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Edited Transcript of WIFI earnings conference call or presentation 1-Aug-19 8:30pm GMT

Q2 2019 Boingo Wireless Inc Earnings Call

LOS ANGELES Aug 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Boingo Wireless Inc earnings conference call or presentation Thursday, August 1, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Kimberly Orlando

ADDO Investor Relations - SVP

* Michael J. Finley

Boingo Wireless, Inc. - CEO & Director

* Peter Hovenier

Boingo Wireless, Inc. - CFO, Treasurer & Secretary

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Conference Call Participants

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* Anthony Joseph Stoss

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

* Gregory Thomas Gibas

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

* James Dennis Breen

William Blair & Company L.L.C., Research Division - Communication Services Analyst

* Jon Robert Hickman

Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Special Situations Analyst

* Kyle P. McNealy

Jefferies LLC, Research Division - Equity Associate

* Mark Nicholas Argento

Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst, Founding Partner & Head of Institutional Equities

* Scott Wallace Searle

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

* Timothy Kelly Horan

Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst

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Presentation

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Operator [1]

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Greetings. Welcome to Boingo Wireless, Inc.'s Second Quarter 2019 Earnings Call. (Operator Instructions). Please note, this conference is being recorded.

I would now like to turn the conference over to your host, Kimberly Orlando, Investor Relations. Thank you, you may begin.

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Kimberly Orlando, ADDO Investor Relations - SVP [2]

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Thank you, and welcome to the Boingo Wireless Second Quarter 2019 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 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, new venue contracts 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, August 1, 2019 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, 2018 filed with the SEC on March 1, 2019, Form 10-Q for the quarter ended March 31, 2019 filed with the SEC on May 10, 2019 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 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 the Investor Relations section of our website at boingo.com.

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

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Michael J. Finley, Boingo Wireless, Inc. - CEO & Director [3]

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Thanks, Kim, and thank you to everyone for joining today. Let me begin by saying it's been a great quarter. Our strong results and momentum continue with second quarter revenue up 15% year-over-year to $68.6 million, the highest quarterly revenue in our company's history. That extends our streak of double-digit revenue growth to 19 consecutive quarters.

Adjusted EBITDA for the quarter was $21.9 million, which was at the midpoint of our guidance range. This top line growth was a result of consistent execution against our strategy to leverage the explosive growth of mobile data by acquiring long-term wireless rights at venues, [loading] carrier grade networks at those venues and then monetizing the networks with the unique mix of products and services.

Among those products and services, our 3 primary revenue drivers are DAS, wholesale WiFi which includes carrier offload and military/multifamily. So let's take a deeper dive into each. For starters, DAS remains incredibly robust. As you may have seen from our recent press announcement, we had a record-setting quarter for DAS. We launched 10 new DAS venues in the period, bringing the total number of DAS venues live to 69. That's a 17% increase in our DAS venues in a single quarter. This is significant because these launches drive access fee revenue immediately, as well as set the stage for future margin expansion when additional carriers are added to each network. We typically launch a DAS network with 1 to 2 carriers and then add additional carriers over time. Our DAS networks average 3.4 carriers within 3 years.

We believe these launches are great indicators of both current and future business. DAS access fee revenue for quarter was up significantly, 81% year-over-year. While more than half of this increase was due to a one-time benefit tied to an amendment and contract extension with one of our major carrier customers, even excluding this benefit, DAS access fees grew 30% year-over-year. Today with more than 35,000 DAS nodes deployed and another 12,000 nodes in backlog, we believe Boingo is the largest operator of indoor DAS networks in the country.

In addition, our DAS runway continues to be strong with another 65 venues in backlog. Our backlog includes venues like MTA Long Island Railroad and Grand Central Terminal Eastside access in New York City. Both are major multiyear DAS construction projects and construction is progressing nicely. Sales activity for new DAS venues remains strong and we have a robust pipeline of opportunities, as carriers continue to invest in DAS to densify their networks and add capacity closer to the end consumer. What's more, our neutral host approach positions Boingo to take advantage of any kind of technology rollout. We will deploy the technology that makes sense for each venue, whether that's 5G, 4G LTE with a 5G upgrade path, Wi-Fi 6, private LTE, CBRS or other wireless technology that evolves. We are not a WiFi company. We are not a cellular company. Boingo is a wireless infrastructure company with long-term wireless rights to the venues in which we operate, which means every type of wireless technology is a potential opportunity for us.

Now let's turn to wholesale WiFi which includes carrier offload. Second quarter offload traffic was up 54% year-over-year and it continues to grow sequentially as well. This is due to the unrelenting growth in mobile data traffic we see across the network, as well as the fact that we now have both Sprint and AT&T live on the majority of our network as part of their strategic initiatives to help accommodate rising mobile data traffic.

We believe that with continued mobile data growth, all carriers will need to utilize WiFi to meet their customer usage demands in order to drive down the traffic on their cellular networks. As we've said many times in the past, we believe it's not a question of if, but when.

