Boingo Wireless's (WIFI) CEO David Hagan on Q1 2018 Results - Earnings Call Transcript

Boingo Wireless (NASDAQ:WIFI) Q1 2018 Earnings Conference Call May 3, 2018 4:30 PM ET

Executives

Kimberly Orlando - IR

David Hagan - Chairman & CEO

Peter Hovenier - CFO and Secretary

Analysts

Scott Goldman - Jefferies & Co

Scott Searle - Roth Capital

Timothy Horan - Oppenheimer

Jon Hickman - Ladenburg Thalmann

James Breen - William Blair & Company

Operator

Ladies and gentlemen greetings, and welcome to the Boingo Wireless First Quarter 2018 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

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

Kimberly Orlando

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

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

In addition, management may make additional forward-looking statements in response to your questions. Forward-looking statements are based on management's current knowledge and expectations as of today, May 3, 2018, and are subject to certain risks and uncertainties that may cause the actual results to differ materially from the forward-looking statements. A detailed discussion of such risks and uncertainties are contained in our most recent Form 10-K for the year ended December 31, 2017 filed with the SEC on March 12, 2018; and our other filings with the SEC. The company undertakes no obligation to update any forward-looking statements.

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

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

David Hagan

Thanks, Kim, good afternoon everyone and thanks for joining us to discuss Boingo's first quarter 2018 financial results. After record setting 2017, I'm pleased to share that our strong results and momentum continue. We've extended our streak of double-digit revenue growth for 14 consecutive quarters with our first quarter revenue up 31% year-over-year to $58.2 million which is well above the high-end of our guidance range.

This top-line growth reflects consistent execution against our strategic plan to leverage the explosive growth in mobile data attaining long-term wireless rights of large venues, deploying DAS, Wi-Fi and small cell networks at those venues and then monetizing the networks by overlaying blanket unique mix of products and services.

In addition to the high-end of our revenue guidance, I'm equally pleased to share that adjusted EBITDA for the quarter also exceeded our guidance growing 77% year-over-year to $21.9 million. It is our 11th consecutive quarter of year-over-year EBITDA margin expansion which reflects the ongoing momentum that we see continuing in our DAS military and carrier offering products. These products represent the three drivers of our growth.

So, let me take a minute to update you on each of them starting with DAS. DAS continues to be very robust. We currently have 41 DAS venues live with an average of 3.4 carriers per venue for those that have been live for three plus years. We're very proud of this and believe it's the best in the industry.

For the past two years business development for DAS venues has been extremely active. We now have a backlog of 84 DAS venues that have been signed but not deployed for a total of 125 DAS venues live or in process. To put this into perspective, we have more business ahead of us than what we've deployed in our entire company history and that's a great place to be.

I'm also pleased to share that carrier sales took a major leap forward. The headline for the quarter is that we've reached agreement with multiple carriers that will provide us with at least one anchor tenant at 53 of the 84 venues in backlog. That brings us to 63% of our venues in backlog with an anchor tenant. We believe we will see this momentum continue in the coming quarters. As we shared in last quarterly call, we plan to put our balance sheet to work by self-funding some of these DAS deployments. Putting up our own capital changes the economics of these deals by increasing amount of recurring access fee revenue and cash flow from each venue.

We'll be selective in our approach and will do what's best for both Boingo and our carrier customers at each venue. We ended the quarter with 24,200 nodes live and another 11,400 in backlog. We believe this portfolio makes us the largest provider of indoor DAS networks in the world.

Now let me turn your attention to the second driver of our growth, the military vertical. For starters, we had another 6,000 beds in Q1 bringing the total number of beds in service to 336,000 and we expect to add another 10,000 or so beds throughout the remainder of the year. We added 12,000 incremental subscribers in the first quarter bringing the total number of subscribers to 142,000. We improved subscriber penetration from 39.4% at year-end 2017 to 42.3% in Q1.

For those of you that may be new to following Boingo, when we initially presented the long-term model for military over four years ago we estimated a penetration rate in the range of 15% to 30%, so we've exceeded the high-end of the range by a significant margin. This speaks to the quality of our service and how easy it is for marine, soldier or airman to easily move from one building to another on the same base or to an entirely new base and keep their Boingo Wi-Fi service.

