iPass Inc. (IPAS) Q3 2014 Earnings Conference Call November 6, 2014 5:00 PM ET
Executives
Lauren Stevens – IR
Evan Kaplan – President & CEO
Karen Willem – SVP & CFO
Analysts
Fred Ziegel – Topeka Capital Markets
Stan Berenshteyn – Sidoti & Company
Kevin Hanrahan – KMH Capital Advisors
Operator
Good day and welcome to the iPass Third Quarter 2014 Financial Results Conference Call. (Operator Instructions). At this time, I would like to turn the call over to Ms. Lauren Stevens. Please go ahead.
Lauren Stevens
Thank you. Good afternoon, everyone, and welcome to iPass’ third 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 Q3 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 Q3 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 on Form 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.
And with that, I’d like to turn the call over to Evan.
Evan Kaplan
Thanks Lauren. Welcome to our third quarter call. iPass’s core business continues to gain traction and as we will discuss today, we are very focused on pursuing many opportunities to drive growth and enhance shareholder value. On today’s call, I’d like to provide a quick overview of the numbers, address the encouraging business developments in our OMX and OME lines and highlight our global Wi-Fi report that we made public earlier this week.
Turning to Q3, results were in line with our guidance in commentary from last quarter. Third quarter is seasonally light and our core business OM continues its steady growth rising 16% from Q3 of last year marking 14 consecutive quarters of sequential growth. As predicted, consisted with our commentary last quarter, the legacy business saw accelerated decline. Karen will describe these trends in more detail.
With that, let’s turn to the fundamentals, namely user engagement and growth. As a reminder, put simply our business is driven largely by adding more users and driving increased usage. We exited September with 799,000 OM Active Platform users, and 86,000 OM Wi-Fi users. These numbers represent a 36% and 34% growth of September of last year respectively. In addition, in the month we saw Wi-Fi hours on our paid network grow 27% from September of last year. This number has been steadily increasing and is now at higher since November of 2011.
For the quarter, Wi-Fi hours grew 4% sequentially, an impressive feat given traditionally slower summer usage months. In aggregate, these metrics mean that we are making sure and steady progress adding users and increasing our utility. For our sort of management team they indicate greater user engagement and reflect the increasing value of our offerings.
Moving on to the discussion of the business trends starting with OMX, I am pleased to say that we projected OMX resumed its sequential revenue growth growing 25% this quarter. Our outlook for OMX has strengthened and we expect the momentum to continue, driven by the increased activity interest we are seeing from device manufacturers and other service providers.
As you remember we expanded our scope in OMX after carrier uptake was less robust than we have anticipated. We turned our focus to alternative avenues to reach target groups of potential iPass subscribers, namely through retail brands and device manufacturers. In light of that, in Q3 we announced what we believe is a landmark deal in one of the most significant names in device landscape HP. HP has agreed to [print] all the iPass connectivity solution and include a one year subscription to our global Wi-Fi network on HP devices shipped in Asia Pacific and Japan, specifically iPass will be shipping with their HP Windows notebooks and Android and Windows tablets. We also expect to add HPs Google Chrome OS devices in subsequent months.
The campaign is called, HP Stay Connected and represents the first large scale roll out of pre installed iPass software and service. Our vision has always been to ebb every connected device using iPass, and this is a step towards that end and we are quite excited by this development.
In addition to HP, Vertu were to commence shipment of their first devices pre loaded with iPass and they expect to add more models before the end of the year. Vertu is our first device partner and it’s gratifying to start seeing these high end devices in the wild. Vertu includes a six or 12 month subscription to iPass services depending on the device model. Our relationship with Skype is also working well as traffic continues to grow nicely and we continue to work closely with Microsoft and other connected projects.
On the carrier side, we expanded our relationship with AT&T as their usage volumes continued to grow. We are also seeing our business with OEM Brazil ramp nicely after a slow start. After a rough patch, it’s great to see OMX back on track and in healthy growth mode again. On the enterprise side, our Business Traveler 2.0 initiative paying dividends and driving healthy organic growth across our customer base. As the numbers indicate users are growing and they are using more that is our primary objective.
As a reminder, Business Traveler 2.0 is a relaunch of our core global Wi-Fi mobility service to target unique needs of the enterprise business traveler. The service is redesigned to focus on the end user as a customer with IT only acting as the facilitator. It takes advantage of our investment and big data to track an individual user success and communicate them within the app or near real time with e-mail. It also helps them quickly need to see nearby places they can connect and work.