Now let's turn to our military/multifamily product. For military, we added 6,000 new beds in the quarter for an addressable market of 352,000 beds. Military revenue for the quarter was up 10.6% year-over-year and ARPU for the quarter was up 11.6% compared to the same period last year. This is due to the new faster, higher-priced packages we've rolled out to a majority of the bases. We expect to have the entire footprint complete by year-end.

Military subscriber penetration dipped a bit from the first quarter to 40.3%. Q2 is typically the period in which we see higher troop movement due to permanent change of station or PCS season. We expect that movement and plan for it. However, we also experienced higher than expected troop deployment in the quarter. We anticipate those deployments to return home within the next 2 quarters, and in fact we're already seeing some of those returns in Q3.

Our military experience over the last 5 years has prepared us well to expand into the multifamily space. While growing a new business always takes time, we believe this vertical represents a tremendous growth opportunity for Boingo in the coming years. We currently have 230 properties live, with another 20 under contract. We're taking a steady, thoughtful approach on the new deals we do. We're focused on expanding our multifamily portfolio with property types that we expect to improve overall margins.

While we continue to work on longer-term strategic agreements with several of the top REITs, we are actively engaging in new projects, which we believe will enable us to meet our longer-term growth goals.

In summary, there's a lot to be excited about. With our core business drivers, DAS, military and carrier offload performing very well. Beyond that, over the last 90 days I've had strategic discussions with executive leadership of each of the Tier One carriers. These meetings lead me to be very bullish about the opportunities ahead for Boingo, whether that's DAS upgrades, the launch of new technology like CBRS, private LTE, 5G or Wi-Fi 6; we believe the opportunities to partner with carriers is greater than perhaps at any time in Boingo's history. I believe Boingo is incredibly well-positioned in the wireless infrastructure market to tackle the challenges of mobile data growth.

With that, let me turn it over to Pete, who will walk you through the quarter in more detail Pete?

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

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Thanks, Mike. I will begin by reviewing our financial results and key operating metrics for the second quarter ended June 30, 2019 and will conclude with our financial outlook for the third quarter and full year of 2019.

Total revenue for the second quarter was $68.6 million, an increase of 15% year-over-year. Revenue growth reflected strong performance in DAS and military/multifamily and was partially offset by year-over-year declines in wholesale WiFi, retail and advertising and other revenue. As a percentage of total revenue across our diversified revenue streams compared to the prior year quarter, DAS was 40%, up from 37%. Military/multifamily was 36%, up from 28%. Wholesale WiFi was 16%, down from 23%. Retail was 6%, down from 8%; and the advertising and other was 2%, down from 4%.

In terms of total revenue contribution by category for the quarter, DAS revenue of $27.6 million increased by 26.2% year-over-year. Total DAS revenue was comprised of $16.9 million of buildout project revenue and $10.7 million of access fee revenue. Importantly, DAS access fee revenue increased 81.4% year-over-year from $5.9 million, representing our third consecutive quarter of double-digit growth. I'd like to also note that DAS access fee revenue for the second quarter included a one-time benefit from the amendment and contract extension from one of our carrier customers which added $3 million to the quarter. Even without this benefit, we are very pleased with the strong growth that we continue to experience with DAS.

Military/multifamily revenue increased 45.8% year-over-year to $24.4 million. Growth was driven primarily by a $5.9 million increase from multifamily revenue from our acquisition of Elauwit Networks and an increase in average monthly revenue per subscriber. On a sequential basis, military and multifamily revenue was down 5.8%, primarily due to longer sales and deployment cycles for multifamily opportunities. As Mike mentioned, while we remain excited about multifamily and the growth potential this vertical presents, it's important to note this is a long-term growth opportunity. Growing the business takes time and we are applying the same strategy and philosophy to multifamily that we have historically done with great success in military and DAS.

In regard to military, we continue to benefit from higher ARPU as a result of the speed and price increases we implemented in our service offerings during the year. Throughout the second quarter, we built out our military network to cover an additional 6,000 beds, bringing our total military footprint to 352,000 beds as of June 30.

Wholesale WiFi revenue was $10.7 million, a decrease of 20.8% year-over-year, primarily due to lower partner usage base fees partially offset by an increase in managed service fees from our venue partners who pay us to install, manage and operate network infrastructure at their venues. The year-over-year decrease in partner usage base fees was primarily driven by decreases in fees from carrier offload and our Comes with Boingo program. As mentioned in our last call, we continue to expect Comes with Boingo to decline over the remainder of the year, as our program with American Express is expected to be phased out. That said, we remain encouraged by our traction and the usage increases from carrier offload and continue to expect wholesale WiFi to be a strong driver of recurring cash flow.

Retail revenue was $3.8 million, a year-over-year decrease of 15.7%, primarily due to a decline in retail subscribers and retail single-use revenue. Advertising and other revenue was $2 million, a decrease of 31.7% year-over-year, primarily due to a decline in the number of premium ad units sold.

Now turning to our quarterly costs and operating expenses, network access costs were $29.8 million, a 23.7% increase over the second quarter of 2018, primarily related to higher direct cost to sales, which includes the cost of equipment installed in multifamily deployments; as well as higher revenue share paid to our venue partners. These increases were partially offset by a decrease in depreciation expense.