This kind of ubiquitous network, but the ability for a service member to seamlessly travel with Boingo to almost everywhere they are stationed across 60 bases is unique and not something any of the traditional cable companies or Telco's offer. We compete head to head with these larger operators on many bases so we believe this account portability represents a very strong competitive advantage at Boingo.

We believe we're extremely well penetrated occupancy levels on the basis while we expect to be able to grow our subscriber base incrementally we're now focused on driving additional ARPU out of the existing subscriber base through the addition of new products and services and buy more effectively selling the highest tier of service.

As a result, military ARPU for the first quarter grew significantly year-over-year. In addition to our focus on improving ARPU, we also expect to be able to overly additional products and services like small cells, macros cells and carrier offload on the military bases. As we've shared on past calls, we continue to see incredible interest by the carriers for ways they can improve their service on military bases.

In fact, the more recently announced they would invest more than $0.5 billion to expand capacity and coverage of our military bases in 2018. We believe we are uniquely positioned to assist carriers with coverage and capacity on the military bases. We have an existing carrier grade network that can promptly be leveraged for carrier offload and we have long-term contracts in place to give us rights to the deploy small cell and or macro cell infrastructure.

And speaking of carrier offload let me turn now to the third and final driver of our growth. We had a record number of connects through carrier offload in Q1 driven by the fact it is now enabled on nearly all of our military bases with at least one carrier. We have two carriers on a growing number of airport and military bases, so we're pleased that offload continues to roll-out across our network locations. We believe that with continued mobile data growth all carriers only to utilize Wi-Fi which is less expensive on a cost basis compared to license spectrum.

As we've said many times in the past, we believe it's not a question of if but when. We're very pleased with these financial results which exceeded the top-end of our guidance in revenue net loss and adjusted EBITDA and reflect the strength of our business model and our success in executing against Boingo strategic plan.

Before I hand it off to Peter, let me take a few moments to provide our perspective on the proposed T-Mobil and Sprint merger, if I know there may be questions about potential impacts. First things first, the deal will likely take at least 12 months to get approved there is no change for us in the short term. Longer term assuming the deal gets done, we believe based on what T-Mobil has communicated there will be greater investment in network infrastructure as a combined company then they would have been operating separately, so that's a very good thing for us.

This makes sense in our opinion because the stronger larger growing number three carrier with higher cash flows into out separately should lead to greater network investment. The combined companies expressed interest in aggressively leading the appointment of 5G. This has happened, the other industry players will have to follow suit they can't have a number three carrier take away their network quality market positioning. Boingo because of the types of indoor venues that we specialize in and have under contract our strategic for 5G deployment due to the characteristics of 5G typically higher frequencies don't travel as far don't country buildings as well as lower frequencies.

So, if this bill gets approved we believe will be a strong stimulus to the market and for our business. But deal or no deal we believe wireless infrastructure will continue to be a great investment category and Boingo is incredibly well positioned to benefit. I'll be happy to answer additional questions on this when we get to the Q&A.

Now I'd like to turn it over to Pete Hovenier our Chief Financial Officer to walk you through our first quarter financials all in detail. Pete?

Peter Hovenier

Thanks Dave. I will be - financial results and key operating metrics, the first quarter ended March 31, 2018 and we concluded our financial outlook for the second year for year 2018.

Total revenue for the first quarter was $58.2 million an increase of 31.2% over the prior year period. Revenue growth reflected strong performance in wholesale Wi-Fi, DAS military and was partially offset by year-over-year declines in retail and advertising and other revenue.

As a percentage of revenue across a diversified revenue streams as compared to the prior quarter. Dad's represented 41 percent of revenue up from 37%. Military was 27% down from 28%. Wholesale Wi-Fi was 19% up from 15%, retail was 9% down from 15% and advertising and other accounted for 4% of revenue down from 5%.

In terms of total revenue contribution by category for the quarter DAS revenue was $23.6 million representing a 45.5% increase over the comparable period last year. Total DAS revenue was comprised of $18.6 million of build-up project revenue and $5 million of access fee revenue. The year-over-year improvement total DAS revenue was primarily related to the net benefit received from the adoption of ASC 606 the new revenue recognition standard which added 4.3 million of DAS product project revenue in the quarter.

The vast majority of the increase in the adoption of this new accounting standard was a one-time benefit realized during the first quarter ended March 31, 2018. Unrelated to ASC 606, we also generated $3.1 million increased revenues from your DAS build up projects and increased access fees from our telecom operator partners. Military revenue was $15.9 million representing an increase of 26.4% versus the prior period.