In terms of new customers last quarter as I push out - we signed the world’s largest industrial corporation General Electric. We are pleased to report that GE has begun their roll out this month and we are looking forward to growing our business with them. In addition to GE, we added several customers to OM including Novozymes, Shoppers Drug Mart, Kyocera, [Nab] pharmaceuticals. In the last month, we were particularly happy to add new customers like EMC, the world’s leading trusted infrastructure company and Uber, the company revolutionizing personal transportation to the iPass family.
Moving to network operations, our supplier 2.0 initiative continues to make good progress and we are leveraging the new supply relationships to expand our OMX business. With regard to our network our total hotspot footprint now exceeds 15 million and we expect continued network expansion throughout the remainder of the year and beyond.
To ground those numbers a little bit, we have 95% of the world’s top 100 paid airports, 2200 Wi-Fi equipped aircraft, over 800 Wi-Fi equipped trains and 78,000 hotel and convention center venues. There are simply no other competitor who has our reach.
Turning our attention to the industry at large. We recently sponsored a comprehensive study on the future growth of public Wi-Fi around the globe. Given our unique perspective and central position in the industry we touched only the people underestimating the size and scope of the market. In our new published Wi-Fi growth map, we work with -- Vegas and we think wireless on an industry report to access the health and growth trajectory of publicly available Wi-Fi around the globe. It’s a fascinating interactive study called the iPass Wi-Fi growth map, and I encourage all investors who are interested to go to www.ipass.com and click on Wi-Fi growth map.
Turning our attention to Q4, October was a seasonally strong month and the usage pattern has bolstered our confidence with the continued success of our mobility business. Given the seasonal patterns and the historical results for OM, Q4 should be a much stronger growth quarter than Q3. Looking forward, we are pleased that our mobility business is gaining traction, OMX is back on the right track, we are confident in our investment approach and as our legacy business becomes less material our core business will continue to drive overall company growth.
As you are aware we initiated strategic exploration process and want to be upfront that per our earlier guidance we will not be commenting on the progress of that process. With that, I will now turn the call to Karen.
Karen Willem
Thanks Evan and hello everyone. While Q3 is our slowest quarter primarily due to summer vacations especially in Europe, we had very solid numbers on our key metrics as we emerged in September. I’ll highlight those shortly. As we recast all numbers for our divestiture of unity last quarter, all financial discussions were focused on our continuing operations. Our core business Open Mobile continued to grow this quarter to $14.6 million from $14.4 million in Q2 of 2014 and $12.5 million in Q3 of 2013 marking the 14th consecutive quarter of growth.
This represents growth rates of 2% and 16% respectively. Open Mobile revenue was 85% of total revenue in Q3 of 2014 compared to 81% in the prior quarter and compared to 68% in Q3 of last year. This trend indicates that iPass is increasingly focused on growing OM revenues consistent with our strategy. We expect to exit the year with OM revenue at approximately 90% of the total revenue.
Total revenue for Q3 of 2014 was $17.3 million compared to $17.8 million last quarter and $18.5 million in Q3 of last year. Revenue was within our guidance and represents a quarter on quarter decrease of 3% in line with continued legacy related revenue declines and seasonality. Included in this is our accelerated termination of some of the legacy contracts that we discussed on our last call.
We continue to be bullish on the two key metrics for our OM business, Open Mobile Wi-Fi users and Active Open Mobile platform users. Open Mobile Wi-Fi users on the iPass network totaled 78,000 this quarter. which represents a 32% year-on-year growth from 59,000 users in Q3 of last year. While OM Wi-Fi users declined 3% from Q2 of 2014 this is in line with our expectations due to the impact of summer vacations especially in Europe.
We rebranded nicely in September ending the month with over 86,000 users a 5% increase over June. Smartphone and tablet Wi-Fi users in Q3 of 2014 grew 4% over the prior quarter and 46% over Q3 of 2013. As a result of the end piece number of users and the increase in their overall Wi-Fi usage, Open Mobile enterprise network revenue grew to $9.8 million in Q3 of 2014 up from $9.7 million in Q2 of 2014 and $7.9 million in Q3 of 2013.
Active platform users in Q3 of 2014 grew to 770,000 from 753,000 in the prior quarter and from 574,000 a year ago, representing a 34% increase year-on-year. We believe a continued growth in active platform users serves as a strong base to grow both our Wi-Fi users and revenues in the future.