Gross margin, which is defined as revenue less network access cost, was 56.5%, down approximately 306 basis points from the prior year period. The decline in gross margin reflects the shift in the diversified revenue streams, driven primarily by the increase in our lower margin multifamily and DAS build revenue, partially offset by increases in higher margin military and DAS access fee revenue.

Network operations expenses were $14.2 million, an increase of 12% over the prior year period, primarily due to higher personnel-related and network maintenance expenses. Development and technology expenses were $8.4 million, an increase of 11.9% from the prior year period, due primarily to increases in personnel, depreciation and hardware and software maintenance expenses. Selling and marketing expenses were $6.2 million, an increase of 15.7% year-over-year, primarily due to higher personnel-related expenses. General and administrative expenses were $7 million, an increase of 4.2% year-over-year also primarily due to higher personnel-related expenses.

Now turning to our profitability measures for the quarter, net income attributable to common stockholders was $200,000 or near breakeven per diluted share, compared to $2.1 million or $0.05 per diluted share in the second quarter of 2018. Adjusted EBITDA, which is a non-GAAP measure, was $21.9 million, a decrease of 6.8% year-over-year. As a percentage of total revenue, adjusted EBITDA was 31.9%, down from 39.3% of revenue in the prior year quarter.

Turning now to our key metrics, the number of DAS nodes in our network for the second quarter were 35,200, up 37% from the prior year period and up 13.2% from the first quarter of 2019. 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 second quarter were 12,300, up 7% from the prior year period and down 10.2% from the first quarter of 2019, due to our deployment of 10 new DAS venues during the second quarter.

Our military subscriber base was 142,000 subscribers at the end of the second quarter, down 2.1% from the prior year period, and down 3.4% from the first quarter of 2019. The decline in subscribers is in line with our anticipated seasonal trends, which typically reflect short-term reduction in subscribers during the summer months, due primarily to higher troop movement. We expect our military subscriber base to rebound in the back half of the year.

Our retail subscriber base was 92,000 at the end of the second quarter, which was down 39.9% from the prior year period and down 18.6% from the first quarter of 2019. Connects or paid uses in our worldwide network, were approximately $85.8 million, up 23.9% from the prior year period and up 9.2% from the first quarter of 2019.

Moving on to discuss our balance sheet, as of June 30, 2019 cash, cash equivalents and marketable securities totaled $70.2 million, down $35.7 million from $105.9 million at March 31, 2019. The reduction in our cash balance was primarily due to the timing of receivables and working capital. During the quarter, we invested cash in building out our networks and launched 10 new DAS venues, which primarily drove a $35.6 million increase in our accounts receivable balances as of March 31.

Total debt was $167.2 million and we had $150 million available on our credit facility as of June 30, 2019. Capital expenditures were $41.4 million for the second quarter, which included $34.3 million utilized for DAS infrastructure buildout projects that are primarily reimbursed through revenue by our telecom operator partners. Our non-reimbursed capital expenditures were driven mainly 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 negative $32.2 million for the second quarter versus a negative $6.3 million in the second quarter of 2018. I am pleased to announce that on July 30, our board of directors authorized a stock repurchase program of up to $20 million, underscoring the high level of confidence our board and management team have in the long-term prospects for growth. We strongly believe that the current share price is not indicative of Boingo's current or long-term intrinsic value. We plan to be opportunistic in our approach, as it relates to potential share repurchase activity.

Our capital allocation strategy remains largely unchanged, as we fundamentally believe the best use of our capital is investing in building and monetizing our neutral host wireless networks to drive continued and long-term sustainable growth. The decision to implement a share repurchase plan is opportunistic.

Turning to our outlook, for the third quarter ended September 30, 2019, we are initiating guidance as follows. We expect total revenue to be in the range of $60 million to $65 million, net loss attributable to common stockholders is expected to be in the range of $6 million to $3 million or a loss of $0.14 to $0.07 per diluted share. And adjusted EBITDA is expected to be in the range of $18 million to $22 million.

Our forecast assumes a sequential revenue decline, primarily due to near-term softness we are anticipating in multifamily sales. As mentioned earlier, while multifamily sales cycle has been taking longer, we remain highly selective in our approach as it relates to executing high-quality, high return deals. We continue to view multifamily as a great long-term opportunity.

For the full year ended December 31, 2019, we are reiterating our guidance as follows. We expect total revenue to be in the range of $270 million to $280 million, representing year-over-year growth of approximately 9.6% at the midpoint of the range. It's important to note that the reamortization of deferred revenue from the contract extensions in 2019 represent a reduction equal to 7.2 points of year-over-year growth.

Net loss attributable to common stockholders is expected to be in the range of $20 million to $15 million or a loss of $0.45 to $0.34 per diluted share. And adjusted EBITDA is expected to be in the range of $80 million to $87 million, which implies an EBITDA margin of 30.4% at the midpoint of the range. Similar to the impact on revenue, the extended deferred revenue amortization period will pressure adjusted EBITDA in the near term and will result in a reduction equal to 19.6 points of year-over-year growth, though it will not impact our future cash flow generation.

