-use revenue.

Advertising and other revenue was $3.3 million, representing a 4.5% decrease over the prior year period, primarily due to a decline in the number of premium ad units sold during the quarter as compared to the prior year period.

Now turning to our quarterly costs and operating expenses. Network access cost totaled $29.3 million, a 21.2% increase over the third quarter of 2017, primarily related to an increase in total direct cost of sales and higher revenue share paid to our venue partners. Gross margin, which is defined as revenue plus network access cost was 55.1%, roughly in line with the prior year period. Network operations expenses totaled $13.3 million, an increase of 14.1% to the comparable 2017 quarter, primarily due to increased personnel-related expenses, depreciation, and hardware and software maintenance expenses.

Development and technology expenses were $8 million, an increase of 17.3% from the prior year period, due primarily to increases in depreciation, consulting, hardware and software maintenance and personnel-related expenses.

Selling and marketing expenses were $5.7 million, an increase of 9.1% to comparable 2017 quarter, primarily due to higher personnel-related expenses.

General and administrative expenses were $7.8 million, a 2.7% decrease from the comparable 2017 quarter, primarily due to decreases in stock-based compensation expense, which was partially offset by an increase in bad debt expense.

Now turning to our profitability measures for the quarter. Net loss attributable with common stockholders was $0.5 million or $0.01 per diluted share compared to a net loss of $3.5 million or $0.09 per diluted share in the prior year quarter.

Adjusted EBITDA, a non-GAAP measure, was $23.3 million, an increase of 17.8% to the comparable 2017 quarter. As a percent of total revenue, adjusted EBITDA was 35.7%, down from 36.9% of revenue from the comparable 2017 quarter.

Now turning to our key operating metrics. The number of DAS nodes in our network for the third quarter were 27,400, up 23.4% from the prior year quarter and up 6.6% from the second quarter of 2018.

The number of DAS nodes in backlog, which represents the number of DAS nodes under contract, but not yet active, as of the end of the third quarter were 11,200, up 1.8% from the prior year period and down 2.6% from the second quarter of 2018, as we launched 7 new venues during the third quarter of 2018.

Our military subscriber base was 142,000 subscribers at the end of the third quarter, up 6.8% versus the prior year period and down 2.1% from the second quarter of 2018.

Our retail subscriber base was 141,000 subscribers at the end of the third quarter, which was down 27.3% from the prior year period and down 7.8% from the second quarter of 2018.

Connects, or paid usage on our worldwide network, were a record $75.4 million, up 16.3% from the prior year period and up 8.8% from the second quarter of 2018.

Moving on to discuss our balance sheet. As of September 30, 2018, cash and cash equivalents totaled $12.6 million, down slightly from $12.9 million at June 30, 2018. Total debt was $28.5 million, and we had $54.8 million available on our credit facility as of September 30, 2018. As Dave highlighted, we have successfully completed a capital raise of over $201 million in gross proceeds through an offering of convertible senior notes on October 5, 2018.

Capital expenditures were $29.6 million for the third quarter, which included $22 million utilized for DAS infrastructure build-out projects that are primarily reimbursed through revenue by our telecom operator partners.

Our nonreimbursed capital expenditures were primarily driven by new network builds, managed and operated network upgrades and various infrastructure upgrades and enhancements. As a reminder, we estimate our annual maintenance capital requirements, which excludes all growth capital, to be approximately 3% to 5% of revenue.

Free cash flow, a non-GAAP measure, was a positive $8.5 million for the third quarter versus a negative $2.7 million for the third quarter of 2017. As a reminder, we plan to invest the majority of our free cash flow into network expansion opportunities to drive future growth.