Growth was driven primarily by increases in military subscribers an average monthly revenue per subscriber which were partially offset by decline in single use revenue. During the quarter, we've built out the network to cover an additional 6000 military beds bringing our total footprint to 336,000 beds at the end of March 31. We believe that military particle will continue to be a strong driver recurring cash flow with incremental opportunities come primarily from the implementation of carrier offload and additional services on these bases.

Wholesale Wi-Fi was $11.1 million representing a 63.2% increase over the prior year primarily due to higher party uses basically an increase managed service fees our venue partners who pay us to install manage and operate network infrastructure at their venues. Retail revenue was $5.3 million representing a 17.2% decline over the prior year period primarily due to reduced which also scrubbers and decreased retail single use revenue.

Advertising and other revenue was $2.2 million representing a 3.9 percent increase over the prior year period primarily due to a decline in the number of premium adding during the quarter as compared to the prior year. Now turning toward quarterly cost in operating expenses. Network access costs totaled $26.6 million or 36.9% increase over the first quarter of 2017 primarily related to increased appreciation from DAS buildup projects in the higher revenue share paid to our venue partners.

Gross margin which is defined as revenue less network access cost was 54.3% down approximately 190 basis points from the prior year. Declining gross margin largely reflect the shift in diversified revenue streams couldn't primarily by the significant increase in our lower margin DAS revenue partially offset by increase in the higher margin wholesale Wi-Fi and military revenue.

Network operations expenses totaled $12.8 million an increase of 14.1% in the kernel 2017 quarter primarily due to higher personal related expenses and hardware and software maintenance expenses. Development technology expenses were $7.4 million an increase of 17.2% from the prior year period due primarily to increases in personnel related and depreciation expenses. Okay marking expenses were $5.5 million an increase of 11.6% from the comparable 2017 corner primarily due to higher personal related expenses.

General and administrative expenses with $7.7 million a 5% decrease in the comparable 2017 quarter primarily due to decreased professional and outside services because. Now turn to our profitability measures the quarter. Net loss attributable to common stockholders was $3.2 million or $0.08 per diluted share compared to a net loss of $6.9 million or $0.18 per diluted share in the prior year quarter.

Adjusted EBITDA a non-GAAP measure was $21.9 million an increase of 77.1% in the comparable 2017 quarter. As a percent of total revenue, adjusted EBITDA was 37.6% up from 27.9% of revenue in the comparable 2017 quarter. The first quarter marks our eleventh consecutive quarter of the year-over-year EBITDA margin expansion.

Now turning to our metrics. Number of DAS nodes our network for the first quarter was 24,200 up 22.2% from the prior year period and up 3% for the fourth quarter of 2017. Number of DAS nodes in backlog which represents number of DAS nodes under contract but not yet active as of the end of the first quarter were 11,400 up 8.6% for the prior year period and up 1.8% in the fourth quarter of 2017.

Our military subscriber base was 142,000 subscribers at the end of the first quarter up 10.9% versus the prior year period and up 9.2% in the fourth quarter of 2017. Our retail subscriber base was 168,000 subscribers at the end of the first quarter which was down 13.4% in the prior year period and down 10.6% in the fourth quarter of 2017.

Next, prepaid usage on our worldwide network were approximately $65.9 million up 53% from the prior period and up 3.2% in the fourth quarter of 2017. Moving on to discuss the balance sheet.

As of March 31, 2018, cash and cash equivalents totaled $18.6 million down from $26.7 million at December 31, 2017. Total debt was $13.7 million and we had approximately $69.8 million of build on our credit facility as of March 31, 2018. Capital expenditures were $21.1 million for the first quarter which included $14.7 million utilized for DAS infrastructure build up projects that reimbursed our telecom operator partners.

Our non-reimbursed capital expenditures were driven primarily by new network build managed and operate network upgrades, and various infrastructure upgrades and enhancements. As a reminder, we estimate our annual maintenance capital requirements which excludes all both capital to be approximately 3% to 5% of revenue. Free cash flow a non-GAAP measure was a negative $3.8 million for the first quarter which is a positive $8 million for the first quarter of 2017.