Turning to network gross margin, we saw a slight decrease in Q3 of 2014 to 38.6% compared with 40% in the prior quarter due to the increase in Wi-Fi usage from customers on flat rate plans and the impact of decreased minimum commitment short fall revenue. In the past years we saw seasonally much lower Wi-Fi usage during the third quarter and as a result margins were slightly higher than other quarters. However, this quarter we saw total Wi-Fi usage grow for the first time in the third quarter since we launched OM.
While this puts some pressure on the margin at quarter, we believe that this is only temporary and we view the usage growth as a positive sign that our users are enjoying the increased value from the iPass network, which in turn help solidify our value proposition and improve overall customer satisfaction.
As we continue to see growth in usage, we expect to realize increasing benefits from our supplier 2.0 renegotiation efforts and we expect network growth margins to be right around 40% in the 40% range in upcoming quarters.
Moving onto operating expenses. Operating expenses decreased to $14.5 million in Q3 of 2014 from $14.7 million in Q2 of 2014. Adjusting out the restructuring expense of $700,000 we announced in August operating expenses were favorable $900,000 over the prior quarter. Drivers included savings on headcount related cost such as salary, incentive compensation and benefits of approximately $600,000 mostly resulting from their restructuring.
In addition, we had $300,000 lower of lower stock based compensation expense as we have the non-recurring true ups in Q3 upon implementing an upgrade to our equity edge system including changing our method for how we treat cancellation of award.
The restructuring event that resulted from the divesture of Unity business did create operating expense savings in the quarter by reducing headcount related expense and we expect the savings to continue going forward.
Adjusted EBITDA for Q3 was a loss of $3.1 million compared to a loss of $3.4 million in Q2 of 2014 and compared to a loss of $2.2 million in Q3 of 2013. Adjusted EBITDA for prior periods excludes net income and related adjustments for discontinued operations.
I’d also like to note that we had a foreign exchange benefit in a quarter which is in contrast to the past quarters where we have had FX expenses. Additionally in the quarter we’ve recognized $345,000 of other income as a result of the customer bankruptcy settlement which has been excluded from adjusted EBITDA.
As related to the divestiture of unity the company recognized tax expense of $1.3 million in discontinued operations in Q3 of 2014, this primarily represents our ability to utilize additional losses generated by three months of continuing operations against income generated by year to-date discontinued operations. The tax expense in discontinued operations is largely offset by the associated benefit and continuing operations and result to no impact to tax expense on income from outsources.
Our cash balance for the quarter was $37.1 million, which decreased from $41.7 million at the end of Q2 of 2014 and has increased significantly from the same quarter a year ago when the balance was $25.2 million, as a result of the proceeds from the sales of our unity business at the end June of this year. The Q3 cash burn of $4.6 million included $2.3 million for use in operations, $1.7 million unity transaction cost and $600,000 in restructuring and expense.
Moving on to the guidance for Q4, we expect total revenues to be approximately $16.2 million to $18.2 million for Q4 of 2014, and adjusted EBITDA for the quarter to be in the range of a loss of $3.2 million to a loss of $1.7 million.
In conclusion, we saw growth in OME during our seasonally lightest quarter and renewed growth in OMX. We remained optimistic about the iPass opportunity as we focused fully on Open Mobile growth, while prudently managing our expenses and cash.
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 Fred Ziegel with Topeka Capital Markets.
Fred Ziegel - Topeka Capital Markets
Hi, guys.
Karen Willem
Hi. How are you, Fred?
Fred Ziegel - Topeka Capital Markets
Hi, Karen. So, talk to me about the guidance for the fourth quarter in Evan’s comments OM is almost always up sequentially. How do we end up with guidance at the low end of the range being down sequentially? What would cause that to happen?
Karen Willem
It’s flat sequentially with the range from last quarter, Fred. But primarily if you recall from the last call, I indicated that the legacy revenue will continue to decline and in fact in Q4 we will end the quarter with less than $2 million in legacy. So it’s the pressure on the legacy to bring the total number down, which is what I gave guidance for. OM we expect to grow nicely again this next quarter.
Fred Ziegel - Topeka Capital Markets
So, the low end of the guidance range would be sequentially down $1 million in revenues, that would be all legacy related?