I will now turn to our outlook for the full year ending December 31, 2018. We continue to expect revenue to be in the range of $243 million to $250 million, representing year-over-year growth of approximately 20.6% at the midpoint of the range. In regards to our profitability outlook for the full year 2018, we are increasing our profitability guidance, primarily to reflect less expense and certain synergies related to our acquisition of Elauwit Networks. As a result, we now expect net loss attributable to common stockholders to be in the range of $10 million to $5 million, or a loss of $0.24 to $0.12 per diluted share. And adjusted EBITDA to be in the range of $87 million to $92 million, which implies an EBITDA margin of approximately 36.3% at the midpoint of the range.

We will maintain our tax valuation allowance, and as such, do not expect to accrue material tax benefits or tax expenses on our income statement through 2018. We continue to expect fully diluted shares outstanding of approximately 42 million.

In addition, I'm reiterating our nonreimbursed annual capital expenditures budget of approximately $25 million to $35 million for 2018, with the majority allocated to support WiFi and DAS network upgrades and build to our managed and operated venues.

In summary, we delivered excellent third quarter results, with our 16th consecutive quarter of double-digit revenue growth and a successful integration of our recent acquisition of Elauwit Networks. We are also pleased to have strengthened our balance sheet through our convertible senior notes offering, allowing more financial flexibility to execute on our strategy of acquiring venue rights and to then build and monetize with DAS, WiFi and small cell networks.

We look forward to many exciting growth prospects on the horizon, including our expanded addressable market opportunity through the entry into the high-growth multifamily market, which we expect will help us remain even more competitive in the wireless infrastructure space for many years to come.

With that, I'll turn it back over to Dave for closing remarks.

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David Hagan, Boingo Wireless, Inc. - Chairman & CEO [5]

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Thanks, Pete. As Pete just shared, we're really proud of our Q3 results, as we beat the high end of our guidance range for both revenue and EBITDA. We believe we're incredibly well positioned in the wireless infrastructure market to tackle the challenges of mobile data growth.

With that, I'd like to open it up for questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Anthony Stoss from Craig-Hallum.

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Anthony Joseph Stoss, Craig-Hallum Capital Group LLC, Research Division - Managing Partner & Senior Research Analyst [2]

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With the new influx of cash, any thoughts or updated view on the percent of self-funded deals that you might see in 2019? And then Dave, I'd love to hear your thoughts on 5G activity, either through small cell or other. And then, lastly, on the acquisition, I'm just curious on the synergy side, anything that's more positive or more negative. Are you guys ahead of plan? Any thoughts on how that's going so far.

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David Hagan, Boingo Wireless, Inc. - Chairman & CEO [3]

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So on the cash situation, the improved balance sheet, no real change there. We're still the same 25% to 30%, self-funding. We're happy to do more than that, if the opportunities present themselves, but that's what we're forecasting at this point. Regard -- regarding 5G and small cell, the 5G is still a little ways out, right. The approvals have be made on the standards for the stand-alone 5G. So chips are starting to be manufactured, gear is starting to be manufactured. But it's going to be a while yet till handsets have chips. So the early ones will be spring of next year, but many will be still in the fall and even beyond. So with more planning time, but clearly there's high interest. You've seen all the announcements from the carriers in getting 5G to market. We think that is going to stimulate a lot of business for us, both in adding on 5G in many of the DAS locations that we're already in. As we've talked about, we think small cells is a big opportunity. It will drive small cells, as we've talked about. 5G requires more densification, which plays right into our strategy. So very high interest levels, very high activity levels, a lot of planning going on, but not a lot of the P&L impact at this stage. Regarding the acquisition, we're very pleased so far. We've nearly completed the brand conversion. We're doing ERP system integration right now. We expect that to be done hopefully on January 1 or there -- shortly thereafter. We bought an operating business, as we talked about, when we did the deal and they're operating quite effectively. I've spent quite a bit of time learning about the industry, going to trade shows. I had a call today with the CEO of one of the largest multifamily REITs in North America, talking about the opportunity for Boingo Multifamily. I think our timing is perfect. I think the market opportunity is massive. We've -- the challenge, like for the rest of our business is, we just got to go and execute. So on the positive side, I would say, I think there's -- I think it's just a massive market opportunity and I haven't seen anything that caused me to scratch my head and go, oh, we didn't realize that was going to happen. So at this point, all really good news on that front. Pete, did I miss anything?

