iPass' (IPAS) CEO Evan Kaplan on Q1 2014 Results - Earnings Call Transcript

May. 7.14 | About: iPass Inc. (IPAS)

iPass Inc.(NASDAQ:IPAS)

Q1 2014 Earnings Conference Call

May 7, 2014 05:00 PM ET

Executives

Lauren Stevens – Investor Relations

Evan L. Kaplan – President and Chief Executive Officer

Karen J. Willem – Senior Vice President and Chief Financial Officer

Analysts

Stan Berenshteyn – Sidoti & Company

James McIlree – Chardan Capital

Frederick D. Ziegel – Topeka Capital Markets

Scott Cyril – Dyker Management

Operator

Good day, and welcome to the iPass Inc. First Quarter 2014 Financial Results Conference Call. Today’s conference is being recorded. At this moment, I’d like to turn the conference over to Lauren Stevens of iPass Investor Relations. Please go ahead?

Lauren Stevens

Thank you. Good afternoon, everyone, and welcome to iPass’ first quarter 2014 earnings conference call. This is Lauren Stevens from iPass’ Investor Relations. I’m here today with Evan Kaplan, President and CEO of iPass; and Karen Willem, Senior Vice President and CFO of iPass.

We have distributed our Q1 earnings release over the wire services and posted it on our website at investor.ipass.com. We would like to highlight that we have also posted our Q1 earnings presentation on the site along with an updated company presentation.

This call is also being broadcast at investor.ipass.com, and a replay will be available on our website until the next earnings call. Please note that this web cast is property of iPass and any copying or rebroadcast without express prior written consent of iPass is prohibited.

Before we get started, we want to emphasize that some of the information and statements you will hear during our discussions today will include forward-looking statements, including without limitations those regarding our expected performance of the business, financial outlook and revenue and profitability targets. These statements generally may be identified by the use of words, expect, intend, believe, anticipate, and other similar words denoting future events or results. These statements involve risks and uncertainties that could cause actual results to differ materially.

These forward-looking statements reflect our opinion only as of the date of this presentation and we undertake no obligation to revise or publicly release the results or make any revisions to these forward-looking statements in light of new information or future events.

Please refer to our earnings release posted on our website and to our SEC filings, including under the caption Risk Factors in our annual report 10-K filed with the SEC on March 11, 2014 for a more detailed description of the risk factors that may affect our results.

In addition, investors and others should note that iPass announces material information and material financial information to its investors using its investor relations website, SEC filings, press release, public conference calls and webcasts. iPass also uses social media to communicate with customers and the public about iPass, its products, services and other material matters relating to its business and markets. It is possible that information iPass posts on social media could be deemed to be material information.

Therefore, iPass encourages investors, the media and others interested in iPass to review the information it posts on U.S. social media channels including iPass Twitter feeds, iPass LinkedIn feed, the iPass Google+ feeds, iPass Facebook pages, and iPass blogs. These social media channels may be updated from time-to-time.

On this call, we will also provide and talk about results using non-GAAP financial measures. Our GAAP results and reconciliation of non-GAAP to GAAP measures can be found on our earnings release, which has been posted on our website at www.ipass.com.

Before I turn the call to Evan, we’d like to note that management will be meeting with investors and analysts on the West Coast in the following weeks. With that, I’d like to turn the call over to Evan.

Evan L. Kaplan

Thanks, Lauren. Good afternoon, everyone, and thanks for joining us on today’s call. The first quarter of 2014 marked the 12th sequential quarter of Open Mobile revenue growth since launching the product, a little over three years ago.

Growing 5% over last quarter; 30% year-over-year, OM revenue was $13.6 million for the quarter. As we’ve consistently said over the past three years, iPass’ future is Open Mobile or SaaS based, Wi-Fi connectivity platform and network.

As you know, we’ve been increasingly investing and focusing on OM, towards that end we announced last quarter that we are conducting a process to attempt to divest our Unity business. Well for obvious reasons, we can’t provide much insight into the process. I can say that we are satisfied with the progress.

If we successfully divest Unity, the resulting company will be a pure play SaaS business focused on a very large addressable market, Wi-Fi roaming. In that light, iPass possess some unique competitive advantages including the largest global network by a factor of three. Interconnectivity and commercial relationships with 155 Wi-Fi suppliers around the globe. A global authentication fabric that ties all this together, and our rapidly evolving Open Mobile platform to drive adversely seamless connectivity experience for he business traveler.

Turning to results. We continue to be encouraged by our progress on OM to a large degree our results were depended upon business travelers and in Q1 the weather caused challenging disruptions across the country and in Europe, which resulted in a significant number of flight and trip cancellations. This was largely a January and February dynamic, and the good news is that March and April have both shown better than expected strength. We watch the usage carefully, and we believe that a normalized weather pattern would have yielded slightly better results. But we’re still pleased with the numbers we posted.

With regard to OM users, we continue to see strong growth on platform and Wi-Fi users. On an average monthly basis, we grew active platform users by 9%; and Wi-Fi users by 6% quarter-over-quarter.