We remain confident in our ability to generate positive free cash flow although we may experience fluctuations from time to time related to the timing of receivables and working capital in a given quarter as was the case in the first quarter of 2018. I will now turn to our outlook for the second quarter and full year 2018. The second quarter ended June 30, 2018, we expect total revenue to be in the range of $54 million to $50 million. Net loss attributable to common stockholders to be in the range of $7 million to $4 million or a loss of $0.017 to $0.10 per diluted share and adjusted EBITDA to be in the range of $17.4 million to $20.5 million.

For the full year ended December 31, 2018, we are reiterating our guidance as follows. We expect total revenue to be in the range of $227 million to $234 million representing year-over-year growth of approximately 12.8% the midpoint of our range. Net loss attributable to common stockholders is expected to be the range of $20 million to $15 million or a loss of $0.48 to $0.36 per diluted share.

The adjusted EBITDA is expected to be in the range of $77 million to $82 million which implied and even a margin of 34.5% at the midpoint of the range. We will maintain our tax valuation allowance as such do not expect your crew material tax benefits or tax expenses on our income statement through 2018. We continue to expect a nominal full year tax rate as well as fully diluted shares outstanding approximately $42 million. In addition, we expect our non-reimbursed annual capital expenditure budget will be approximately $25 million to $35 million for 2018 with majority allocate to support why fight it doesn't work bills and upgrades as our managed and operated venues.

In summary, we delivered excellent first quarter and a solid start to the year as evidenced by our strong financial and operational performance. We look forward to continuing to execute on our strategy to invest in our networks in securing monetize new venues with products such as small cells, macro sells and --.

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

David Hagan

Thanks Steve, we're very pleased with our first quarter results. The DAS care agreements we signed will give us at least 1 anchor tenant at 53 of the 84 venues in backlog, our military business continues to perform very well, carrier offload is coming on strong which we believe will continue to be a growth driver in 2018. The industry is in the very early innings of a long term 5G infrastructure investment cycle by the carriers and we believe this will open up incredible opportunities for a long-term growth.

We believe our business has never been more robust. With that, we'll open up for questions operator?

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Mark Argento from Lake Street Capital Markets. Please go ahead.

Unidentified Analyst

Hi guys this is John [ph] on for Mark. I appreciate you taking my question. First on the DAS, I guess how are you kind of thinking about some of those underpenetrated segments outside of transportation and stadium and have you seen any particular traction in kind of any of those segments?

And then number two kind of some high-level thoughts on how you think about whether or not to sell funds a build out or not? Thank you.

David Hagan

John, hi its Dave. I'll start and then hand off to Pete on the self-funding side. So, in terms of under penetrated segment and we still see a lot of activity in kind of the core markets that we go after transportation stadiums arenas etcetera, yes, we have some winds outside of those categories but nothing that we would call it a trend at this point but the DAS business both from the venue side and new acquisition side and care side is incredibly robust as you can see from our numbers. So, we're feeling really good about that.

Pete why don't you kind of walk through how we evaluate the self-fund or not?

Peter Hovenier

Sure. So, on the self-funding it's really a handful things we look at but first is how quickly get to market so can we move to market quicker and then also can we get more venues to play meaning if a carrier has allocated a certain amount of capital to Boingo, can they do more under the self-funded model or more under the traditional. We believe they'll do more under the self-funded. So that's been important to us as well.

As we talked about we have 84 venues in backlog but as we announced on this call just now is we have 53 new anchor tenants joining these networks and so some of those will be self-funded and we'll continue to look on a case by case basis, on a carrier by carrier.

David Hagan

I think it's safe to say that self-funding on those 53 help us get a bigger number than we would have had we tapped the carrier capital budget for every one of those. Such as, it's a great example of the speed to market that Pete referenced.

Unidentified Analyst

Awesome. And then just briefly kind of some high-level thoughts on how you guys are attacking the convergence of wi-fi and cellular and maybe some spots we're going to be deploying capital moving forward? Thank you.

David Hagan

Yes. So, we've been a believer in convergence forever literally since we've been in business and we've been building these combined networks for a long period of time and so when I think combined networks here we share the core infrastructure right so the fiber and the cabling and the electronics are separate.

So, they interesting thing that now come into market with 5G is that the actual edge technology, the radio technologies now will be converged as well. So, you'll have an access point or a box if you will that will have multiple frequencies both licensed and unlicensed and even including shared licensed spectrum. So, the big change is that the electronics are getting more integrated than they've been in the past. But we've been doing conversion networks for 15 plus years.

