Kimberly Orlando - IR, Addo Communications
David Hagan - President, Chief Executive Officer and Director
Peter Hovenier - Chief Financial Officer
James Breen - William Blair & Company
Brad Erickson – Pacific Crest Securities
Phil Boyer – Credit Suisse
Donna Jaegers - D.A. Davidson
Boingo Wireless, Inc. (WIFI) Q4 2012 Earnings Call February 21, 2013 4:30 PM ET
Greetings and welcome to the Boingo Wireless Fourth Quarter and Full Year 2012 Earnings Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kimberly Orlando of Addo Communications. Thank you. Ms. Orlando, you may begin.
Thank you, and welcome to Boingo Wireless' fourth quarter and full year 2012 conference call. By now, everyone should have access to the earnings release which was issued today at approximately 4 p.m. eastern time. If you are yet to receive the release, it is 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 is available for replay. In our remarks today we will include statements that are considered forward-looking within the meanings of securities laws. 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, February 21, 2013, and are subject to certain risks and uncertainties that may cause 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-Q which was filed with the SEC on November 14, 2012. The company undertakes no obligation to update any forward-looking statements.
On this call, we will refer to non-GAAP measures that when used in combination with GAAP results provide us additional analytical tools to understand our operations. We have provided reconciliations of non-GAAP to GAAP measures in our earnings release.
And with that I will hand the call over to Boingo's CEO, David Hagan.
Good afternoon, everyone, and thank you for joining us today to discuss our fourth quarter and full-year 2012 financial results. 2012 was a transition year for Boingo. As the wireless ecosystem continues to evolve and mobile data traffic continues to skyrocket, we have been busy laying the groundwork so that Boingo becomes the preeminent small cell technology company. This groundwork includes, growing and investing in the capacity of our managed and operated, and affiliated networks. Adding crowd source capability to grow our network even faster. Investing in our software and technology platform in anticipation of cellular offload, as well as bringing our advertising capabilities in house through the acquisition of Cloud Nine media.
The highlight of our financial performance, total 2012 revenue was $102.5 million and adjusted EBITDA was $30.6 million, both in line with our expectations. Year-to-date we have added over 200,000 Wi-Fi hotspots, bringing our global count to over 600,000, which includes some significant new roaming partnerships and M&O network additions.
We have also added over 1000 new DAS nodes for a total of over 5600 across 16 networks. In addition, we have an additional 2700 DAS nodes planned but not yet built. As we look ahead, we are excited for 2013 and beyond. Boingo is uniquely positioned to address the mobile data tsunami that lies ahead and we recognize the shift in mobile data ecosystem has implications for our business as seen today.
2013 marks the beginning of a transformation. One which begins the highlights of future growth drivers of our business, namely the growth in wholesale led by cellular offload and DAS services, as well as growth in advertising, sponsorship and location based services. Consequently, we must make the appropriate investments in our network and systems to meet the expanded network capacity and quality, as we prepare for the increased traffic that cellular offload, Hotspot 2.0 and free to the consumer business models represent. Thus 2013 will be an investment year for Boingo.
Let me begin with cellular offload. As I have said before, cellular offload represents one of the core future growth drivers of our business. The primary challenge for all carriers will be to meet the capacity needs of large public venues that frequently overlap with their congested tower network, and locations that typically experience high volume data usage. During the fourth quarter we secured key agreements to provide evidence that the market for cellular offload is becoming a reality. As announced on last quarter's call, we signed an agreement with a U.S. based tier one carrier for global roaming. I am pleased to update you that the first phase of this implementation is going to market as we speak, and will be for the carrier's international travelers utilizing Boingo's managed and operated international locations.
As part of the relationship, the carrier will pay Boingo on a per megabyte of data transferred basis for its customer's handsets to automatically connect on to our Wi-Fi network. Additionally, during the fourth quarter we announced an expansion of a pre-existing bilateral roaming agreement with the second largest global operator in Asia, NTT Docomo, to provide Wi-Fi roaming and data offload services on to the Boingo network.