Ending March with 716,000 active platform users and 79,000 Wi-Fi users. Embedded in those numbers is strong quarter-over-quarter growth in smartphones and tablets, which is of course an increasing driver of revenue.

From a new logo perspective, we had another successful quarter of new customer acquisitions, adding 11 new logos including Samsung Europe, Hearst Magazines, Novo Nordisk, SAS, Scandinavian Airlines and Brunswick.

Turning our attention to OMX with the changes in cellular roaming pricing and the high levels of cost for the carriers, Wi-Fi roaming makes a great deal strategic sense for mobile operators. But we believe, we are still early to the market; and we are struggling to gain the kind of sell through traction that we had expected.

In the quarter, revenue for OMX grew slightly as we continue to work with the selection of Middle Eastern carriers who are facing challenges bringing their Wi-Fi offers to market.

While we will continue to work with the mobile operators who are increasingly turning our attention to device manufacturers and fixed line operators, who have complementary services and would benefit by adding a roaming Wi-Fi. In that vein, we are pleased with our Skype partnership where we continue to see good growth in traffic during Q1.

On the network front, the iPass mobile network continue to grow in Q1 in context with the increasing demand for connectivity. Since last quarter, we’ve grown our footprint in the U.S. nearly 95% and our global Wi-Fi network by 22%.

In the U.S., we are capitalizing our growing number of hotspots to our cable partners. For example, two quarters ago we announced the partnership with Comcast XFINITY where they made their expansive hotspot network available to our customers. While a large portion of their network consist of residential home hub, they’re also growing their business in public Wi-Fi presence.

As a side note, home hubs are residential Wi-Fi gateways that have a public and private interface where the public interface is made available to other Comcast subscribers in range and to iPass, they are often called community hotspots.

The growth of these home hub implementations is global, and we do monetize them successfully around the world, particularly in large urban areas. Comcast is now by far the dominant Wi-Fi provider in the U.S., and what’s encouraging for us as a traffic, we send to Comcast has been growing steadily, and we anticipate that to continue as they execute their ambitious plans for network growth. Just to recap, we now have approximately 2.7 million hotspots in our network, and that reach extends across more than 120 countries and territory and millions of community hotspots around the globe.

Looking forward, on the strength of OM, we continue to invest in sales and marketing and product to help drive growth. As we previewed last quarter, we’re developing initiatives to lower the corporate barriers to iPass’ service for potential enterprise customers.

To that end, we are beginning to rollout our business traveler 2.0 service. business traveler 2.0 is a re-launch of the Core Global Wi-Fi Mobility Service and is targeted as the unique needs of the enterprise business traveler. The service was redesigned, focused on the end user as the customer and IT only as the facilitator.

It takes advantage of our investment in big data to track individuals users success, communicate them within the app or near real-time via e-mail or messaging if they are having connection issues. It also helps them quickly and easily locate nearby places they can connect and work, what’s new for us is the business traveler 2.0 we are cultivating an audience of end users directly instead of relying on IT to provide support, and information on our service. That reliance on IT has been a near constant headwind for the company that we have started to breakthrough.

To deliver business traveler 2.0, we are increasingly automating and building intelligence in the system to drive hands-off enrollment for IT in a much improved user experience for the traveler. If we do this right, we make the IT person a hero as they deliver a compelling cost saving service as their end users along with very little time invested on their part. At the same time we build the base of loyal, and viral end users who use our service more intensively and critically with whom we have a direct relationship.

While we are early in the lifecycle, we have 30 or so customers in our beta version of the service. The results have been outstanding. Our investment here is a key to increasing the customer satisfaction and penetration on installed base and our new logos, which of course is key to growth.

With that as a backdrop, our business is about to become simpler and easier to understand for all. We’re focused on OM growth, and while we had some specific challenges this quarter, and I always want more faster and pleased with our results, and I expect consistent growth in OM going forward.

And with that, let me turn the call over to Karen to review the numbers.

Karen J. Willem

Thanks Evan, and hello everyone. Now, let’s take a look at the financial results for the first quarter of 2014. As Evan mentioned, Open Mobile revenue grew for the 12th consecutive quarter to $13.6 million in Q1 of 2014 from $13 million in Q4 of 2013; and from $10.5 million in Q1 of 2013. This represents growth rates of 5% and 30% respectively.

Open Mobile revenue represented over 77% of total mobility service revenue in Q1 of 2014 compared to 72% in the prior quarter, and compared to 50% in Q1 of last year. Total revenue for Q1 of 2014 was $25.3 million, a decline from $26 million in the prior quarter and from $29.6 million in Q1 of last year.

These results are in line with our expectations as Open Mobile revenue continue to grow, but was offset by the anticipated decline in our legacy revenue and some expected Unity churn.

As we mentioned in our last conference call, beginning this quarter, we will focus on reporting on two key user metrics that we believe best capture the dynamics of the Open Mobile Enterprise business. These metrics include Open Mobile Wi-Fi users and active Open Mobile platform users.

