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Section 1: 10-Q (FORM 10-Q)

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Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from               to              

Commission file number: 001-35155

BOINGO WIRELESS, INC.

(Exact name of registrant as specified in its charter)

Delaware

95-4856877

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

10960 Wilshire Blvd., 23rd Floor

Los Angeles, California

90024

(Address of principal executive offices)

(Zip Code)

(310) 586-5180

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, $0.0001 par value

WIFI

The NASDAQ Stock Market LLC

(Title of each class)

(Trading symbol)

(Name of each exchange on which registered)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes  No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller Reporting Company

Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of April 27, 2020, there were 44,325,775 shares of the registrant’s common stock outstanding.

Table of Contents

TABLE OF CONTENTS

Page

PART I — FINANCIAL INFORMATION

Item 1.

Financial Statements (unaudited)

3

Condensed Consolidated Balance Sheets

3

Condensed Consolidated Statements of Operations

4

Condensed Consolidated Statements of Comprehensive Income (Loss)

5

Condensed Consolidated Statement of Stockholders’ Equity

6

Condensed Consolidated Statements of Cash Flows

7

Notes to the Condensed Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

28

Item 3.

Quantitative and Qualitative Disclosure about Market Risk

40

Item 4.

Controls and Procedures

40

PART II — OTHER INFORMATION

Item 1.

Legal Proceedings

41

Item 1A.

Risk Factors

41

Item 6.

Exhibits

43

SIGNATURES

44

2

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Boingo Wireless, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except per share amounts)

March 31, 

December 31, 

    

2020

    

2019

Assets

Current assets:

Cash and cash equivalents

$

145,916

$

40,401

Marketable securities

 

29,301

40,214

Accounts receivable, net

 

37,910

 

33,350

Prepaid expenses and other current assets

 

8,519

 

8,235

Total current assets

 

221,646

122,200

Property and equipment, net

 

384,636

 

380,243

Operating lease right-of-use assets, net

 

14,557

 

15,196

Goodwill 

 

58,579

 

58,579

Intangible assets, net

 

13,829

 

14,940

Other assets

 

9,843

 

9,309

Total assets

$

703,090

$

600,467

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

$

31,608

$

24,298

Accrued expenses and other liabilities

 

54,940

 

65,152

Deferred revenue

 

66,133

 

61,229

Current portion of operating leases

2,586

2,695

Current portion of long-term debt

972

778

Current portion of finance leases

2,344

2,721

Current portion of notes payable

1,131

1,527

Total current liabilities

159,714

 

158,400

Deferred revenue, net of current portion

 

171,557

 

166,660

Long-term portion of operating leases

16,633

17,357

Long-term debt

264,890

162,708

Long-term portion of finance leases

131

572

Long-term portion of notes payable

25

95

Deferred tax liabilities

 

1,005

 

993

Other liabilities

182

 

201

Total liabilities

 

614,137

 

506,986

Commitments and contingencies (Note 14)

Stockholders’ equity:

Preferred stock, $0.0001 par value; 5,000 shares authorized; no shares issued and outstanding

 

 

Common stock, $0.0001 par value; 100,000 shares authorized; 44,314 and 44,224 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively

 

4

 

4

Additional paid-in capital

 

236,048

 

234,638

Accumulated deficit

 

(145,606)

 

(140,973)

Accumulated other comprehensive loss

(2,445)

(1,426)

Total common stockholders’ equity

 

88,001

 

92,243

Non-controlling interests

 

952

 

1,238

Total stockholders’ equity

 

88,953

 

93,481

Total liabilities and stockholders’ equity

$

703,090

$

600,467

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

Table of Contents

Boingo Wireless, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except per share amounts)

Three Months Ended 

March 31, 

    

2020

    

2019

Revenue 

$

59,886

$

66,473

Costs and operating expenses:

Network access

 

28,759

 

31,411

Network operations

 

13,287

 

14,142

Development and technology

 

6,985

 

8,999

Selling and marketing

 

5,579

 

5,867

General and administrative

 

6,750

 

8,294

Amortization of intangible assets

 

1,111

 

1,131

Total costs and operating expenses

 

62,471

 

69,844

Loss from operations

 

(2,585)

 

(3,371)

Interest expense and amortization of debt discount

(2,349)

(2,395)

Interest income and other expense, net

 

254

 

719

Loss before income taxes

 

(4,680)

 

(5,047)

Income tax expense

 

(45)

 

(192)

Net loss

 

(4,725)

 

(5,239)

Net loss attributable to non-controlling interests

 

(92)