In the future, we would expect to have multiple U.S. based carriers doing automatic handset authentication on to the Boingo network. For example, just last month, Verizon says it expects overall data traffic on its network to grow by a factor of seven for the course of the next three years. As of January, nearly half of Verizon's data traffic travelled over to LTE network, which is up significantly from the 35% reported in October. As LTE networks get loaded up, offloading onto DAS and Wi-Fi will increasingly become part of the mobile network fabric.
And as recently cited by AT&T, mobile data growth for the company exceeded 20,000% over the last five years. Consistent with these forecasts, fiscal estimates growth in mobile data traffic will increase 13-fold between 2012 and 2017, and that 46% of all mobile data traffic will be offloaded to small cells including Wi-Fi and DAS by 2017. These trends are very encouraging for the long-term growth of our wholesale business, highlighting the increasing need for carriers to shift traffic off of their cellular networks.
In response to mobile data growth, the small cell trend continues to gain momentum. In a communications technology report from early January, Goldman Sachs analysts [reported] that small cell and Wi-Fi deployments were likely to accelerate in 2013. Specifically, 33% year-over-year growth is projected for the 2013 small cell market alone and the reason is three-fold. Strong mobile data growth, broader deployment of LTE networks and Wi-Fi roaming capabilities with next generation hotspots and DAS point standards. With this exponential growth in mind, heterogeneous networks het-nets, such as Boingo, are being seen as the most cost effective and technically efficient solution to improve mobile networks capacity and coverage.
From a real estate and technology perspective, Boingo is very well positioned. Wi-Fi in small cells are no longer viewed as competitive technologies, but rather a complementary alternatives for operators to deploy on a case by case basis. And better yet for Boingo, venue owners and operators are increasing seeking a single supplier of Wi-Fi and DAS services, because it's better for them operationally and economically to have one neural host operator to build and operate the network. With Boingo widely recognized for speed competency in both, we can pursue venue wise by marketing our Wi-Fi, DAS or a combination of both services.
This is a significant and important distinction. We recently won three large venue DAS contracts, with the expectations from the venues that will help them with Wi-Fi as well. Further accelerating our DAS business, we recently signed a national DAS master agreement with a tier one carrier that helps expedite the leasing process when the carrier is interested installing on our current or future DAS networks. As the wireless industry evolves, we too are growing and evolving the Boingo business model in response to broader industry challenges and opportunities. One example is the prevalence of tier pricing and free to the consumer pricing in venues, such as airports, malls and stadiums.
The proliferation of Wi-Fi enabled devices and bandwidth consuming applications, has contributed to unprecedented demand among consumers for inexpensive or even free connectivity. In response to this demand, many venues are shifting to tier pricing or in some cases entirely free to the consumer. Boingo has embraced this change in environment and is able to do so thanks to our unique, multifaceted network monetization approach, that includes retail, wholesale, advertising and location based services.
However, in the short term, the evolution of paid to tiered or free pricing, has proven to be a revenue growth headwind for us. Since the acquisition of Cloud Nine media last year, we have been making great progress on integrating and enhancing the platform to enable various types of network access capability for display and sponsorship opportunities. Earlier this month, we announced the sponsorship with Norwegian Cruise Line for free Wi-Fi access at select New York subway stations and John F. Kennedy, LaGuardia and Newark Airports during the month of February.
Longer term, we are extremely optimistic about the prospects of location-based services through which Boingo can offer venues the ability to deliver targeted, location-based advertising to the end consumer and analytics services to our venue partners such as queuing time, traffic data, [passing] and other high value services. Of course increase in wholesale usage and sponsorships holds implications for our retail business. Put simply, when Wi-Fi is offered free to the end-consumer either from the venue or wholesale partner, our retail business is impacted by those that might have otherwise subscribed for use of Boingo's service on a single use basis.