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Peter Hovenier, Boingo Wireless, Inc. - CFO & Secretary [4]

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No, I think you have all the highlights. It's -- things are going very, very well and we're pleased with the progress. And as you noted, we're planning to have the -- Boingo multifamily team on our ERP system in the beginning of 2019. So its integration is going very, very well.

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Operator [5]

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Our next question comes from the line of Paul Penney from Northland Capital.

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Paul Richard Penney, Northland Capital Markets, Research Division - MD& Senior Research Analyst [6]

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Given in your prepared remarks about the fragmented dynamics in the multifamily concavity space. Are there more external opportunities out there for you guys to look at?

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David Hagan, Boingo Wireless, Inc. - Chairman & CEO [7]

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Yes, I think there are. It's -- as we've talked about, I guess when we announced the deal on our last call, it's incredibly fragmented. I think most of the non-cable co-players are typically somewhat underfunded, so they struggle with meeting demand. They're also not technology-oriented companies, the way that we are, where they understand what's going on with 5G and they've participated in CBRS trials, and doing all the things that we do as a technology-oriented company. So I think there's great opportunity there. When we did the Elauwit acquisition, we looked at many players in the market. We thought they were the best at that moment in time for what we wanted to do and the way that we wanted to enter the market, but we've developed, through that process, relationships with many other players. We'll continue those dialogues, and we'll see if there's more M&A that comes out of that. And we're always kicking the tires on companies, we always have. We obviously do them very selectively, if you look at our track record, but there could be more opportunities there. We'll continue to look at them.

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Paul Richard Penney, Northland Capital Markets, Research Division - MD& Senior Research Analyst [8]

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Great. And then switching gears, can you give us a better feel for what you're doing from a personnel standpoint to attack the small cell opportunity? When you expect to see tangible orders here? And what verticals do you see the best opportunities in the near term?

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David Hagan, Boingo Wireless, Inc. - Chairman & CEO [9]

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So from personnel perspective, when we started on small cell about a year ago, maybe a little longer, we created a small dedicated team pursuing the opportunity that was more from a business development perspective, understanding what the market opportunity is and how it would fit into our strategy. As we've talked about, we're not going to try and compete by doing utility pools and doing deals with cities and things like that. We don't think that plays to our strategy or our real capability, right? So we're going to tie it to venues. So in terms of venue acquisition, we think there is a lot of opportunity for large chain kind of retail-type businesses. Those have the need for in-store coverage that we can do with the small cell deployment and they seem to be a pretty good fit for the zones or dead zones, where the carriers needs better coverage externally. So we're working on a whole pipeline of those kinds of opportunities. We think that's the right strategy for us -- for Boingo to play in. And we're pretty -- we're bullish on that. It's certainly not moving as quickly as we'd like from a deal perspective, but the activity levels are very high. There's a lot of energy around it, incredible interest from the carriers. But it is a carrier business and it does move at carrier pace to a certain degree. So we're very positive. All in all, good signs ahead. Not a big impact for us in 2018, but we're looking for more in 2019.

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Paul Richard Penney, Northland Capital Markets, Research Division - MD& Senior Research Analyst [10]

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Great. Last question. Your EBITDA margins have continued to trend upwards, evidenced by 35.6% this quarter and another 700 basis points in your guidance. What will be the biggest drivers in terms of when you look across your segments? What would be the drivers of your better margins?

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David Hagan, Boingo Wireless, Inc. - Chairman & CEO [11]

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Pete, why don't you take that one?