Operator

Thank you. Our next question comes from the line of Scott Goldman from Jefferies. Please go ahead.

Scott Goldman

Hi good afternoon guys. I guess one housekeeping and then maybe one follow-up to that last question. Just on housekeeping side, Pete maybe you could just walk us through what the full year impact might be from the ASC 606 accounting sort of curious why we're not seeing the incremental revenue flow through into the full year outlook? So maybe the pressures and diminishing impact as we go throughout the year.

Secondly, just a follow-up to self-funding. Pete maybe you can give a little bit more detail on what the economics of a self-funded build out might look like I think a lot of investors are curious to know ultimately what happens to the EBITDA trajectory as you transition from the CapEx model to maybe doing a quarter or so of the business on the self-funded but anything you can help on the economics of it that looks like in more detail can be helpful. Thanks.

Peter Hovenier

Yes, good. Thanks Scott. So first off on ASC 606, this as we did say $4.3 million is a one-time benefit which we receive in this quarter the vast majority of that is a one-time. There will be a little bit of additional ASC 606 that will come out throughout the year but the vast majority is a one-time benefit. When we are doing our guidance on our call in February, we did anticipate some benefit for ASC 606 this was a little bit larger than we anticipated.

So, one of the reason is you're not seeing some of flow through as we already had it back into our full year guidance. We are a little bit uncertain on the timing which is why you saw little less in Q1, you'll see a little more later on there. In terms of the self-funding model, we look at a lot of different things and first and foremost as I descend on it with the last question with John. It's really about getting more been used deployed and getting to market faster.

That said we do have our capital thresholds and the way you should think about self-funding is the anchor tenant the anchor deal needs to be a good deal on its own. And so, look at the good returns and I'll be above capital, but it with most things in the DAS business you don't really do these bills solely to get one carrier, so it's a good return with one carrier. It's our capital threshold but the outside returns and really words become powerful in the overall model is getting second and third carriers joining the network.

Looking our history and as Dave said in his prepared comments our average is 3.4 carriers per venue, we have a very strong track record of getting multiple carriers on so that's where we expect to see outside returns. Yes, the final question there about how will the EBITDA flow and how --. So today when we do a build the vast majority of the monies are up front, so it still will flow through our P&L as we amortize the revenue and the profit impact to our P&L.

But there is a disconnect between cash and - to our P&L. When we go through this self-funded model, we put the cash up front you'll see less cash upon deployment but you'll see much more recurring cash flow and so in essence your cash flow and your P&L are more in line.

So, really think about it as free cash flow and adjusted EBITDA become more in sync.

Scott Goldman

Great. Thanks.

David Hagan

Thanks Scott.

Operator

Thank you. Our next question comes from the line of Scott Searle from Roth Capital. Please go ahead.

Scott Searle

Hi good afternoon. Thanks for taking my question. Pete, Dave just in terms of the sequential guidance into June. Could you give us an idea directionally for a couple of the key categories? Certainly, there's an impact on the DAS side from the ASC 606, but if you normalize for that I would imagine DAS is us, but you also has big numbers in the first quarter from military and Wi-Fi offload do they continue to stay at those types of levels and what do you think about sequentially and also in terms of the annual guidance it implies a little bit of a flattening out.

Is there anything to read into, you do not have good visibility into the back half of the year any color you could provide there would be helpful, and then I have follow-up.

David Hagan

Pete that's yours.

Peter Hovenier

You bet. So, talking about our sequential growth we still expect strong growth in DAS, so I think as you look at our sequential growth you'll see continued growth here once you back out the benefit from ASC 606 what we saw in Q1. So, we think year-over-year growth in Q2 2018 versus 2017 called upper keys in terms of DAS military we continue to see strong growth both in adding subs, you had a lot of subs this quarter and we also saw improvement in ARPU.

We expect the trend of ARPU to continue, we don't anticipate as many subs in Q2 as we had in Q1. Q1 was a very strong growth quarter. Some of it was a carryover from Q4. And wholesale Wi-Fi was a star. So, a very strong growth in wholesale Wi-Fi driven by carrier offloading, so the vast majority of the growth in the quarter from also Wi-Fi came from carrier offload. We continue to see that trend happening. We're seeing strong growth in both from both key customers in the airport so they're launched as well as in the military bases where they are live.