It is important to highlight though, that our retail segment is highly profitable and the need for non-carrier controlled devices such as laptops and tablets to access Wi-Fi in paid locations, will always exist in some fashion. Because of this, we believe retail continues to represent a fairly stable and profitable revenue stream longer-term. That said, we believe future retail growth will primarily come from expansion into new Greenfield segments in which consumer pay models will continue to dominate, such as hospitality and military as well as international markets.
It is with this in mind that we have decided to announce that we have entered into a merger agreement with Endeka, a provider of commercial Wi-Fi and IP TV services to six U.S. Marine Corps bases in the western half of the U.S., as well as Wi-Fi services to federal law enforcement training facilities. Endeka is a natural addition to our managed and operated network, and we believe the opportunity exists to grow the military bases under contract on a national basis in the near future. To support this opportunity, we will make a fairly sizable investment this year to enable the future growth and expansion of this network.
In addition to expanding into new verticals, we expect the addition of paid venues in international markets to continue to contribute to the growth of our retail business. Today, we announced an agreement to manage and operate Wi-Fi services at five Japanese airports and three German airports. While we do have the opportunity to sell sponsorships in these locations, our primary monetization method will be paid access. Collectively, the five Japanese and three German airports serve over 160 million annual passengers. Service is scheduled to begin in Q2.
So as is evident, the wireless ecosystem is evolving and we are evolving with it. Over the course of the last decade, Boingo has built a unique Wi-Fi and DAS business based on a strong multi-faceted monetization platform. That said, we have readjusted our financial expectations for the near-term as the transformation takes hold. Pete will be discussing our outlook in greater details shortly.
In summary, our long-term investment thesis remains unchanged. We are firm believers of the macro trends and know that it's only a matter of time before increased bandwidth through Wi-Fi and small cell solutions becomes essential rather than optional. We are excited for the future growth of our business, which we believe will be driven by our wholesale segment through sale or offload, DAS, as well as through the continued growth and development of our advertising and location based services. Retail will grow, but more narrowly focused in new segments and international markets.
With that, I will hand the call over to Pete to discuss our financials in greater detail. Pete?
Thank you, Dave. Today, I will begin by reviewing our financial results and key operating metrics for the fourth quarter ended December 31, 2012, and will then conclude with our financial outlook for the first quarter and full year of 2013. Total revenue for the fourth quarter of 2012 is $28 million, representing an 8.1% increase over the prior year period. The increase was primarily from growth in wholesale, sponsorships and subscription revenue, partially offset by declines in single-use retail revenue. Across a diversified revenue stream, wholesale represented a 52% of fourth quarter revenues, retail represented 39%, and advertising accounted for the remaining 9%.
Wholesale revenue totaled $14.7 million, representing a 23.2% increase from the comparable period last year. The increase is primarily due to greater DAS revenue from built-up projects at our managed and operated locations, partially offset by reduced DAS minutes of use in New York and New Jersey related to Sandy, and decreased partner usage at our managed and operated locations. Retail subscription revenue was $8.2 million, representing a 4.7% increase over the prior year period. This increase was due to a 10.5% growth in our subscriber base. Partially offset by promotional offers and the mix of lower priced smartphones or tablets subscriptions, compared to our higher priced unlimited and universal subscriptions.
Retail single-use revenue was $2.6 million, representing a 34.3% decline from the fourth quarter of 2011. The decline reflected a transition of certain paid, managed and operated locations to a tiered or a three-party model as well as new consumers opting for subscriptions. Advertising and other revenue, was $2.5 million, representing a 15.9% increase over the prior year period. The increase was primarily from sponsorship revenue from our acquisition of Cloud Nine media in August of 2012.
Now turning to our fourth quarter cost and operating expenses. Network access cost totaled $12.7 million. This represented 28% increase of the fourth quarter of 2011, primarily from increased cost from DAS build-out projects. This increase was partially offset by lower usage at partner venues. Gross margin which is defined as revenue less network access cost was 54.6%, down 710 basis points, from 61.7% in the prior year period. The decrease is primarily due to increased DAS build out projects during the quarter and overall revenue (inaudible).