Although these metrics aren’t new, as a refresher, Open Mobile Wi-Fi users, is the number of unique users that use the paid Wi-Fi network from iPass in a given period. Active Open Mobile platform users, is a number of unique user that paid for Open Mobile platform’s services and use or deploy the platform in a given period. We generally provide the metrics calculated as the average number of users per month during a given quarter.

Open Mobile Wi-Fi users on the iPass networks grew to 71,000 in Q1 of 2014, a 6% increase over Q4 of 2013. Smartphone and tablet Wi-Fi users grew 13% in Q1 of 2014 over the prior quarter. As a result, Open Mobile Enterprise network revenue grew nicely to $8.8 million in Q1 of 2014, up from $8.3 million in Q4 of 2013.

The growth in Open Mobile Wi-Fi users is a great parameter of progress on our core strategies of expansion of network footprint, deployment of smartphone and tablets and improvement of the end user experience.

Active platform users in Q1 of 2014 grew to 681,000 representing a 9% increase over the prior quarter. The continued growth in Active platform users serves as a strong base to grow Wi-Fi revenues in the future through the continued focus on increasing penetration in existing customers and new customer acquisition. The all momentum is good and we are optimistic about Q2 and beyond.

On Unity front expected revenues for Q1 of 2014 was $7.7 million down from $8 million in Q4 of 2013. This was due to the customer termination that we discussed in the last few quarter. Unity had some recent wins and also has a very strong pipeline both of which give us confident that we can expect improving results in the back half of 2014.

Turning to network gross margin, we saw a slight improvement in Q1 of 2014 to 40.9% up from 40.4% in the prior quarter. Operating expenses increased to $18.8 million in Q1 of 2014 from $17.7 million in Q4 of 2013. The increase was expected as Q1 is large extent quarter for us, due to increase in payroll taxes, annual data fees, and our annual sales pickup activities.

Additionally as we discussed in the past we continue to effectively manage our expenses and just spend judicially as we drive OM revenue growth. As a point of reference after adjusting our non-recurring restructuring expense, operating expense in Q1 of 2013 was $19.6 million. For Q1 of 2014, adjusted EBITDA loss was $4 million compared to a loss of $2.6 million in Q4 of 2013 mainly due to the seasonally high operating expenses in Q1 that I mentioned.

Our cash balance decreased to $20.1 million at the end of Q1 of 2014 from $24 million at the end of Q4 2013, this decrease was due higher Q1 operating expenses previously mentioned as well as capital expenditures to expand and refresh our network operation infrastructure to support OM growth. We continue to have a solid working capital and strong financial profile.

Moving on to the outlook. We are pleased with the continued progress in Open Mobile revenue growth and we expect OM to continue to grow nicely in Q2 and the rest of 2014. These increases will be partially offset by the expected continued decline in legacy revenue. Legacy revenue in Q1 of 2014 was $4 million, down from $10.4 million in Q1 of the prior year. Therefore we still have some legacy headwinds to clear before our OM revenue becomes the stall contributor to our mobility business.

As we had said last quarter conference call, Unity revenue will continue to slightly decline in Q2 of 2014, due to the previously mentioned customer terminations, but will be offset in the second half of 2014 by new customers and channel sales, which are expected to ramp up steadily. But we engaged – to sell our Unity business we will continue to provide guidance including Unity until we have closed under a definitive sale agreement.

That said, we anticipate total revenue to be approximately $24 million to $28 million of Q2 of 2014, and we anticipate adjusted EBITDA for the quarter to be in the range of a loss of $2.5 million to a loss of $4.5 million. We will continue to execute on our planned investment in sales and marketing in order to capitalize on the growing Wi-Fi market dynamics and make OM a must-have application for the business traveler. These investments for used cash, but we expect investment will result growth in OM revenue through the remainder of 2014.

In conclusion, we are very excited about our path forward and we will continue to seek ways to maximize shareholder value in the near future. I want to thank you for your time today and we’ll turn it over to the operator for any questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And we’ll go first to Stan Berenshteyn with Sidoti & Company.

Stan Berenshteyn – Sidoti & Company

Good evening, Evan and Karen. Thank you for taking my call.

Karen J. Willem

Thank you.

Stan Berenshteyn – Sidoti & Company

I like to look at our network revenue, it positively correlated with the amount of active network users which is nice to see, cover when I look at the active platform users, there was year-on-year increase of 50% in the active user base, I’m sorry, in the active platform users, but the revenues stayed flat year-on-year. Can you give color us to what that is?

Evan L. Kaplan

Yeah. I can give some color. I think you’re looking – they are not like numbers as it is as I am looking at the sheet is active OM platform users is what we record and talk about. And so, it’s OM Wi-Fi revenue growth that you want to look and active OM users. Those should have moved roughly instinct.

Stan Berenshteyn – Sidoti & Company

Right. I guess when you look at the platform revenue it came in at 1 million. And it was 4 million in Q1 2013 or 4 million this past quarter.