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Peter Hovenier, Boingo Wireless, Inc. - CFO & Secretary [12]

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Sure. So as we talked in the past about our business and one of the things that I love about what we do is it's a reminder we deploy venues and when we deploy venues, we can layer services on top of the venue deployments. So when you think about where we're getting incremental dollars, it comes in the form primarily of carrier offloading, which is wholesale WiFi. On our military basis, we're seeing wholesale WiFi happening there. You're seeing the military subscribers numbers continue to grow in aggregate. So the growth in EBITDA margins is really going to be dominated by wholesale WiFi, military, continued growth by DAS and then, of course, we see multifamily helping. And while the Elauwit acquisition and Elauwit is a company that operates at a lower margin than Boingo today, we do see improvements happening there over time as we bring them in and realize some of the synergies of the deals, which we analyzed and saw day one.

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Operator [13]

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(Operator Instructions) Our next question comes from the line of Scott Searle from Roth Capital.

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Scott Wallace Searle, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [14]

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Pete, just quickly had a couple of financial clarifications on the network access costs, a little bit bigger than I was looking for. Any onetime events in there? Does that number come down a little bit? Just trying to understand the magnitude of that step up. And also wanted to just confirm WiFi offload down a little bit sequentially. I know there are seasonal patterns in terms of utilization. Are we seeing that bounce back sequentially as we go into December? And on Elauwit, I thought you said $5.1 million in the quarter, just wanted to confirm that. And then I have a couple of larger macro questions.

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Peter Hovenier, Boingo Wireless, Inc. - CFO & Secretary [15]

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Great. So first on network access, a couple of things that we saw this quarter. As a reminder, when Elauwit does a deal, in particular when they sell a network, they actually turn over the network to the property owner or property manager. And so the cost of that network actually goes into the cost of goods. And so you're seeing that flow through our P&L, which is one of the reasons our network access line is higher. We also took some onetime costs in the quarter as we got Elauwit really in line with our cycles and really following quarterly GAAP. So they did a great job in doing their accounting, but it was really more on an annualized basis and so we had to -- we took some onetime costs in the quarter related to that.

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Scott Wallace Searle, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [16]

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How big were those onetime costs, Pete?

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Peter Hovenier, Boingo Wireless, Inc. - CFO & Secretary [17]

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A little over $1 million. And you're correct, I did say, Elauwit did $5.1 million of revenue in the quarter.

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Scott Wallace Searle, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [18]

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Okay. And just lastly to follow-up on the offload, down a little bit from the June quarter. It's seasonal usage patterns, that's expected to snap back into the December quarter. And just kind of wondering, if there are any capacity constraints that you're having at this point in time. I think you're above all of your network minimums, but what the capacity utilization looks like or if that's not an issue at all as we go forward.

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David Hagan, Boingo Wireless, Inc. - Chairman & CEO [19]

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It's not a capacity issue, and there is a little seasonality, but there is a little more to it than that. So let me address that. So as we've talked about in the past, I think with both investors and analysts, one of the challenges of carrier offload is that carriers view their networks as on net and off net, and carriers are all about on-net traffic, and that's what they have on their cellular network, that's what they put on the DAS networks that we deploy for them. They see WiFi as off net. And so one of the things that we've been working on with our carrier customers and partners is, how do we make it more on net like for them? And that means a couple of things: one, the carriers do not like to see a runaway meter, if you will, you know, a toll meter, where they can't kind of manage traffic and control traffic. So we've done some pricing mechanisms that we've talked about in the past, I believe. So we have some volume commitments, we have -- we put caps in place, so that a carrier can't get upside down on an individual customer in a location. So if you think about a military customer, where maybe they have a $45, $50 ARPU and they have to pay Boingo $25 in offload usage, that's obviously not a good business model for the carrier. So we've instituted some caps. And then, the other thing that we've been working on, both on the carrier side and on our side is the ability to route traffic in a smarter way. So it's not just all on or all off. And so that whole series of initiatives started to take effect in Q3. And so that's kind of that result that you see as well. Traffic is continuing to go up nicely. We had a little bit of a decline in revenue. Overall, we think this is a good thing. Again, it's making WiFi offload more core or more on net for our carrier partners. And we think it'll allow us to go to number 3 and number 4 and show them how they can utilize WiFi as an incremental capacity supplier and in a way that they can manage it like they manage their cellular networks today. So we're not having any -- no capacity issues, all that's good. And I think we've built some smart tools now that we can help carriers expand from the number of locations that they're on with us right now to the entire network.