Network operations expenses totaled $3.7 million, a decrease of 10.1% from the comparable 2011 quarter, primarily due to decreased compensation, hardware and software maintenance expenses. This decrease is partially offset by increase in depreciation expense. The dominant technology expenses were $2.9 million, up 29.6% for the comparable quarter last year, due primarily to increased depreciation, maintenance and consulting expenses. Selling and marketing expenses were $3 million, a 51.9% increase from the comparable 2011 quarter, primarily due to the increased personal related expenses due to the Cloud Nine acquisition, marketing promotions and consulting expenses.
General and administrative expenses were $3.3 million, a 2% decrease for the comparable 2011 quarter, due primarily to decreased stock-based compensation expenses and lease expenses, and partially offset by increased onetime legal and professional fees. Now turning to our profitability metrics. Net income attributable to common stockholders was $1.1 million or $0.03 per diluted share versus net income of $1.9 million or $0.05 per diluted share in the prior year quarter. Adjusted EBITDA was $7.3 million, down 18.1% from $8.9 million in the comparable 2011 quarter. The year-over-year decline in adjusted EBITDA was primarily due to decreased income from operations for the fourth quarter 2012.
As a percentage of total revenue, adjusted EBITDA was 25.9%, down 830 basis points from the prior year period. Please refer to our earnings release and Form 10-K which we will file by mid-March for the definition and reconciliation of this non-GAAP measure. In terms of our operating metrics, we ended the fourth quarter of 2012, with [connects] or paid usage on our worldwide network, of approximately $7.9 million, down 11.7% in the third quarter of 2012. The decrease versus prior quarter is primarily due to fewer connects from advertising sponsorships. Our retail subscriber base was 284,000 at the end of the fourth quarter, which is up 10.5% from the fourth quarter of last year and down 8000 subscribers or 2.7% from last quarter. Versus last year, our subscriber base continued to benefit from the growth in the installed base of smartphones and tablets and the bandwidth consumption by data intensive mobile applications.
However, the decline of our subscriber base versus the prior quarter, was primarily due to the transition of certain paid, managed and operated locations to a tiered or free pricing model, which contributed to increased customer churn. As Dave mentioned earlier, we believe that our retail business will continue to grow although more narrowly focused in new segments and international markets.
Our monthly churn rate for the fourth quarter was 10.6% versus 7.9% in the comparable 2011 quarter and 9% last quarter. Moving on to discuss our balance sheet. At December 31, 2012, cash, cash equivalents and marketable equity securities totaled $100 million or $2.65 per diluted share, and we ended the quarter essentially debt free. Capital expenditures per quarter were $2.2 million, which included $1.8 million utilized for DAS infrastructure buildup projects that are reimbursed by our telecom operator partners.
I will turn to our outlook to the first quarter and full year of 2013. For the first quarter of 2013, we are adjusting our guidance as follows. We expect total revenue to be in the range of $21 million to $23 million, adjusted EBITDA to be in the range of $3.5 million to $5 million, and net loss attributable to common stockholders to be in the range of $1.5 million to $0.5 million, or a loss of $0.04 to $0.01 per diluted share. For the full year of 2013, we are initiating our guidance as follows. We expect total revenue to be in the range of $106 million to $110 million, adjusted EBITDA to be in the range of $28.5 million to $31.5 million, and net income attributable to common stock holders to be in the range of $1 million to $3 million or $0.03 to $0.08 per diluted share.
In addition, our full year guidance assumes a tax rate of approximately 35% and $38.5 million for diluted shares outstanding. As our guidance suggests, 2013 reflects a decrease in our year-over-year revenue growth rate. The transition of venues to a tiered pricing or consumer free model along with increased wholesale usage, are expected to contribute to slower growth in retail subscriptions in single used revenue. At the same time, we expect advertising sponsorships and the wholesale usage to ramp more significantly beginning in the second half of 2013. But even more so in 2014, as additional wholesale usage partners are acquired.