So those three will continue and then we do continue expect some decline in retail and advertising and other.

Scott Searle

And Pete, just a clarification on the offload. A lot of that is usage driven at this point that's above minimum's per location is that correct?

Peter Hovenier

That is correct.

Scott Searle

Okay. And just real quickly, in terms of some of the pipeline building dialog and discussion with the carriers out there, you're coming in little bit on 5G, but if you can provide a little bit of color there in terms of where that is factoring info the discussions, but also see their --in small cells, when does that start to actually flow into some of these are backlog and otherwise are we getting close to some of these things starting to happen later this year and into 2019 or is it going to take a little bit more time?

David Hagan

Yes, we are not giving a lot of specifics on those topics. But we can give a little additional color. We mentioned in the past and we reiterate that on the small scale side a ton of activity is going on and we expect to see some real numbers coming out of it at year-end so it hopefully becomes material by year-end and hopefully we'll be able to talk more with more clarity on it at that point.

But there is an awful lot of activity there. In terms of 5G, we talked about on prior calls the current work is going on in 5G is non-standalone 5G. So it's really 4G dependent. So kind of 4.5G is you will. The true standalone 5G standard has been developed and written as we speak. It should be done this summer and then it will go into chips and then the OEM et cetera.

So, it will be coming to market in the second half of this year. I think most of our build activity for 5G will be in 2019 and beyond not yet this year. But there are certainly lot of planning going on with the carriers and on 5G. In terms of CBRS, we got quite a bit of activity going on there as well both with the carrier side and on the equipment side. I think we're already mentioned we've got it running in our lab and I think we'll have a future yet this year discussion on actual deployments in market.

Still not really any devices that are not by any large-scale count. They are receiving us ready, but we do see that starting to develop over the second half of this year. So, a lot of activity on all of the things, but anything in the wireless infrastructure business, none of it happens quite a fast we would like. So, we ask for your patience as we get more fully developed deals done and networks deployed then we can talk about it with more clarity.

Operator

Thank you. Our next question comes from the line of Paul Penney from Northland Securities. Please go ahead.

Unidentified Analyst

Good afternoon. This is Greg on for Paul. Thanks for taking the questions. First, are there any trends you can discuss regarding carrier number two and in particular any details on usage and penetration of this carrier?

David Hagan

Yes. On offload, we've gone to the more generic if you will carrier number 1, carrier number 2 without specificity because the carriers frankly don't appreciate us talking about their customers usage, so we're not detailing out each carrier. Suffice to say, based on the numbers that we presented based on what Pete just commented on wholesale where wifi offload is driving that growth, the majority of that growth we're obviously seeing really good ramp up on both carriers so we're very pleased with the network rollout and where we are with that.

Peter Hovenier

Yes, the only thing really to add is both carriers contribute significant incremental revenue in Q1 as compared to Q4. So we're seeing nice traction from both carriers Carrier two is probably a little more but both are strong as they add venues and then use and then just overall usage continues to grow. As we've been saying and predicting.

Unidentified Analyst

Yes, got it. Could you also provide some color on how you're getting organized for the small cell opportunity and any color on the timing as to when that will be a meaningful contributor?

David Hagan

Yes. So, we've got some dedicated workforce to the small cells opportunity, high engagement with multiple carriers on both small cell design and deployment strategies. We have been deploying some small cells we're not given out specific numbers on this call but we're seeing really nice traction there and as we've been, I said earlier and we've said it on our prior call and we're hoping by year end it'll start becoming interesting and material in terms of the numbers that are deployed and so you know we'll have more on that in the second half of the year but incredible high levels of activity with all of the carriers on small cell. It's obviously a key area of interest in them, investment for them and fits right into the whole 5G strategy.

Unidentified Analyst

Great. Great. And then just to follow-up on the self-financed. Do you still expect it to be roughly 20% to 25% of the total deployments for this year to be self-fund?

And I guess for any of this past quarter were those self-financed?

Peter Hovenier

Yes. So, at this point we're still anticipating between 20% and 25% of the DAS deployments that we'll be doing in 2018 will be under our model, where we find the CapEx up front so yes, the self-funded model. That could potentially be revised upward later in the year as we work through the carriers on some of the deals that were in process right now and whether they fund or we fund frankly we would be happy to fund more as long as they meet our turn thresholds we're happy to do more.