Karen Willem
Yes, absolutely, OM will continue to grow at a very nice cliff than we’ve already seen that thus far in the quarter. So we expect that to continue. On the legacy as you know we’ve made our concerted effort to move people off of that on to OM or in the case of 3G cards or dial-up to get them off the service and those are typical low performing contracts for us.
Fred Ziegel - Topeka Capital Markets
Okay. And the question Evan, in the press release, you talked about the roamable 100 million hotspots that some point I assume sooner rather than later, if you had to guess how many of those you think are free?
Evan Kaplan
That’s a good question, Fred. Free to whom is the operational question. Many of them and even the hotspots we monetize today are free to somebody. So for instance, a traveler from Britain comes to here to the U.S. and wants to Comcast Network. If you are Comcast subscriber that in fact is a service that’s free to you, but if you are BT subscriber from UK, that’s not for you. And what’s happening with these networks is they all free to somebody even the high-end hotels perhaps with exception of airport, but they are only free to unique constituency. And when we come in is giving you equivalent of a credit card that allows you to roam all over the world no matter what your affiliation is. And so, the answer is probably all of them with the exception of aircraft at some level free to somebody. Does that make sense?
Fred Ziegel - Topeka Capital Markets
It does, but I guess – but as far as your concern you monetize regardless of whether I as a user I’m paying or not paying it. Is that the way to think about it?
Evan Kaplan
We monetize if you don’t have an affiliation that’s got new for you, that’s all. So, we monetize on the airplane at the airport. We monetized pretty aggressively to improve service. So, at a hotel you might get free for 250K line, but if you want the 10 megabits to watch your movie or to your unified communication or things like that will upgrade you and then monetize that.
So it’s a broader discussion, but the working stock of public Wi-Fi, by stock I mean, the available infrastructure out there, is going to be paid for somehow someway. And there’s always going to be people have to pay proportion of it and always people going to be -- it’s going to be free too. And we’ll work for those people who want to travel around to get access to that independent or whether they have a relationship with that particular carrier.
Fred Ziegel - Topeka Capital Markets
And the 100 million number you talked about, are those predominantly going to be community, Wi-Fi or what’s the landscape of that?
Evan Kaplan
Yes. So, if you go to our growth map and I don’t have it in front of you, I think we’re projecting globally or what we think Wireless is projecting globally is and now according to memory something like 350 million total available of which probably two-thirds is these community hotspots which are super relevant in urban areas. So if you’d go to Paris or London, or Britain, even Philadelphia, the availability of these community hotspots for people who want to get on Wi-Fi is pretty compelling.
And today we monetize fair amount of that. We don’t give exact guidance on how much of that is coming on the community’s footprint, but its valuable task. Not as valuable as the pure commercial footprint, airports hotels, municipalities, things like that, but pretty valuable.
Fred Ziegel - Topeka Capital Markets
So, is all that’s going on, it does – is [phone] your biggest competitor?
Evan Kaplan
Phone. No, not at all. We do something and monetize very differently.
Fred Ziegel - Topeka Capital Markets
Okay.
Evan Kaplan
We generally have a good relationship with them. They do something that is adjacent but different. They go into the carriers and they give them software to build these community hotspots and they also have basically their own social network that they sell also, so, no.
Fred Ziegel - Topeka Capital Markets
So, competition or they’re not a competitor?
Evan Kaplan
I just say adjacency. So no, I’d say not a competitor. In fact the more they build the better off we generally are.
Fred Ziegel - Topeka Capital Markets
Okay. Thanks.
Karen Willem
Thank you.
Evan Kaplan
Good. Thanks, Fred.
Operator
Next we’ll go to Stan Berenshteyn with Sidoti & Company.
Stan Berenshteyn – Sidoti & Company
Good evening. Thanks for taking my call.
Karen Willem
Thanks, Stan.
Stan Berenshteyn – Sidoti & Company
I’d like to start with the active network users, so I’m looking to see that as you mentioned on the release [indiscernible] was 86,000, but on an apples-to-apples basis, is the first time that the average active network users actually decrease sequentially despite the growth in the average active platform user base. Can you provide some color on what happened there?
Karen Willem
Yes. Its typically is because of the summer quarter where not as much usage as business travelers are not traveling in summer, in the July and August time frame. They came back in September. And so the average there is impacted by that, so it does -- it did go down. But what we saw was September was very strong which is what I commented on and we ended up with the 86,000.