In summary, we remain very pleased with our position in the wireless ecosystem and are laying the foundation for future growth. That concludes my prepared comments and I will hand things back over to Dave.
Thanks, Pete. So to sum up our call today. 2013 will be an investment year for Boingo. One in which we will invest in our network systems and capabilities to prepare for the exponential traffic growth that sale or offload, Hotspot 2.0 and free to the consumer business models represent. Our adjusted EBITDA and net income guidance reflects those investments. We believe Boingo is very well positioned to become the leading small cell technology company as the market continues to evolve. Thanks for listening today. Operator, we will now open the call for questions.
(Operator Instructions) Our first question comes from the line of James Breen with William Blair & Company. Please proceed with your question.
James Breen - William Blair & Company
Just couple of questions. One with respect to the merger or venture with the marine bases. Can you talk about your potential revenue from that and what it looks like in terms of the investments you have to make there on the CapEx side. And then secondly, any color you can give us around the carrier announcement you made last quarter and sort of timing of potential revenue lift. Thanks.
It's Dave. On Endeka, we are not releasing specifics but it’s a significant opportunity. It's not a one-year opportunity it's a very long-term contract that they have in place and we expect it to be a real growth driver for our retail business over the next few years. We are going to have to invest some significant dollars in CapEx and OpEx this year. So the way to think about it is, it's really like buying a M&O venue contract that doesn’t have an existing network in place. So Endeka have done a great job of negotiating and winning this big military contract but they didn’t have the capital to build it out beyond a test that they have done in one facility.
So we are buying, basically we are acquiring the contract, and then we are going to fund the CapEx and the operational build out to make it a viable networking business. So it's a build out over the course of this year and then we really drive revenue second half of this year and then to the out years. Pete, do you comment?
Yeah. It's something we are very excited about, Jim. The revenues historically were not significant as Dave touched upon but we will see some significant CapEx really in the first half of this year, as we start to build it out we will start to see contribution in second half of the year.
And then on the tier one carrier agreement that I announced on our last call, I mentioned in my script briefly. So it's progressing well. We are launching literally any day now with their international customers. So it is going to market and that’s great news and that’s what we talked about last -- on the last call that international would be first and then we would roll into additional phases for different customer groups for them and then ultimately their domestic customer. But it still sits modestly in our guidance that we just gave. Again, it's much more of a 2014 or a 2015 opportunity.
James Breen - William Blair & Company
Great. And can you talk to just about sort of pretax revenue generation. Obviously, you have previously, in terms of the CapEx you are spending, you are sort of funding some of that through your partnerships. Does the free cash profile change a lot in 2013 given some of these new ventures.
Not materially, Jim. Maybe slightly but not materially. We definitely still expect to generate cash flow from operations and that will continue to help fund our network builds.
James Breen - William Blair & Company
And then lastly, just in terms of the guidance, it looks you grew guidance -- it looks like you grew revenue about 8% year-over-year in the fourth quarter, and the top line guidance for 2013 as sort of in that same range. As you talked about sort of seeing some acceleration in the back half, should we assume that there will be a bit of a deceleration in the beginning and not a re-acceleration? And along the same lines on the margins side, your EBITDA margins ticked down a bit in the first and second quarters as you make some of these investments and improve again in the back half.
No, that’s exactly right. Similar with historical trends, the first half of the year definitely is the lighter part of our business, you know Q1 and Q2 just tend to be a bit smaller and we accelerate in the second half. A little bit of compression in terms of EBITDA in the first half compared to the second half as well, as you have mentioned.
Our next question comes from the line of Brad Erickson with Pacific Crest Securities. Please proceed with your question.
Brad Erickson - Pacific Crest Securities
First off on the network access fee. It looks like it came in a little bit higher than we were expecting. Can you remind us first of all, how come the DAS build out is impacting that line item rather than saving capital? And second, if that higher network access cost is a trend more likely to seen going forward and what the drivers are at work there?