Evan L. Kaplan

You’re referring total. On platform revenue that’s pretty straightforward, we messaged almost 18 months ago to shareholders that we wouldn’t see big growth in platform revenue and the idea is when Wi-Fi started to come back in a very strong way, we’ve been much more willing to cur agreements with our customers and new customers to minimize their cost to deploy, to minimize their platform cost.

The ARPU for a network user runs somewhere between depending on the quarter or the month, $35 and $38 and the ARPU for platform user is somewhere less than $2. And so we consciously try not to use the platform revenue as a growth driver. But instead, drive more people on to the network.

Stan Berenshteyn – Sidoti & Company

Okay. Thanks, Evan.

Evan L. Kaplan

Sorry.

Stan Berenshteyn – Sidoti & Company

Yeah, no worries. So moving on to the weather impact obviously, I think everybody have saw the impact from the weather, but in terms of what iPass saw was this more across the board or is there a particular region that was particularly impacted?

Evan L. Kaplan

Yeah, we saw mostly – our business is driven a lot by a couple of people traveling within Europe and people traveling from the U.S. to Europe. And so on the East Coast we saw a number flight cancellations. We don’t actually see the flight canceled, we see as lower than expected revenue in flight, and then following up lower than expected hotels. It’s almost exclusively, that shows up to us in Europe. People were traveling to Europe whose flight gets cancelled, or people were traveling within Europe.

Stan Berenshteyn – Sidoti & Company

Okay. And you had mentioned that there was a tablet and smartphone growth, do you have a break down that you given us in terms of what percentage of users are using tablets or laptops, smartphones?

Evan L. Kaplan

Yeah, the number. The number is somewhere about 30 plus percent, and that grew roughly 12% from fourth quarter to first quarter. We see – oh it’s early, but we see it, sort of crack the nut a little bit, partly try to some of these business traveler 2.0 stuff, till they crack the nut in getting a couple of dynamics going in our favor. One is getting new subscriber downloads and activations who are actually using the network, that strides 12% growth.

And then second was reducing our churn which was just really beginning to take a really hard type look at. Also again part of the business traveler 2.0 keeping people on the platform, keeping preventing from turning.

Smartphone users and tablet users are very ficklest, the app doesn’t work for them, in the way the expect in the first hour of using it, they are more likely to doing it and stop using it and user all, and so working on solving that problem is been important to us and then we think we’ve been successful.

So having said, to answer your question even more completely I don’t have the numbers right in front of me, but I would say the smartphones and tablets now represent the majority of total sessions, even though it represents only 31% – 30 plus percentage users.

Stan Berenshteyn – Sidoti & Company

Okay. And for active network users, was the growth primarily is coming from the existing relationship or is it something that’s on boarding the new clients?

Evan L. Kaplan

I think its both. It’s probably little bit both. It was a nice jump. It’s a little bit of both. We had some new customers come onboard.

Stan Berenshteyn – Sidoti & Company

Okay. I appreciated. Thank you.

Evan L. Kaplan

Thanks, Stan.

Operator

We’ll go next to James McIlree with Chardan Capital.

James McIlree – Chardan Capital

Thank you and good afternoon.

Karen J. Willem

Hi, Jim.

James McIlree – Chardan Capital

Evan, when you talked about – hi. When you talked about community hotspots from – for Comcast and other operators, is that other community hotspots included in the 2.7 million total Wi-Fi hotspots that you – that you have in your presentation?

Evan L. Kaplan

Yeah. Some of Comcast are. So the way we have audit method, and which we take him in with reliable data from the carriers. As some of Comcast in fact are much of the rest of the world are now. It could be a good way to answer that.

James McIlree – Chardan Capital

Okay.

Evan L. Kaplan

So -

James McIlree – Chardan Capital

That’s fine. So the active platform users in the past three quarters has gone up roughly 50, 60 per quarter. Is that a good number going forward for the quarter-on-quarter increase in the active platform users. That is to say, is the only reason to expect an acceleration or deceleration in the number of active platform users going forward?

Evan L. Kaplan

I don’t know. I don’t think there is. I think that’s a good number. It’s a workable number. And I don’t have specific items. It feels like it’s throughout the right range. The number 10, we pay of attention to it. It’s not just the active, which is fantastic. It’s super board dusk. It’s a based case. It’s the number of people have our software deploy that we can see on a monthly basis, but how often they’re triggering the network, which as we exited March was slightly above 10%. That’s a number we’d like to see increase, not giving any forward-looking guidance, but it’s a number I’d like to see increase.

James McIlree – Chardan Capital

Right, right. Right, I got that too. Okay. And the OMX revenues, it seems like you would be reasonable to expect those to be flat at least for a couple of quarters, while you pursue other operators more aggressively then the carriers. Is that fair assumption?

Evan L. Kaplan

I got on the call, last quarter and I said I would be pretty disappointed, if OX – OMX didn’t double over the course of the year. And right now, I’m feeling disappointed.

Again, I don’t want to give a forward-looking guidance. We have some things in the work. I am pretty excited about them, but yes, it’s a possibility.