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 2019. We continue to expect a nominal full year tax rate as well as fully diluted shares outstanding of approximately 44 million.

In addition, I am reiterating our non-DAS annual capital expenditures guidance to be approximately $25 million to $30 million for 2019, with the majority allocated to support new network builds and upgrades in our managed and operated venues. We continue to expect our annual capital expenditures for the deployment and upgrades of DAS networks at our managed and operated venues to be in the range $75 million to $90 million. As a reminder, virtually all of our DAS network deployments are success-based builds, meaning we have commitments and guaranteed payments from our carrier customers.

In closing, as a result of consistent, strong operational execution; we delivered an excellent second quarter, with the highest quarterly revenue in our company's history. Our strong momentum in DAS continued with access fee revenue posting significant growth over the first quarter of 2019, and the achievement of a new record for deploying 10 new venues in a single quarter. We expect DAS will be a strong driver of long-term sustainable growth. Military and carrier offload also continued to perform well, and despite some anticipated near-term softness, we are making good progress towards capitalizing on the long-term growth opportunity presented by multifamily.

Looking ahead, we remain focused on long-term value creation. By leveraging our strong relationships with carriers, which have only improved under Mike's leadership, we believe we are well-positioned to continue to win key strategic venues and to make further investments in our network to meet the growing demands for wireless connectivity. We look forward to the incremental growth opportunity 5G will provide, in addition to the trajectory we see in key growth drivers of DAS, wholesale WiFi and military/multifamily. With that, I'll turn it back over to Mike for closing remarks.

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Michael J. Finley, Boingo Wireless, Inc. - CEO & Director [5]

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Thanks, Pete. In summary, we delivered excellent second quarter results, marked by solid financial performance and strong operational execution. We delivered the highest quarterly revenue in the history of the company and had our best DAS quarter ever. Our offload product is driving great results and our military business continues to produce double-digit revenue growth.

While the expansion of our multifamily business is taking longer than we expected, we are encouraged by the strategic discussions we're having with several major REITs. We believe we're well-positioned to take advantage of the opportunities in front of us.

I'm also excited to announce the appointment of Roy Chestnutt to Boingo's Board of Directors. Roy most recently was Executive Vice President and Chief Strategy Officer for Verizon Communications, where he was responsible for Verizon's overall corporate strategy, including business development and M&A. Roy's proven track record and insight into the global wireless industry will contribute greatly to Boingo's strategic direction and we're thrilled to welcome him to the board.

With that, let's 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 is from Mark Argento with Lake Street Capital Markets.

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Mark Nicholas Argento, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst, Founding Partner & Head of Institutional Equities [2]

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Just a couple quick questions, one in terms of just the overall 5G and the dynamic now with carriers starting roll out. Do you think they remain obviously a big effort here on the rollout, but in terms of -- are they preoccupied with that relative to densifying the network? Do you think there's a little bit of a lag that's happening there in terms of additional rollouts? But also kind of juxtaposing that, relative to the access to fiber as well; I know that seems to be a little bit of a gaining factor for some as well. I just wanted to better understand kind of the dynamic at work there in terms of kind of the rollouts with the densification with 5G in the background.

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Michael J. Finley, Boingo Wireless, Inc. - CEO & Director [3]

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Yes, I'll start. Yes. Thanks, Mark, by the way. They're really doing both. 5G is moving full steam ahead. You saw Verizon announce today and so Hans gave a pretty good indication of where they're at. But what's great for us is since we provide all connectivity, 4G continues to be enhanced. 5G is coming and growing pretty rapidly. And the rest of the network, they're supporting. So it's good for us, but I think it's pretty full steam ahead for them at this point.

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

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Yes, and just a little color on the fiber question, Mark. You know, as a reminder, we operate primarily key strategic venues that are high volume in terms of the traffic and just overall consumption. And fiber tends to be readily available at the venues where we operate.

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Mark Nicholas Argento, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst, Founding Partner & Head of Institutional Equities [5]

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Thank you, and then just one quick follow-up, in terms of capital allocation. I know you guys obviously have a bunch of cash or access to cash. You got the buyback you put out there. But any more thought in terms of putting capital to work here this year?

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Peter Hovenier, Boingo Wireless, Inc. - CFO, Treasurer & Secretary [6]

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So we absolutely believe the best use of capital continues to be investing and building wireless networks and that's really going to be the vast majority of our capital use. We absolutely have the buyback plan in place, which we just announced. And we think this is an opportunistic time to repurchase some of our shares. But the best use of capital continues to be building long-term wireless infrastructure that we can monetize for many years.

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Operator [7]

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Our next question is from James Breen with William Blair & Company.