Sure, the network access fee. So there is a build project which happened, given the timing of an important deal that we delivered in Q4. The accounting revenue recognition on this allowed us to recognize the revenue in Q4 and the cost all went into the same period. So you are seeing a higher cost of sales or really network access fees in Q4 due to this accounting.
Brad Erickson - Pacific Crest Securities
Got it. And then in terms of the DAS efforts overall, it sounds like that’s an expanding opportunity. I mean is that the case? Are you guys sort of incremental opportunities and can you kind of talk about what that looks like here going forward?
It is. So we have made some changes on how we pursue the DAS business. We are known as a Wi-Fi first company and that’s kind of way we have operated over our history. We have this nice DAS app that we pulled through from our Wi-Fi business. And we have changed that to be much more proactive and aggressive, leading with DAS or Wi-Fi, or the combination, based on what the business opportunity is, what the RFP is. And as I said in my script, we won three very significant DAS agreements that were DAS only from RFPs and in the past we would not have bid on those because they didn’t have Wi-Fi. But what's interesting about it is, it shows the power of our model that we have competency in both since that.
Since winning those DAS agreements, those venue operators are asking us to either help them with Wi-Fi or in some cases, deploy Wi-Fi for them. And again, I think it shows the power of our model. So we are really bullish on the DAS business. The market has gotten very hot. Again, it's driven by the same trends. The anticipation of congested cellular networks. They need to get traffic off the towers and on to small cell, and Boingo is incredibly well positioned to take advantage of that.
Brad Erickson - Pacific Crest Securities
Great. And then switching gears to your rollout of Wi-Fi service 2 to a retailer. Can you kind of give us an update on how that’s going, how many locations are up and just any update you are able to provide there would be helpful?
We have rolled out that network in advance of the holiday season which was the mandate in the contract. The performance through the holiday shopping season was very very positive, very favorable. And it's close to 2000 stores. They have all rolled out, again, before the holiday season. And so now we are talking to the retailer about next phase which moves into location-based services. So more on that on a future call.
(Operator Instructions) Our next question comes from the line of Steven Ju with Credit Suisse. Please proceed with your question.
Phil Boyer - Credit Suisse
This is Phil Boyer on for Steven Ju. I just had a quick question. You are discussing the evolution from paid to tiered as a headwind for retail this year. Can you just give us some more color here on the different types of tiered pricing that are out there and why results in heightened churn.
Sure. So our legacy business, if you will, in the airports, was a full paid user experience. Meaning, the customer wanted to get online when they are at the airport, and they could either pay us for a day pass or subscribe to our monthly recurring plan and get access that way. And those were really the only two alternatives. If they wanted to get online, that’s what they had to do. Increasingly, what we are seeing in the airport space and in other venues, but in other venues it's all Greenfield for us so it's upside. But in airports what we are seeing is public demand and sort of the governmental officials are more and more interested in what we called tiered pricing or hybrid pricing. Meaning you can get online for a limited amount of time or a limited amount of bandwidth for free. And often that is advertising supported which we monetize that through our Cloud Nine acquisition.
So what this does is it reduces the number of people that will actually pay to get on to that network. We still have power user, business user, people who want to launch a VPN. There are a lot of reasons why people still want to pay to get on to that network. But in many cases, so in kind of the light user, the casual user, the see free and they go for free. So it increases the utilization of the network, which is good. We are getting more and more people on and we can monetize them in multiple ways. But in terms of revenue per venue, if you look at it that way, definitely a reduction. And so that’s the headwind that we have been talking about.
We have converted most of our airport base on the M&O side over to various types of hybrid services. Again, it's sort of combination of how much time, availability, how much bandwidth is available. So it comes in different flavors. So we have converted most of the base over. But when you look at our year-over-year comparisons, you are seeing that headwind in the numbers.
Phil Boyer - Credit Suisse
So given the increased churn, is there a strategy that you are going to take to maybe think about a different approach here going forward or there is not really much you can do about that?