Stan Berenshteyn – Sidoti & Company
Okay. Now for the Global Network, Evan noted that it grew 14% from the prior quarter in terms of the connectivity as you know how. Is that what facilitated the increase in usage of existing clients or was the increase in usage primarily driven by established hotspots that you already have on your?
Evan Kaplan
Yes. That’s another good question. It’s very –it’s often hard for us to associate exactly. So, we spend a lot of time trying to improve the user experience, the utility of the client to a new releases, a variety of different stuff that we think actually increases the usage in general.
I think footprint, the availability of increased footprint around the world does increase the usage. Comcast was not a significant supplier us two years ago. Now they are in the Top 10 of supplier. So that was a network we could monetize before. So it’s – I’d say it’s a little bit above, but I tend to give more creating things that are in our control sort the BT 2.0 stuff and the improvement of the user experience, consistent improvement of user experience.
Stan Berenshteyn – Sidoti & Company
Okay. Now is the progress of OM exchange that we saw up to 8,000 now. Is that primarily driven by the contract with HP, and if so can you provide some color on the revenue structure there. And if not, can you talk about what the growth catalysts are for OMX?
Evan Kaplan
Yes. So, it reflects some of the beginning of the recognition of revenue on that contract. So, I think the contract was signed in end of August. And so, there is some revenue recognition during this quarter, but that’s not the primary reason for the growth. Vertu also started shipping, Skype performance. AT&T and Oi perform better. So you’re seeing a consistent upwelling underneath.
In terms of that contract the way it works is for every laptop that ships, we get paid a fee. And those laptops or tablets can use iPass’s network all over the world. And so as they ship we receive some sort of payment. Karen can talk to you about this specific on the rev -- on that side.
Karen Willem
Yes, we’re going to. There’s a little bit of startup fees that we took in this last quarter, but as they ship we’ll take the revenue and they get one year service. After that, we are able to monetize it.
Stan Berenshteyn – Sidoti & Company
Okay. So let’s say, by this laptop I get your service, what happens in a year?
Karen Willem
Yes. So for that year, we get to recognize the fixed price over the course of that year. At the end of year the customer would buy it from us directly after that.
Stan Berenshteyn – Sidoti & Company
Okay. And do you have any.
Karen Willem
Or through one of partner.
Stan Berenshteyn – Sidoti & Company
So they buy through the partners or through you directly?
Evan Kaplan
No. I think it’s -- how we’ll transition that. The opportunity of HP may continue to sell it to them or we’ll end up selling it to you directly. So, yes, we’re not talking about that at this point, but you get the idea. We want to contracts to continue.
Stan Berenshteyn – Sidoti & Company
And was there any visibility on what there would be charges or if you can give us specific number would that be relatable toward the enterprise users pay for the service?
Evan Kaplan
Likely it would be different, but I can’t give you a specific number at this point. We’ll collect the bunch of data about how these people use in mass and to something that we do really well, we just figure out how best to create a price point in which we can generate all these 40% margins. So the data will help us figure that out.
Stan Berenshteyn – Sidoti & Company
Okay.
Evan Kaplan
One of the reasons we wanted to do these deals down.
Stan Berenshteyn – Sidoti & Company
Right, right. Okay. Now just looking at the revenue on Open Mobile, what percentage right now would you say in fixed and what percentage is variable, is it still in the 50-50 range?
Karen Willem
Yes. Its still – we’re still think the same kind of dynamics on those.
Stan Berenshteyn – Sidoti & Company
Okay. And what is the cost for the sales and marketing expense decline? Was this what you mentioned in terms of the lower stock-based compensation?
Karen Willem
That was a piece of it, but also we did a restructuring as we concluded the unity deals and so we have – we did some reduction enforce and trimmed expenses to get to the right size for where we are now on our revenue model. So it’s an intentional savings in that area – throughout the areas.
In fact I think on last call I mentioned, that would stay somewhere around $3 million, $3.5 million in savings because of those restructuring.
Stan Berenshteyn – Sidoti & Company
Okay. And that would be recognized over how many quarters?
Karen Willem
Yes. That’s over the course of the year, so fourth quarter starting with this quarter.
Stan Berenshteyn – Sidoti & Company
Okay. And lastly, can you maybe give some color on the contracts that you have signed AMC, Uber, GE what kind of active platform based boost, what will this clients do, do you have any estimates on that?