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Scott Wallace Searle, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [20]

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Great, very helpful. And if I could, from a big picture standpoint, you were asked earlier about 5G in terms of some of the time lines, but I was wondering if you could parallel that as well with CBRS. I think some of the chipset availability is following similar lines or at least devices becoming available kind of in the middle of 2019. Your thoughts on that front. How FirstNet plays in? And then, from a higher level, if you look at all of these new bands and the complexity of the RF spectrum environment that's coming into mobile devices and utilization, particularly in where your venues are located, high-traffic areas. As you look out into late 2019, 2020, you put in 5G, you put in CBRS, you put in FirstNet, what does that do to the existing venue locations you have? Does that increase the revenue opportunity per DAS node by 50%, by 100%, as you start to think about those opportunities rolling out over the next 3-plus years?

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David Hagan, Boingo Wireless, Inc. - Chairman & CEO [21]

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That's a long question. Hopefully, I can shorten my answer, but we'll see, Scott. I mean, the short answer is, yes, we should drive more revenue per venue as we roll out additional spectrum and new technologies. We're not prepared to give you a forecast or guidance on exactly what that percentage will be, but there absolutely should be increased revenue per venue. In terms of the CBRS trial, there were really 2 parts of that in my prepared remarks. One is the deployment that we've done at Dallas Love Field and the second one was the Federated Wireless proposal to the SEC, which had multiple cable codes and widths. And we were part of that as well. That may not have been clear in my remarks, but we were part of that as well. So we submitted some locations and that's really a trial to make sure that from an SEC perspective that the industry can manage the spectrum, both licensed and unlicensed in a way that is fair for all participants in the way that they have constructed, if you will, the regulatory structure. So it's a market test of the back-office technology, less about the end-user technology, like what we're doing at Dallas Love Field. So we have to as an industry CBRS has to get past that kind of a trial for the SEC to be good to go, but we're really excited about that. And again, CBRS is really interesting because it's for the first time, shared spectrum, right? We've always had license. We've always had unlicensed. And now we have something in between. And it has outstanding aspects of both, meaning carriers can deploy it, but so can third-party mutual host operators like Boingo, so can venues on their own. So if you're running an enterprise and you want to get better coverage in your building, you could add CBRS. So we think it's going to be a both a top-down driven technology the way traditional licensed spectrum is, but also a market bottom-up approach the way that WiFi on the unlicensed side has developed over the last 15 years. So I think all good news there, a lot of excitement around it. The business will still -- the business impact of it won't be seen even much in 2019. So look forward in 2020, but that doesn't mean there's not a lot of work going on.

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Operator [22]

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Ladies and gentlemen, we have no further questions in queue at this time. I'd like to turn the floor back over to Dave Hagan for closing comments.

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David Hagan, Boingo Wireless, Inc. - Chairman & CEO [23]

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Thank you, operator. Thanks, everyone, for your questions today. I'd also like to mention that in mid-November we will be in New York city presenting at Craig-Hallum's 9th Annual Alpha Select Conference. And later in the month, we'll be in Phoenix presenting at Crédit Suisse 22nd Annual Technology Conference. We hope to see many of you there. Thank you.

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Operator [24]

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Thank you, ladies and gentlemen. This does conclude our teleconference for today. You may now disconnect your line at this time. Thank you for your participation, and have a wonderful day.