Well, when it's a specific venue that converts to this new hybrid pricing model, what happens is the customers that are flying through that is their home airport. That’s where they fly out of all the time and get connected. If they are happy with getting on the free service, they no longer have the need for that subscription. And so literally when a local airport converts to the this tiered service, we see some churn pressure from the customers that reside in that market. And you saw that, you saw that in our Q4 numbers.
The solution to that is really going into verticals that continue to have paid service. So our military bases deal through Endeka fit in that category. They are all paid. We think hospitality represents a market that will continue to have free and pay. Additional airports that we can gain. So it's really growing the footprint of venues that have a pay element. And that will allow us to continue to grow our subscriber in our retail business. And we think that will happen just more modestly than what you have seen in the past.
Our next question comes from the line of Donna Jaegers with D.A. Davidson. Please proceed with your question.
Donna Jaegers - D.A. Davidson
Given that your retail customers were your higher margin customers, especially the ones that would renew and not use all that much. What you are doing to change your cost structure going forward with this mix shift going on?
So you are referring to the subscribers that are obviously quite high margin. But if you look at our retail business versus our wholesale business, retail is a slightly higher gross margin business, but when you get down to the operating level, they get closer together. So you are not going to see significant changes. Our retail business, it doesn’t carry that much cost with it. It's dedicated. So we feel good that our cost structure is correctly sized for the opportunity. And if things change down the road, we will make appropriate changes. So we think we are okay, we will be right now.
Donna Jaegers - D.A. Davidson
Okay. And then any guidance on CapEx for 2013?
Yes. Donna, so we have guided in the past that we expect CapEx to be in the -- call it 7% to 10% of revenue range. And we expect this year to be in the upper part of that range. And acquisitions could drive that up even a bit more.
Donna Jaegers - D.A. Davidson
Okay. And then one other quick question or maybe not so quick. On the tier one carrier. Can you sort of -- obviously, they are going to use you guys internationally first and then you said domestic would be further down the line. Can you sort of walk us through what sort of, do we need to get to pass point and Wi-Fi AC before they start using you domestically or what sort of gating factors are we looking at for them to do more domestic Wi-Fi offload?
Great question, Donna. So we don’t have to wait for those standards to be released before we can launch with them domestically. We are working on the operational approach to launch pre-Hotspot 2.0 and pass point. But again as I said in our prepared commentary, in our guidance is pretty modest what we have attributed to this carrier this year. So it pushes further out. However, when we can get to Hotspot 2.0 and pass point, it just makes all the heavy lifting work that we have to do to bring a carrier on to our network so much easier. Right. It just becomes baked in the network. It becomes baked into their handset. So we don’t have to do the heavy integration work that we do today. But we are not waiting for that, the carrier is not waiting for that. We are pushing ahead but it is, it's definitely heavy lifting.
Donna Jaegers - D.A. Davidson
And then on small cells for LTE, it seems like one of the gaiting factors is just chipset for a lot of the new spectrum that the carriers have gotten that they are going to use for the small cells. What other gaiting factors should we be aware of as far as you guys using more -- having new DAS but turn more into small cells for LTE?
When we talk about small cells, I view it in like three buckets. So there is Wi-Fi, there is DAS network, and then you get into the picocell and femtocell. We are obviously believers in Wi-Fi, believers in DAS, and we have the competency and do those businesses today. We haven’t at this point launched any picocell or femtocell. They tend to make the most sense in a small type of a venue where you only need a node or two. Where DAS is too big of an implementation. So we may go down that path in the future but at this point we are happy with our Wi-Fi and DAS approach and we will continue to evaluate if we want to move on down the scale. But to answer your question, we are not seeing any resistance in the market. In fact we are seeing tiers aggressively pursuing the need for DAS and the venues aggressively pursuing, getting it built out in their locations.
There are no further questions at this time. This concludes today's conference. Thank you for your participation. You may now disconnect your lines.
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