James McIlree – Chardan Capital

Okay. And I think you answered a little bit of this with the prior question, but the 2.0 roll out, you said as some intended – or part of the intent is to reduce churn, is there an impact on ARPU or activations that you are also expecting when 2.0 rolls out? And then when would you expect to roll that out to the entire user base, that is, one is it off data?

Evan L. Kaplan

You know when you think about it, the way – I wouldn’t expect the significant impact in ARPU. ARPU is a function of pricing – we’re thinking sort of generally two year contracts around our pricing and so I wouldn’t expect the big impact on APRU.

And then the second question was I am sorry Jim, was it, when we expect it to roll out?

James McIlree – Chardan Capital

Yeah exactly.

Evan L. Kaplan

Yeah. We are looking – I am separating the commercial customer facing side from the investor side, I am heading to Europe next week, we have a big launch there, we are meeting press and analysts and that sort of stuff. The actual public data I can guess probably early June. So, by launch I mean briefing analyst, briefing press, briefing customers first.

James McIlree – Chardan Capital

Okay. And then my final one, Karen, OpEx in the coming quarters flat up, down versus Q1?

Karen J. Willem

Yeah. Let’s just say – basically as you know, we are looking to sell Unity – if and when we do that that would change things. But on the apples-to-apples basis, I would say fairly flat. We are managing the expenses; in fact, I am working to reduce expenses so they will not grow. And I’ll be trying to get them down as the year goes by.

James McIlree – Chardan Capital

Great. Thanks a lot. I will leave the floor.

Evan L. Kaplan

Thanks Jim

Karen J. Willem

Thank you.

Operator

(Operator Instructions) And we will go next to Fred Ziegel with Topeka Capital Markets.

Frederick D. Ziegel – Topeka Capital Markets

Hi, guys.

Evan L. Kaplan

Hey, Fred.

Frederick D. Ziegel – Topeka Capital Markets

One question on the business traveler 2.0 initiative. I think you said you got 30 customers, what is a customer, is that a person, or is that a company?

Evan L. Kaplan

That’s a fair question. It’s a company. If we line out, and to me it’s helpful, all of you to follow a trail, if you line out my comments about the end user over the last couple of quarters this has sort of come together in this business traveler 2.0 launch; and so when I talked about taking over end user support for customers that part of business traveler 2.0. When I talk about the automation messaging infrastructure, that business traveler 2.0; when I talk about the investment in big data marrying our location and our call records and our quality management records together that’s business traveler 2.0. So that’s all come together and just to go back on Jim’s question. I think the actual announcement, I was just told by our marketing person is May 21.

Frederick D. Ziegel – Topeka Capital Markets

So, when you mentioned that you’re going to direct to end users is that – are you going through, I assume you’re not going around the IT department or you going through IT was there a bluffing, is that how that’s been a function?

Evan L. Kaplan

You know for us the least possible friction way to make all of these happen at large scale at accounts like Nestles, Procter and Gamble and 3AM and Exxon in places like that, is to get IT to facilitate, and then let us communicate directly with the end user to engage, to help them with errors, to help them in location, to even help them with basically how to use the product that is turning to be a very pretty successful model.

Because, one is, we can capture the actual email and identity of the users which we’ve been prohibited from before under the old model. And two, is the IT guys are starting to trust us with this process, a lot of that has to do so much of it is becoming automated that they feel like this is just the away the service works. So that’s 30 customers with quite a lot of end users behind that.

Frederick D. Ziegel – Topeka Capital Markets

Okay. And what is it they are trying to learn is anything new any new tricks or it is just exposure?

Evan L. Kaplan

I mean, you saying they trying to learn, do you mean us at iPass or IT guys or the end users?

Frederick D. Ziegel – Topeka Capital Markets

End users.

Evan L. Kaplan

Yeah. Sure. Wi-Fi is a pretty tricky, so Wi-Fi is pretty tricky ecosystem, you can show up in a venue, and you might not be able to get an IP address, if there are 50 people there, your signal strength might not be good, you maybe using the wrong username and password which you would surprised how often that happen in an enterprise environment those sorts of things. So it can be any variety of things.

This could have been a location that is false positive where it looks like an iPass locations, but it’s in fact not, you could be trying to connect to Gogo Wi-Fi hotspots when you are below 10,000 feet. There is a bunch of stuff that by engaging with the end users and educating them we make them, a, better users and two give them a better user experience.

Frederick D. Ziegel – Topeka Capital Markets

Okay. Lot of discussion in press and market panel about particular as a cable companies and community hot spot and then you read about Google talking about deploying Wi-Fi in all the cities in which they’re rolling out Fiber. At the end of the day, what’s the implication to you guys neither you expect what is Wi-Fi infrastructure?

Evan L. Kaplan

Yeah. So to reiterate sort of – and that’s a broad thoughts about the industry to reiterate, how it’s relevant to us. So one is I think that’s absolutely going to happen. I think the Google Fiber cities are going to be rolled out and Wi-Fi is going to be the endpoint.