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James Dennis Breen, William Blair & Company L.L.C., Research Division - Communication Services Analyst [8]

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Just around some of the numbers, if you look at where you guys came in this quarter and the midpoint of the guidance for next quarter relative to the midpoint of the guidance to the full year, it implies a pretty good ramp sort of to the high $70 million range for the fourth quarter. What gives you confidence in the back half of the year that the full year guide is still applicable? And then just can you talk about the timing around Elauwit? Is it a timing issue? Is it just overall weakness in that business? Originally you were talking about it growing in the 20% range. It seems it's going to be down now. I'm just trying to get a feel for that revenue line as we move through the back half of the year. Thanks.

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Peter Hovenier, Boingo Wireless, Inc. - CFO, Treasurer & Secretary [9]

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Yes. Thanks, Jim. This is Pete. I'll take the first one and I think Mike will touch on Elauwit. So as you definitely called out, the implied guide for Q4, the range tends to be at the low end $70 million and the high end $80 million in terms of repeat revenue contribution. And what we're seeing and the confidence really has to do with the core drivers of our business, which are DAS, carrier offloads primarily. And multifamily, while we're still encouraged, it did have a stepdown sequentially in Q3 is what we're forecasting, which is why you're seeing a dip down in Q3. The other piece that worth noting is our DAS reamortization we've been talking about throughout the year. The low point is finally now here at Q3. And we reamortized over -- call it 20 different contracts that now all have come to their low points starting here in Q3, so that's also weighing. We anticipated multifamily to make up for some of that and it just -- reality is it didn't due to some timing.

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Michael J. Finley, Boingo Wireless, Inc. - CEO & Director [10]

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Yes, and regarding that, Jim. Thanks for the question, by the way, is Elauwit was primarily working in the student housing side, which is great. But we're also very excited about what we call kind of the conventional multifamily side and that's the piece that's just taken a little longer. Lots of growth occurring there in new buildings, but getting that going is just a little slower than we anticipated.

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James Dennis Breen, William Blair & Company L.L.C., Research Division - Communication Services Analyst [11]

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Just to follow up on the wholesale WiFi side, that revenue number was down a little bit sequentially, basically flat, which is what it's been since the fourth quarter. When do you anticipate that turning a corner? We should anniversary some of those contract changes in the third quarter. You talk about the volumes being up pretty significantly in that segment. What are the puts and takes there and is this sort of the bottom for that revenue line item?

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

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Yes, so we think this is. So I think as we've talked in the past, our two carrier customers we have, they're live with offloading. They have volume commitments. And the way the volume commitments work, we straight-line the volume commitments over the year. And given the volumes we're seeing, we're seeing good usage, significantly up year-over-year. We expect that to translate into additional revenue and sales here, primarily in the Q4 time frame, but also do some probably in the late Q3 time frame.

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Operator [13]

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Our next question is from Anthony Stoss with Craig-Hallum.

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Anthony Joseph Stoss, Craig-Hallum Capital Group LLC, Research Division - Partner & Senior Research Analyst [14]

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Pete, did you lose or walk away from any properties on the student housing side, hence the dip down in Q3? Also is this the only business line that's expected to be down? If not, what other ones are expected to be down? Just any more color you can give us on the stepdown sequentially.

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

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Sure. So we -- when I say walk away, I mean we always bid very thoughtfully and we want high-quality, high-margin yields. And if something doesn't meet our thresholds, we -- I won't necessarily say we walk away, but we won't win the project if there's a lower-cost bidder. And we're not going to fight for no-margin business. As it stands, about our revenue for the quarter, the stepdown really is multifamily. That was one we expected to grow and the forecast is showing that sequentially it's going to be down and pretty much flat to where we were in 2018, but 2018 was a partial year. So it's nothing that we believe that cannot be rectified. But it's timing more than anything else, as we really get into the traditional market. As it stands on the other lines, I mean obviously retail and advertising we expect to continue have some declines. We think the rate of decline is slowing. Q2 probably picked some of that up a bit. But we think it's starting to slow a bit, based upon what we're seeing. Wholesale we expect to step up and military continues to step up. It dipped slightly in military, but ARPU was up nicely, which led to good growth. So overall, DAS is performing incredibly well. We're seeing good traction in offload, a little bit of near-term softness with offload, and the rest of the business is what we expect.

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Anthony Joseph Stoss, Craig-Hallum Capital Group LLC, Research Division - Partner & Senior Research Analyst [16]

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Is it fair to say that the weakness in pricing is largely in the student housing? And the second part of that question is you talked about getting closer to potential REIT deals. How confident are you that you're going to get attractive pricing from them?

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Michael J. Finley, Boingo Wireless, Inc. - CEO & Director [17]

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Yes, I'll take the first part. Student housing is a very competitive business. On the conventional side, it's really very different for obvious reasons. And we believe that the margins will be better there and we'll be able to do very well there because the big REITs and the big apartment buildings need a lot of things, obviously high-speed connectivity, but also security and a lot of the things that we do on a national and global basis, with our NOC and monitoring the networks and things like that. So they get it and they appreciate that there is value to that.

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Anthony Joseph Stoss, Craig-Hallum Capital Group LLC, Research Division - Partner & Senior Research Analyst [18]

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Then last question, you talked about you have confidence in a big DAS quarter in Q4. Maybe you can help us understand the number of venues that you think you'll have live in Q3 and then again in Q4. That's it.