I'm sorry the second question was? It was having to do something?

Unidentified Analyst

Have we done any?

Peter Hovenier

Yes, so some of the deployment we're doing right now are under the self-funded model.

Unidentified Analyst

Okay. Thank you, guys.

David Hagan

Thanks.

Operator

Thank you. Our next question comes from the line of Tim Horan from Oppenheimer. Please go ahead.

Timothy Horan

Thanks guys. Are you not talking about any specific carrier but have they given you a sense of how much more revenue that the first two carriers can kind of generate like are you at 20% potential with the first two, 70% - 80% just sort of really really high-level?

And then on the military side, maybe just soldiers aren't using your service what are they doing for internet access so at this point what's your alternatives and I guess why can't the penetration be much higher in the military? Thanks.

David Hagan

Yes. On the first carrier outlook kind of where we are. Are we on each one and their kind of usage ramp, there is still a usage growth to go there. So, we're not going to give you a specific percentage because frankly I don't know that I could come up with one that will all that accurate anyway. But we still have multiple networks for them to roll-out on to and they certainly have more customers to roll-out on to and customers usages continue to skyrocket.

So, there's plenty of growth still with the two that we have coming on board.

Timothy Horan

Just on that point, can most of their customers handle with the existing handsets that they have at this point or majority of their customers or it's still minority just to get a rough sense?

David Hagan

Its majority. Its majority, yes. But still room. And then on the soldiers, so we typically compete against either an MSO or a telco and it's quite fragmented who are competitors all across the country, it can be some of the big names like Comcast or Cox, but there are lot of small or regional telcos in MSO's [ph] that we compete against and that's really one of the strengths of our offering and why the military likes us so much is that we've given them one nationwide service so they can deploy troops, move troops around and they just keep their Boingo service and reduces the chaos in a big way on the back-end as they move the soldiers around.

So none of our competitors have an offering like that and it's impossible to replicate because they all have franchised territory that they're operating within and we don't have that constraint so it's been a big benefit for us and you look at our penetration rate, we're now over 40% and if you factor in about 20% of the beds are empty at any point in time we're probably over 50% occupied bed so we're continuing to do battle and we hope to increase that and believe we will we're feeling great about where we are with that business.

Timothy Horan

Thank you.

Operator

Thank you. Our next question comes the line of Jon Hickman from Ladenburg Thalmann. Please go ahead.

Jon Hickman

Dave or Pete is there a carrier number 3 on the horizon for --?

David Hagan

Always everyone save our question, you didn't let us off the hook this time. So, we're happy with that. As we talk about lots of conversations going on but we're not going to give a forecast on exactly when carrier number 3 is coming. But as I said in my prepared remarks, we believe it's not a question of when so more to come on that.

Jon Hickman

And Pete could you give us a little maybe a little education on without 606 how would the revenues been recognized?

Peter Hovenier

Yes. So, the way to think about 606 it really has to do with the duration that we amortized revenue over. So, in this case we pulled some forward like often we've been over a longer period.

David Hagan

I think Pete may have already mentioned it but, so the whole 606 it wasn't one or two contracts. We have over 200 contracts that we had to with our accounted partners, if you didn't see go through it. Literally everyone and determine what is the correct amortization based on AFC 606. And so, this $4.3 million one-time benefit that we see in Q1 was the culmination or the summation of over 200 agreements that were analyzed.

So, it was pretty extensive and it's in the work that had to be done.

Jon Hickman

Okay. So that it would have just, it would have been recognized over a longer period of time as you have?

Peter Hovenier

Yes, I mean. That's some Jon, I mean there are some that were over a longer period, there some over shorter period means that the net-net is 4.3 that happen in the quarter but you it's just a new framework that we recognize revenue over under this new accounting guidance and so historically we looked at both the Carrier agreement and now under 606 you really look primarily just at the carrier agreement.

And so, it changes the way we look at this and the way we think about it.

Jon Hickman

Okay. Thank you that's it for me.

David Hagan

Thank you.

Operator

Thank you. Our next question comes from the line of James Breen from William Blair. Please go ahead.

James Breen

Thanks. Just along those lines, the 606 is there a specific line item your DAS, military, and wholesale Wi-Fi that impacts I'll start with that one?