Comcast network is on fire. Those guys are rolling out Wi-Fi like we’ve never seen anybody anywhere in the world rolling out. We expect the same to happen with all of the Cable Co’s in the U.S. We’ve seen acquisition by Vodafone and Cable Voice Land [ph] and then the recent bid for Vodafone in Spain. And so we see this dynamic just globally on fire.

Where we think we sit in that ecosystem is as you get more and more of this. There needs to be some of essentially hub to facilitate roaming and that hub has to both have the interconnect, which we have tremendous infrastructure for, the authentication fabric, right.

And then the tools to be able to use that roaming fabric. And so the channels for that obviously us with the enterprise customers, which will continue to work and that is the short assures that for growth or consisting growth, but the non-obvious ones are the things that we’ve been trying to target with OMX and feel like we’re early with people who used that infrastructure whether it’s the exchanged portion of it or the network that we provide and basically enable all their people to roll model over the world.

So I mean, I just love our long-term position is and every dollar we’ve invested in the business was coined to creating that strategic value, unfortunately we have a big legacy business to work through hopefully close to the end. And we’ve got to grow the Enterprise business the same time. But all those things I think are good indicators Fred.

Frederick D. Ziegel – Topeka Capital Markets

So two, three, five years down the road is there likely to be a Visa like revenue stream where you are getting paid for cross network transactions and settlements and?

Evan L. Kaplan

We are certainly pointing in that direction with our infrastructure. We’re certainly pointing in our direction with that infrastructure. I can’t – I am humbled by predicting how the industry responds and the timing, but that response bit we are certainly pointing that row. It’s essentially what we do for these large enterprises today, we give them a credential that allows them to travel all over the world and connect to one of these 155 different networks.

Frederick D. Ziegel – Topeka Capital Markets

Got it. Just got a quick one for Karen, what was in the legacy 4 million, what was the split between network and platform?

Karen J. Willem

First legacy piece, you say?

Frederick D. Ziegel – Topeka Capital Markets

Yes.

Karen J. Willem

You know you’re the only one who asks me that. Hold on one second all right. The network 3.1 and the platform and other, was the remainder.

Frederick D. Ziegel – Topeka Capital Markets

My last question is as you, as you look at the way the business is unfolding and what’s your planning and doing, where do you think cash excluding in the Unity transaction. I think you have 20 million for the quarter what do you think cash going to bottom out?

Evan L. Kaplan

Well for next quarter I am looking at about the same kind of burn at this quarter, so about 4 million. The combination of sort of the net income and continued purchasing of network infrastructure equipment. You know we don’t typically give guidance past there but that’s kind of where like to see, right the sense then and of course everything will change, if and when we sell Unity.

Frederick D. Ziegel – Topeka Capital Markets

All right. Thanks guys.

Evan L. Kaplan

Thank you.

Karen J. Willem

Thanks, Fred.

Operator

We will take a follow-up question from Stan Berenshteyn with Sidoti and Company.

Stan Berenshteyn – Sidoti & Company

Thank you for barging me. I would look out the fixed versus variable compensation those coming in from revenue, so historically you mentioned that was about 50% for each, is the revenue mix right now similar?

Evan L. Kaplan

Yeah. It varies every single month, but it’s roughly 50-50. So you mean the EFT versus variable, yeah.

Stan Berenshteyn – Sidoti & Company

Yeah. And is that where the trend is going to remain, or is there going to pretty much 50-50 or do you see that revenue mix shifting going forward?

Evan L. Kaplan

No, right now still call it about the same, I mean, you know, it just depend, as we sign out new customers or renew existing customers, you know, we discuss, sat with them, and given the proven contract with either. Its still pretty much have been 50/50.

Stan Berenshteyn – Sidoti & Company

Okay. Can you give us some color as to what makes a decision for them to go one way or another? How do they decide what ultimately causes them to decide to a variable or fixed cost?

Karen J. Willem

As a CFO I mean it kind of depends couple of things will go under this decision. Things like whether they want a fixed – how predictable do you want to expenses versus do you want to predictable and always the same or do you want to just use – just pay for what you use.

It’s sort of decision based on the kind of travelers that a company has, and there is a different price picks for different kind of combinations. Also, whether or not, they are going to be using all the inside capabilities. So it’s – I don’t know what’s inside our customers head but those are the kind of the discussion I’m in with the sales guy. Evan, do you want to give anything there?

Evan L. Kaplan

I think it falls under the category of there are two kinds of people in the world, because you believe there is two kinds of people on those who don’t. Otherwise it’s developed a preference of use the either company that has a tolerance for managing the risk themselves and doing a usage base model or they like having fixed. And it kinds of stayed this way for quite a while. Hope you understand.

Stan Berenshteyn – Sidoti & Company

Okay. On which one – yeah, it does. Just a one more follow-up which one, do you prefer?

Evan L. Kaplan

That’s a great question. With me in one of those two camp. I supposed, I would also like to – from a risk point of view I always like the usage model. It allows me to think about my supply different, but I am not like, its not 80-20 thing, its close. I can make more money potentially on the flat rate model and so.