Evan Kaplan
No. I’m not going to give any estimates on it. But I will tell you is what the journey is with these customers which is essentially we’re getting with these new customers we’re bringing the BT2.0 subscribers Business Travel 2.0. So we’re getting the opportunity to help them, [engineer] their rollout and managed their end users.
And so, our belief is if we can get those deployments kicked off and started like we have in GE, and we’ll soon be at Uber that those things have the potential and those businesses grow, our relevant increases to grow significantly.
Stan Berenshteyn – Sidoti & Company
Right.
Evan Kaplan
Yes. So we do not – we’re not signing a lot of minimum to mid contract these days just so you’re aware, which is why our usages hopefully start also reflecting our revenue almost identically over time.
Stan Berenshteyn – Sidoti & Company
Okay. And actually just one more follow-up; is there any impact on margins when you’re saying Wi-Fi hours grew at 27%, now presumably if that usage is growing from a fixed supply client that kind of been a fixed rate, than its actually just growing your costs, right. So can you address that?
Evan Kaplan
Yes. The way to think about the fixed rate programs, so everybody on the phone is clear. So say, we have a $35 price plan. Person uses one in a month, they pay us $35. If they use 400 times in a months, they pay us $35. So they get a fixed rate for that month for the first time they use, it’s a trigger. So what we’re trying to do is trigger them 12 months a year, right. That’s the key to that model, right.
And in period they use it a lot, some of these people will lose money on it. But in general the margins have done very well on the fixed rate plan. Karen, do you want to add.
Karen Willem
Yes. And the thing to notice, we expect next quarter we’d be back to the 40% or better. And the bottom line is that Supplier 2.0 that we’ve been working on where we’ve been going and renegotiating and making some commitments about how much we’ll use, will be bringing our cost down which will allow us to see progressively better margins as the next year or so goes on. So we’re really seeing -- we’re already starting to see some improvement, but those couple of months in the summer just tough.
Stan Berenshteyn – Sidoti & Company
So, I didn’t get that. You said cost savings from Supplier 2.0 can you give more explanation?
Karen Willem
Yes. What we’ll do is we take a look by each supplier, our major suppliers and we essentially look at our usage and our volumes, both our dollars, our time and our megabit usage and then we negotiate a deal typically at a fixed amount every month for something less than what we were running. So maybe at 90%, 95% of what we’ve been running. And we commit to that over the year which supplier likes, because then they have some great revenue streams that they count on. For that we will get as much as – on average about three times the capacity which we can then sell into and we will get much better margins out of that as we grow our network.
So then, the more usage we can get on our network, it won’t cost us any more in the future to use that. So we’ve made some very good strives in that, particularly we started in Europe where our biggest footprint is and we really done quite well. So we’re about half way through all those and this will really help as the revenue grows.
Evan Kaplan
Stan, it’s not so really important to say...
Stan Berenshteyn – Sidoti & Company
Yes, yes, sorry.
Evan Kaplan
Hey, it’s really important to understand that, in general it not only provides – should provide better margins on the enterprise side, but it creates unique opportunity for us on this incremental traffic to create deals on the OMX side, right. And that’s part of the bullishness I’m feeling about OMX as oppose to three quarters ago and two quarters. You’re seeing these Supplier 2.0 deal is not and we maybe to create incremental deals for other folks so that we can expand the market. So while the enterprise folk should – we should be able to move our margins up nicely, I’m also not afraid because of the network effect and the capacity effect to go after deals that have lower margins but that give me much wider reach.
Karen Willem
And one last thing to add to that, we’ll also able to do some promotional things to maybe increase our footprint to get some new customers we might not otherwise get because it gives us a little freedom to do that. So marketing and sales are working on those promotional ideas right now.
Stan Berenshteyn – Sidoti & Company
Right. Well since nicely you have this HP relationship going to back Friday.
Karen Willem
It’s funny.
Stan Berenshteyn – Sidoti & Company
All right, well thank you so much
Operator
We’ll go next to Kevin Hanrahan with KMH Capital Advisors.
Kevin Hanrahan – KMH Capital Advisors
Hello Evan, I had some questions about Hewlett, so it sounds like it’s only under [Indiscernible] ship from Asia Pacific but you could use it anywhere in the world, but as a user can use your service anywhere in the world, would you be working with Hewlett to try to expand that to devices shipped in the rest of the world in Europe or in America etcetera.
Evan Kaplan
Yes 13…
Kevin Hanrahan – KMH Capital Advisors
So that will be…
Evan Kaplan
Nothing to announce. Nothing to announce today, but yes absolutely, that’s the intention.