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Peter Hovenier, Boingo Wireless, Inc. - CFO, Treasurer & Secretary [19]

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We're not going to give exact by quarter because DAS deals tend to -- the launches sometimes tend to slip a bit. We feel very confident that we'll hit the 20 by the end of the year. I would expect to launch a handful in Q3 and then a handful more in Q4. And really it's going to be, if I look at it right now, there is quite a few scheduled for September-October time frame. And so they could go either quarter, but very, very confident that we'll be at 20 by the end of the year.

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Operator [20]

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Our next question is from Tim Horan with Oppenheimer & Company.

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Timothy Kelly Horan, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [21]

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So Pete, I mean basically you're talking about revenues down almost 10%, well 9% at the midpoint, and then back up 25% in the fourth quarter. Can you just talk about your visibility or probability hitting a 25% increase in the fourth quarter? Are these contracts that are basically re-contracts? Do you have these contracts in the bag at this point? Or is it just timing issues? Because the 25% of ramp, you've never come anywhere near this before. But obviously we don't have the numbers. We don't know what's going on outside. But do you have some re-contracts that are going to hit? It's a just a timing issue? And then on (inaudible), can you just give us the breakdown in the revenues between services and construction?

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Peter Hovenier, Boingo Wireless, Inc. - CFO, Treasurer & Secretary [22]

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Sure. So it's a handful of things. Typically Q4 advertising is one of our bigger quarters. We expect a bigger advertising quarter in Q4. But the biggest piece really comes into getting some additional sales in multifamily line of revenue and then carrier offload. And then DAS continues to be very, very strong and as we launch new venues in some of the 10 venues that we launched here recently, we think we can get some additional carrier penetration, which also helps. So when we look at it, would I say all of it's in the bag? Not all of it is in the bag. But we have a strong level of confidence that we'll see the growth.

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Timothy Kelly Horan, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [23]

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But I mean we're talking about -- so we should we be thinking -- you're talking about $17 million of incremental growth dollar-wise. I mean should we be thinking more at the low end for the full year guidance? It just seems like such an incredible number.

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Peter Hovenier, Boingo Wireless, Inc. - CFO, Treasurer & Secretary [24]

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You know, the range right now, given where we expect we'd come out in Q3 is between $70-80 million in Q4. So it's a meaningful step-up, given the $62.5 million of the midpoint in the range where we are for Q3. Q2 came in at just under $70 million. So we think with strong execution, good carrier offload usage which we continue to see, along with multifamily delivering on some of the projects that are in the pipeline, we believe that these are very achievable.

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Operator [25]

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Our next question is from Greg Gibas with Northland Securities.

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Gregory Thomas Gibas, Northland Capital Markets, Research Division - VP & Senior Research Analyst [26]

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First, with respect to the pacing of that deployment, 11 in the first half of the year and still a lot of runway in terms of DAS backlog. How do these compare to your internal expectations and then how many of these were self-funded?

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Peter Hovenier, Boingo Wireless, Inc. - CFO, Treasurer & Secretary [27]

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Yes, so compared to internal expectations, we always I'd say haircut a little bit external expectations versus internal. But for all intents and purposes, they're pretty well aligned. We have great visibility in DAS venue launches. So it's not a matter of will something launch or not. It's really more timing. And if something is scheduled to launch in December, that's probably not something you're going to see us put into that 20 because of risk. It's very -- we're talking long-term construction cycles here and many times they can shift a few months. But when we talked about the pacing, the pacing is going very well. The carrier activity is at unprecedented levels. Mike coming in has actually helped us get better access with the carriers and the carrier activity at Boingo is at levels we've never seen before. And that's huge.

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Gregory Thomas Gibas, Northland Capital Markets, Research Division - VP & Senior Research Analyst [28]

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Great, thanks. And then I guess secondly, I was just wondering if you could provide some color on how things have been progressing with carriers 3 and 4 with respect to carrier offload? Has anything changed since last quarter?

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Michael J. Finley, Boingo Wireless, Inc. - CEO & Director [29]

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Yes, I mean I meet with these teams and the senior members, T-Mobile has been a little -- had other stuff on their plate here in the last 90 days. But we're in great shape there. I think as we've said many times, it's not a matter of if, but when. And I feel confident in that statement.

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Gregory Thomas Gibas, Northland Capital Markets, Research Division - VP & Senior Research Analyst [30]

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Perfect, and last one from me was just if you could provide an update on the commercial trials that you were talking about last quarter with Wi-Fi 6. I think you started at John Wayne Airport. Have you done any other testing since then?

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Michael J. Finley, Boingo Wireless, Inc. - CEO & Director [31]

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There hasn't been any more public trials of that sort. That trial went very well and continues to go very well. But I think you're going to start to see a lot more activity on the Wi-Fi 6 side commercially from vendors, device makers and certainly on the infrastructure side you'll see that from us. The CBRS trial in Dallas Love Airport went very well, as well. Obviously a lot of CBRS activity happening, it's been in the news quite a bit and I think as you get through this quarter, you'll start to see more of that and well into 2020 on deployments for CBRS. And again for us, being neutral and having these great venues where entities want coverage and connectivity, it's good for us.