Evan L. Kaplan

Yeah. A finance person always going to love the fixed, because it’s predictable, but yeah, it’s hard to say.

Stan Berenshteyn – Sidoti & Company

Okay. Great. Thank you very much.

Karen J. Willem

Thank you.

Evan L. Kaplan

Thank you.

Operator

We’ll go next to Scott Cyril with Dyker Management.

Scott Cyril – Dyker Management

Hey, guys, How are doing?

Evan L. Kaplan

Hi, Scott. Hi.

Karen J. Willem

Hi, Scott.

Scott Cyril – Dyker Management

Couple of quick questions just in terms of the financials, on the network operations sides, it seems like it was a big number this quarter. Was there any thing specific or one-time that was going on there? Is that the new level of things you are stepping up to?

Karen J. Willem

When you think network operating thing, are you talking revenue expenses where on behalf.

Scott Cyril – Dyker Management

Revenue expenses, yeah,

Karen J. Willem

Understand. Okay. Yeah, definitely for while. Primarily, it was, first of all, yeah, it was the combination of some of the expense item, I mentioned earlier the beginning of payroll tax is starting over and so forth. There is also the depreciation on the large network infrastructure by we’ve been doing that we mentioned as we are building out our capacity for OM. We’ve been – we bought from – in the last couple of quarters and we will continue this quarter to buy that. So the depreciation now is rolling out through those numbers.

So every thing in expenses is a little bit higher this quarter as I said before, as we kick off all those one-time expenses and the payroll taxes.

Scott Cyril – Dyker Management

Okay. And then looking at Unity was – Unity a big EBITDA drag in the quarter or is Unity still hovering right around EBITDA breakeven?

Evan L. Kaplan

No, there basis is still hovering right around breakeven. It’s not – tends not be mix.

Scott Cyril – Dyker Management

And then it sounds like added a bunch a logos this quarter. Could you give us some sort of idea about what the addressable opportunity or subscribers are within those logo basis?

Evan L. Kaplan

If we are able to monetize them. Those are pretty sizeable company, when you look at Novadex, and all of Samsung’s European footprint, I have spot multiple hundred thousands.

Scott Cyril – Dyker Management

Okay. And then on the ARPU front, looking at the Wi-Fi APRU, it looks like there was a significant step-up sequentially this quarter now. It sounds like you are getting more attraction in terms of utilization from tablet and smartphone standpoint, but I guess the question is, is that more of a sustainable number? What that an anomaly? Have you seen those types of trends continue into April?

Evan L. Kaplan

Scott, I am looking at the Wi-Fi ARPU and it seems flattish to me.

Scott Cyril – Dyker Management

It was flattish, okay.

Evan L. Kaplan

Yeah, sorry, yeah. I mean, I am happy to take credit for up, but I don’t see it, its vertical flat.

Scott Cyril – Dyker Management

And then last question, the guidance for the June quarter, 24 million to 28 million it’s kind of the typical range that you’ve talked about, but when I look at the items as we are going into the June quarter now OMX doesn’t sound like it grows sequentially, Unity is not bouncing back this quarter. You’ve got legacy which has been declining about a 1 million or so a quarter, over the past couple of quarters, but is it asymptotic at this point in time, let’s get into the point where it can’t really get too much smaller -

Evan L. Kaplan

I would as they taught us Scott.

Scott Cyril – Dyker Management

Yeah.

Evan L. Kaplan

I wouldn’t asymptotic.

Scott Cyril – Dyker Management

Well we’ve got 4 million all over.

Evan L. Kaplan

4 million.

Scott Cyril – Dyker Management

Yeah.

Evan L. Kaplan

Yeah, yeah.

Scott Cyril – Dyker Management

But it’s not 10 million, right?

Evan L. Kaplan

It seems like a smaller number.

Scott Cyril – Dyker Management

The lengthy question being, so when you look at the higher end of that range, what could get you to that higher end of that range? Is it – because it really implies that subscriber utilization increases number of active subs for Wi-Fi really picks up, so, I guess the question is, do you have visibility to something like that happening that could drive you to that 28 million type number in the June quarter? What has to happen to get you to something like that?

Evan L. Kaplan

Yeah, yeah. So I want to be careful, because I answer Jim’s question, but I said it’s a possibility on that’s could be flat. But other no questions, its growth in the enterprise business. It some confidence in these activities we’re doing, how they played out this last quarter and some of that’s stuff that is giving us you know, that’s giving us the guidance range.

Scott Cyril – Dyker Management

So let me phrase it in other way, so when you look at March and April, is that enough, are you starting to seeing an inflection two months, doing that trend make, but are you starting to see that inflection in terms of utilization subscribers etcetera, that, that just not some unreasonable expectation towards the higher end of some random number but there is a hard mathematical calculation behind that gets you to that 28 million?