Kevin Hanrahan – KMH Capital Advisors
I see, okay that’s good. So on the last call when you mentioned the Fortune 10 technology company, can you talk more about that today or not yet?
Evan Kaplan
Yes, that purposely because Kevin I knew you would ask that question, so it’s General Electric.
Kevin Hanrahan – KMH Capital Advisors
It’s General Electric.
Evan Kaplan
Yes, it’s GE.
Kevin Hanrahan – KMH Capital Advisors
Okay, that’s interesting. And then I had a question about, so you mentioned AT&T in your opening comments. You said AT&T it’s going a little better with AT&T, so that’s on the OMX side am I correct on that?
Evan Kaplan
Yes.
Kevin Hanrahan – KMH Capital Advisors
Okay, that’s good. Can you talk at all today about the AT&T passport service?
Evan Kaplan
I need some help because there is two identifiers that are passport out there. So are you talking about their Wi-Fi service or are you talking about passport to standard that with hotspot 2.0 with AT supporting.
Kevin Hanrahan – KMH Capital Advisors
And the second one, because you mentioned in your comments where you were talking of Fred, you were saying we’re giving a credit card to people and they can use it anywhere in the world, and that seems to be what the passport service is about as well.
Evan Kaplan
Oh I should -- so passport is not AT&T, so passport is literally the Wi-Fi alliance with name for hotspot 2.0 next generation hotspot. And essentially what that does is, it allows you to publish multiple SSI deal a month on other things, so that people can roam on to I’d show up at Comcast and then I publish ten – and pick the one that works for me. One of those could be iPass one of those could be AT&T depending on how it’s constructed.
Kevin Hanrahan – KMH Capital Advisors
And those things are really important in reducing a….
Evan Kaplan
Last mile friction. Yes IT model for connecting is really dated in all and the passport standard really updates that and is starting to get to pull it in a small way but we anticipate over the next two years it will really start hitting a meaningful traction. The really important part to think to understand that it has nothing to do with the commercial dynamics, right. And what we functionally do in that echo system is we build clear and transact, right. So the easier people can get connected with passport 2.0, the less friction there is in the ecosystem, the more opportunity it is for us to monetize. So it doesn’t handle anything on the commercial front. You stop that agreements to roam, you start to be connected to 260 suppliers you still have to agree on financials between the you stop the trade bills and clear transactions, but it does help the last mile connectivity quite a bit, it’s an important standard.
Kevin Hanrahan – KMH Capital Advisors
I see, okay. And then I had one question kind of a big picture standpoint, I see the media frenzy around the Ebola like one doctor in New York comes down with Ebola and the press is just all over it. Have you seen any travel changes in October or not in Europe and especially in Africa or coming from Africa?
Evan Kaplan
No we don’t have, obviously we don’t do a tremendous amount of stuff in Africa, so the footprint is not used. There are people inside of iPass who think that there is an early trend, but I would not be willing to call the ball in that in any way shape or form. The thing that we are most likely affected by is the European economy which is a very important factor in our world in any specifics care or dynamics. So we may see some stuff but it’s too hard to read the data at this point.
Kevin Hanrahan – KMH Capital Advisors
Okay. Thank you.
Evan Kaplan
Thanks.
Operator
And we’ll take a follow up question from Fred Ziegel with Topeka Capital Markets.
Fred Ziegel - Topeka Capital Markets
Here during this discussion about the strategic sale of the company, are you either doing things or not doing things that you wouldn’t otherwise have been doing?
Evan Kaplan
Fred, we are running our business….
Fred Ziegel - Topeka Capital Markets
So not changes in the way you approach the business regardless of what may or may not happen?
Evan Kaplan
No, no changes.
Fred Ziegel - Topeka Capital Markets
Okay, thanks.
Operator
And that concludes our question and answer session. I like to turn the call back over to management for any additional or closing remarks.
Evan Kaplan
Well I just want to say thanks everyone for today’s call. Our focus is we do believe we have an important strategic asset. We believe, we are doing a good job monetizing it, we are strengthening the fundamentals of the business and we appreciate you tuning into the story and we’ll continue to work hard to create shareholder value. Thanks for jumping in. Have a good day.
Operator
And that does conclude today’s call. Thank you all for your participation.
- Read more current IPAS analysis and news
- View all earnings call transcripts