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Operator [32]

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Our next question is from Scott Searle with ROTH Capital.

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Scott Wallace Searle, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [33]

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I apologize for beating the dead horse on this one. But just looking at the fourth quarter, Pete, big range of outcomes there. It sounds like MDU was certainly a component of that. But is really the biggest variable there the opportunity of signing a REIT with Elauwit or is it just continued execution as well on the DAS front? Because it's a wide range there. And then I had a bigger-picture follow-up.

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Peter Hovenier, Boingo Wireless, Inc. - CFO, Treasurer & Secretary [34]

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Yes, so it's a combination of pieces. I wouldn't say things are dependent upon a REIT deal. A REIT opportunity absolutely helps and we believe is something that we are highly encouraged it will happen. But this can take some time. It's mainly all about execution and that's the key focus here is execute. Then we continue to win business.

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Scott Wallace Searle, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [35]

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Okay, and just higher level from a macro standpoint, certainly a lot going on in the industry. There's been a lot of questions around the combination of the number 3 and number 4 carrier out there making a stronger number 3 and concerns as it relates to your business. I was wondering if you could address that in terms of what the backlog looks like, what the tenor in the conversations with those customers look like, as well as the new number 4 coming in, in terms of Dish Networks. Have you been engaged? Have you been talking? And maybe as part of that, kind of couple in the discussion as it relates to 5G. In the early deployments and discussions that you're having, is it translating to more nodes and dollars per venue per carrier? And maybe throw a CBRS into the pile as well. Mike, you referenced that, but kind of curious as to the financial impact, the number of venues that you expect to see that are starting to deploy as we get into 2020.

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Michael J. Finley, Boingo Wireless, Inc. - CEO & Director [36]

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Yes, I'll start. And then if Pete wants to add on, maybe he can. Yes, T-Mo and Sprint, I think what I've said and I would continue to say is we're connecting people and things. So T-Mo and Sprint separate are 100-plus million customers. Together they're 100-plus million. And those customers expect connectivity and are wanting the things that we have in the places we have. So if that comes together, which seems like it will, I think that's positive for us in the big picture. They have grand ambitions and we're meeting with them on a consistent basis. It does -- you astutely pointed out, it does create a fourth. And I've had a long relationship with Dish. And that's -- in the way that they're talking about evolving that, it could be opportunistic over the next number of years, as they evolve from basically an MVNO to their own network. So the places that we coverage and connectivity I think would be very helpful in that case. The early 5G deployments, yes, they're all working feverishly and it's best for the carriers to comment on what they're launching and when they're launching. And I think Verizon announced 4 more locations or cities today. So we're working obviously with them on that in our venues. Again, being neutral, we can deploy all the various types of connectivity and continue to do that. And I think you'll start to see that grow as we move towards the end of this year and then into 2020 for sure. And then on CBRS, same kind of thing. Again, it's just another type and form of connectivity. And that's going to be an interesting opportunity across the board for us. Again, in the great venues that we have, it just allows more capability. And as these really capable and qualified guys that are developing all types of applications, app developers; that will start happening as that gets deployed. So we're excited about all that.

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Scott Wallace Searle, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [37]

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Hey Mike, maybe just quickly on the CBRS on the follow-up, will you look to be a full neutral host supplier or are you going to continue to basically be a DAS provider for CBRS solutions?

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Michael J. Finley, Boingo Wireless, Inc. - CEO & Director [38]

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Yes, no. That's a great question. I was -- I didn't think I'd be quoted on this and I said it's kind of like a Reese's Peanut Butter Cup. It's some chocolate and some peanut butter. So it is a little bit of both, actually. There are some aspects of CBRS that I think will be very much like DAS. And I think there's aspects that will be very much like WiFi. The reality of it is we can do them both and we'll evolve and drive that as we go forward.

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Operator [39]

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Our next question is from Kyle McNealy with Jefferies.

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Kyle P. McNealy, Jefferies LLC, Research Division - Equity Associate [40]

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Just a couple of housekeeping items quick, first, maybe I missed them if you said them. But did you give Elauwit revenue for the quarter? And the second thing, I think you gave us nodes, but I'm not sure if you said the DAS venues in backlog.

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Peter Hovenier, Boingo Wireless, Inc. - CFO, Treasurer & Secretary [41]

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Yes, so nodes in backlog, we -- sorry yes, 12,200 in the nodes. And venues in backlog, I am -- I believe it was 65. 65?

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Michael J. Finley, Boingo Wireless, Inc. - CEO & Director [42]

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Yes.

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Peter Hovenier, Boingo Wireless, Inc. - CFO, Treasurer & Secretary [43]

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And I'm sorry, Kyle, your first question?

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Kyle P. McNealy, Jefferies LLC, Research Division - Equity Associate [44]

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Elauwit revenue in the quarter.