David Hagan

Yes, so this. It pretty much impacts the DAS, impacts specifically the DAS build line. So there is a little bit movement elsewhere, but it's very much, it's moves effectively Jim.

James Breen

Okay. And just on the cash flow, the cash flow is down a bit this quarter was there anything in these that was sort of one-time in nature that doesn't, isn't recurring over the next few quarters and that's what give you confidence in cash flow going forward?

David Hagan

Yes, so I think there is a handful of things to look at when you look at our cash flow statements. So, on free cash flow basis, we didn't really get the benefits in working capital what we got this time last year. So, if you look at this time last year, we generated $8 million of positive cash flow, this quarter we actually consumed a little under $4 million. So, we didn't get the working capital benefits we saw in Q1 2017. We spent more on CapEx so that's the primary drivers on a free cash flow basis and then just total cash flow we also had some insignificant cash expenditures due to how we handle the taxes for employee based RSU.

So that effectively, we actually bought back shares from employees, [indiscernible] which often helps dilution in our EPS think of it almost like an effective buy back but we saw it back in the quarter as well which was unique in much larger in what we seen in past quarters.

James Breen

Okay and then just on the venues having at least one carrier for 53 to 84. You know how confident are you in the remaining third of use of you are signing people up there based on what those venues look like with locations are and then how long does that take is that a one year process?

Peter Hovenier

Six months process. So, we have a high confidence, a lot of this is the work we do upfront in betting the venues that we win. So, we'll have the sales and business development team bring all types of venues to us but what we have -- we're very regimented we have a list that we look at in detail with our carrier customers and with the executive also look at and make sure it meets our threshold and will only get built. Because at the end of the day when a venue hires Boingo to be their new neutral hopes DAS provider, they expect the DAS to be built.

Now our history is in call it 18-24 months working from venue signing to get the network deployed that's what typically takes for us, but more importantly it's we have the ability to bring in carriers and we have the confidence and we have the history in the track record of bring carriers on.

So, we like that position and we like to be known as the guys who getting they work done not as people who get right and just hold on to them and it never gets networks done. That's not reputation.

David Hagan

So, the reason I made that headline for the quarter is that we're incredibly please that we got 53 anchor tenants on multiple carriers in one quarter that's a huge uptick for us in starting to fill those venues on the one hand it was really great to have that big backlog, and we could talk about what we've got more backlog than what we've built in our history, but the reality is as Pete said, we really want to get those filled and so this is a big step forward in the remaining 30 or so that we still need to get an anchor on we're active with and we've got great progress going there.

So, we'll see those hopefully fill up over the next certainly over the next four quarters or so.

James Breen

Okay. And then just one last one just on the EBITDA. $22 million or so still in the quarter, you saw good sequential growth on offload side, you saw good growth in military. As you look at your total EBITDA cash versus non-cash. Did you see a pretty good step up in terms of cash EBITDA in the quarter in total?

Peter Hovenier

We did. In fact, about 40%-ish of our EBITDA for the quarter was about a-third from a year ago. But when you pull out the impact of the ASC 606 because we also got some benefit from ASC 606, it's probably closer to mid-40s. So continue to show improvement there in terms of how much of our EBITDA is cash, and what I mean by cash, it's really not coming through the P&L amortized by deferred revenue where the cash because it's important to remember here in our DAZ business which is where a portion is non-cash flowing through the P&L. We've been paid cash in advance, so cash has been received, it's just not tied to the flow-through into the P&L in the current quarter.

James Breen

And then just lastly, when you guys guided, I'm assuming that when you gave guidance for the share you included the 606 changes in there. I think you had mentioned that you saw a little bit more than the first quarter than you thought. Just trying to get a gauge on how that sort of rolls through the year?

Peter Hovenier

So you'll see some additional 606 benefits or in subsequent quarters but the vast majority and you call it 75% or 80% of what we will see from overall, 606 came in Q1.

Operator

Ladies and gentlemen, we have no further questions in queue at this time. I'd like to turn the call back to David Hagan for closing remarks.

David Hagan

Thank you, operator, and thanks everyone for joining us today. We have a very active IR schedule ahead of us, including next week at the Jefferies Global Technology Conference in Beverly Hills and we'll the JPMorgan Global Technology Media & Communications Conference in Boston and Craig-Hallum's Institutional Investor Conference in Minneapolis, all later in May. We hope to spee many of you there. Thank you.

Operator

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