Karen J. Willem

It’s always have mathematical calculation. Let just say, Scott let just say I am pleased with how March and April turned out. And I think I can see why they turned out that way, and I’m trying to do more of the same let’s put it that way.

Scott Cyril – Dyker Management

Thanks guys.

Karen J. Willem

Thanks.

Operator

We’ll go next to Kevin Hanrahan with KMH Capital Advisor.

Kevin Hanrahan – KMH Capital Advisor

Hello, Evan, I had a question similar to what Fred asked, so I can note, Comcast talking about Wi-Fi and Google talk about Wi-Fi, so yeah you kind of answered that question partly already. But I had more questions, specifically I wonder if you can tell us any more about Unity partner, you know the big partner that you announced last year and we were talking about this on last call and you try to, announced this year. So can you expand on that?

Evan L. Kaplan

I can’t, we are still in the middle privatization, and we’re specifically prohibited talking about that Kevin, sorry.

Kevin Hanrahan – KMH Capital Advisor

Okay. But the buyers and the bankers would know if it’s essential for them to know?

Evan L. Kaplan

Yeah. I can’t comment on anything on that process.

Kevin Hanrahan – KMH Capital Advisor

Okay. Can you make a comment, I saw AT&T made a bit of a splash anyway or at least they affected the Gogo share price, maybe a couple of weeks ago. I’m talking about an airline offering that they would have, but it wouldn’t be out for more than a year. Can you talk about what that would mean for iPass? Would that help you or hurt you?

Evan L. Kaplan

So generally it has helped us. All right? The more planes that get built with Wi-Fi the faster the experience is, the more the enterprise travelers, I mentioned the consumer wanted I think that’s helpful for us given our capability.

We already have a very strong roaming relationship with AT&T both ways, right. And so there is a good pattern there. Having said that, I think the announcement is kind of speculative, I don’t, it’s hard to see how you get there by the end of 2015 and Gogo has been a good partner, and they are moving ahead aggressively. So we’re just in kind of wait and see mode, but I thought it was interesting.

Kevin Hanrahan – KMH Capital Advisor

AT&T, it seems like they were talking about more of less satellite link, which they may have already have access to in their system, rather than a ground connection…

Evan L. Kaplan

Yeah. No, they are actually talking about using their LTE network on the ground, and using those towers pointing up to compete directly with Gogo; and Gogo own some of that spectrum. So it’s a bunch of stuff I think it has to be worked out before that becomes real, but what I tell you is it’s becoming clear to folks that it’s an attractive enough market to justify increasing investment.

Kevin Hanrahan – KMH Capital Advisor

So more planes with Wi-Fi is good for iPass in general?

Evan L. Kaplan

Yep.

Kevin Hanrahan – KMH Capital Advisor

Yes, good. That’s all I had. Thank you.

Evan L. Kaplan

Thanks, Kevin.

Operator

And our last question comes from Jim McIlree with Chardan Capital.

James McIlree – Chardan Capital

Thanks, again. I just like you to comment on the ARPU outlook, not necessarily the outlook, but let’s call it the what forces would make ARPU go up or down versus the current ARPU in the next couple of quarters, specifically does 2.0 have – what kind of impact does 2.0 have on ARPU? Just general going forward, what’s driving on there...

Evan L. Kaplan

So, there is short and long-term. It’s a good question, Jim and it’s important question because the peak time is queue on this business is, the number users were able to get on the platform actively using and then what the ARPU is. I think in this short-term, I don’t foresee, humbly say, I don’t foresee any changes in the ARPU or significant changes one way or the other.

I think over the long-term, we are trying very hard to reformat our supply chain to drive way more volume and potential some lower ARPUs in order to drive growth. We think that’s where it goes. We think the cost of service is still too expensive in all places and all around the world.

And we think we are very aggressively working with our suppliers, and working our supply chain to drive that cost down to increase usage. But in the short-term, I don’t foresee it changing very much, that’s a more of a long-run effect.

James McIlree – Chardan Capital

Okay.

Karen J. Willem

Yeah. The business 2.0 increase the queue – the volume of....

Evan L. Kaplan

Yeah, business point 2.0 is oriented to the queue.

James McIlree – Chardan Capital

And what do you consider long-term? That’s a year, two years, three years?

Evan L. Kaplan

We give guidance every quarter half way through the quarter, so I consider long-term next earnings call, no. I just give, in this case, let’s call it next three quarters or so, I don’t foresee any big changes.

James McIlree – Chardan Capital

Okay. Great, thanks again.

Karen J. Willem

Thank you.

Evan L. Kaplan

Jim, thanks. Thanks everybody for the good questions. Let me wrap it up. Thanks everybody for joining today’s call. You know we’re working hard to position iPass to benefit from the many trend shaping up to drive Wi-Fi connectivity.

And with our progress on OM and the development of network, we believe we are uniquely poised to be the to Wi-Fi roaming platform and network of choice for enterprises and a broad variety of service providers. And we’re making strong strides in that direction. Thanks again for joining us. Appreciate it.

Operator

That does conclude today’s conference. Thank you for your participation.

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