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Peter Hovenier, Boingo Wireless, Inc. - CFO, Treasurer & Secretary [45]

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So multifamily came in for the quarter at $5.9 million.

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Kyle P. McNealy, Jefferies LLC, Research Division - Equity Associate [46]

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Okay, great. Thanks, and then along the same lines with Elauwit, I know this question was asked in a certain way earlier. But how should we think about how the backlog adds will progress? And I just wanted to get a sense for how dependent they might be on these REIT discussions. Are backlog adds going to be able to trickle in? Are you having many discussions with many different players where some backlog additions can trickle in? Or are there going to be some big deals with REITs going forward that we're going to see big lump sum adds in a particular quarter?

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Peter Hovenier, Boingo Wireless, Inc. - CFO, Treasurer & Secretary [47]

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It's probably a bit early to comment on all that, Kyle. So what I will say is their backlog today is around 20 venues that need to be launched. And we expect that to continue to grow. A REIT deal we think will add significant numbers. But doing a REIT deal does take time, plus it's also too you think about a deployment. You have new construction as well as retrofitting existing properties. And really it's the timing of all those. So we see it as a massive opportunity and we do see it as a nice step up in backlog. But it will take some time to develop.

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Kyle P. McNealy, Jefferies LLC, Research Division - Equity Associate [48]

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Okay, can I take it -- I mean given your comments about the longer sales cycle and the time it's taking to build the business, do you have a balance of big REIT discussions and other types of backlog additions or is it highly dependent on the REIT discussions? Or how should we think about that?

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Michael J. Finley, Boingo Wireless, Inc. - CEO & Director [49]

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Yes, no. We're having great discussions with all the REITs and some of it is just timing and as Pete said, you have both new which can tend to take longer obviously, depending on which stage they're at, whether they're almost built. The retros actually can be faster once they make a decision to actually retro it. It's a little more difficult in some ways because the walls are closed. But as that happens, they would start filling in if that's your question.

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Kyle P. McNealy, Jefferies LLC, Research Division - Equity Associate [50]

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Great. And switching gears to the comment you made about access fee revenue and the one-times in the quarter; does this mean that that's a one-time in this particular quarter or can we expect that to be ratable over it's just a step-up and it's still ratable over the coming quarters? How should we think about that? And I guess if you could add any detail as to what that access fee step-up that was one-time was, if there's any additional detail you can add to that, it would be helpful.

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Peter Hovenier, Boingo Wireless, Inc. - CFO, Treasurer & Secretary [51]

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Yes, so it truly was a -- so it was a contract extension amendment which allowed us to get paid for some services that were previously rendered. So as a result, we recognized $3 million of access fee revenue in the quarter, so in the June quarter, Q2 of 2019. That is truly unique and one-time in nature and not recurring. But that contract also did result in additional access fees going forward and was part of the step-up in access fees in aggregate. So year-over-year access fees grew over 80%. But when you pull out the one-time, it still was up over 30%, which that's big access fee growth for us, and at levels we haven't seen before and something we're encouraged by but also it's worth noting, we expect that rate of increase to continue to increase over the year. So we see a lot of growth going to access fees.

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Kyle P. McNealy, Jefferies LLC, Research Division - Equity Associate [52]

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Okay. And CapEx was higher this quarter. Was that related to the completion of the 10 DAS projects you completed in the quarter or is it associated with other ongoing projects that you have in the pipeline? Is there anything that it's kind of concentrated on? Is it all related to DAS?

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Peter Hovenier, Boingo Wireless, Inc. - CFO, Treasurer & Secretary [53]

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It's primarily DAS, absolutely. So if you look at the CapEx for the quarter, it was over $41 million and $34 million of that was DAS-related. So absolutely concentrated on DAS. A big portion of it, and I'd say the majority of the CapEx spending in the quarter was related to the venues that launched, so the 10 venues that launched. But there is other building going on as well. We have the 2 large MTA projects which we are continuing to work on at a rapid pace. And that we don't expect to contribute revenues until the 2020 time frame. So it's an ongoing cycle. The pipeline in DAS remains incredibly strong, both in the new venue acquisition as well as building out the projects that we already have. And then as we launch venues like these 10 new venues that we launched, we typically launch 1 to 2. We strongly believe that the carrier penetration of the carriers who did not join will continue with increases. So we couldn't be more enthusiastic.

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Operator [54]

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Our next question is from Jon Hickman with Ladenburg Thalmann.

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Jon Robert Hickman, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Special Situations Analyst [55]

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But the last guy just asked it and you guys answered my last question, so thanks and congratulations on the quarter.

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Operator [56]

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(Operator Instructions). Okay, at this time, I will hand the conference back over to Mike Finley for closing remarks.

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Michael J. Finley, Boingo Wireless, Inc. - CEO & Director [57]

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Thanks, operator. And thanks to everyone for the questions. As a reminder, next week we will be presenting at the Oppenheimer Technology Internet and Communications Conference in Boston. We hope to see many of you there. Have a great day and thanks for joining us.

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Operator [58]

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Thank you. This concludes today's conference. You may disconnect your lines at this time and have a great day.