 

(86)

Net loss attributable to common stockholders

$

(4,633)

$

(5,153)

Net loss per share attributable to common stockholders:

Basic 

$

(0.10)

$

(0.12)

Diluted 

$

(0.10)

$

(0.12)

Weighted average shares used in computing net loss per share attributable to common stockholders: 

Basic 

 

44,272

 

43,527

Diluted 

 

44,272

 

43,527

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

Table of Contents

Boingo Wireless, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(In thousands)

Three Months Ended 

March 31, 

    

2020

    

2019

Net loss

$

(4,725)

$

(5,239)

Other comprehensive (loss) income, net of tax

Foreign currency translation adjustments

 

(891)

 

(34)

Unrealized (loss) gain on marketable securities

(60)

16

Comprehensive loss

 

(5,676)

 

(5,257)

Comprehensive loss attributable to non-controlling interest

 

(24)

 

(82)

Comprehensive loss attributable to common stockholders

$

(5,652)

$

(5,175)

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

Table of Contents

Boingo Wireless, Inc.

Condensed Consolidated Statement of Stockholders’ Equity

(Unaudited)

(In thousands)

    

    

    

    

    

Accumulated

    

    

Common

Common

Additional

Other

Non-

Total

Stock

Stock

Paid-in

Accumulated

Comprehensive

controlling

Stockholders’

Shares

Amount

Capital

Deficit

Loss

Interests

Equity

Balance at December 31, 2019

 

44,224

$

4

$

234,638

$

(140,973)

$

(1,426)

$

1,238

$

93,481

Issuance of common stock under stock incentive plans

 

90

 

 

185

 

 

185

Shares withheld for taxes

 

 

 

(461)

 

 

(461)

Stock-based compensation expense

 

 

 

1,686

 

 

1,686

Non-controlling interest distributions

(262)

(262)

Net loss

(4,633)

(92)

(4,725)

Other comprehensive (loss) income

(1,019)

68

(951)

Balance at March 31, 2020

44,314

$

4

$

236,048

$

(145,606)

$

(2,445)

$

952

$

88,953

Balance at December 31, 2018

42,669

$

4

$

259,132

$

(129,930)

$

(1,295)

$

2,211

$

130,122

Issuance of common stock under stock incentive plans

1,310

6

6

Shares withheld for taxes

(32,907)

(32,907)

Stock-based compensation expense

2,574

2,574

Net loss

(5,153)

(86)

(5,239)

Other comprehensive (loss) income

 

 

 

 

(22)

 

4

 

(18)

Balance at March 31,2019

 

43,979

$

4

$

228,805

$

(135,083)

$

(1,317)

$

2,129

$

94,538

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

Table of Contents

Boingo Wireless, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

Three Months Ended 

March 31, 

    

2020

    

2019

Cash flows from operating activities

Net loss

$

(4,725)

$

(5,239)

Adjustments to reconcile net loss including non-controlling interests to net cash provided by operating activities:

Depreciation and amortization of property and equipment

 

18,646

 

19,009

Amortization of intangible assets

 

1,111

 

1,131

Impairment loss and loss on disposal of fixed assets and intangible assets held for sale, net

(30)

91

Stock-based compensation

1,537

2,344

Amortization of deferred financing costs and debt discount, net of amounts capitalized

2,343

2,256

Non-cash operating lease cost

 

639

 

438

Gains and amortization of premiums/discounts for marketable securities

(81)

(207)

Change in deferred income taxes

(12)

Changes in operating assets and liabilities:

Accounts receivable

 

(4,912)

 

4,307

Prepaid expenses and other assets

 

(1,071)

 

(13)

Accounts payable

 

(166)

 

1,397

Accrued expenses and other liabilities

 

(3,253)

 

(1,481)

Deferred revenue

 

9,801

 

439

Operating lease liabilities

(794)

(729)

Net cash provided by operating activities

 

19,033

 

23,743

Cash flows from investing activities

Purchases of marketable securities

(15,032)

(36,665)

Proceeds from maturities of marketable securities

25,965

Purchases of property and equipment

(22,592)

(32,390)

Net cash used in investing activities

 

(11,659)

 

(69,055)

Cash flows from financing activities

Debt issuance costs

(1,687)

Proceeds from credit facility

100,000

3,500

Principal payments on credit facility

(194)

Payments of acquisition related consideration

(1,952)

Proceeds from exercise of stock options

185

6

Payments of finance leases and notes payable

 

(1,285)

 

(1,853)

Payments of withholding tax on net issuance of restricted stock units

(461)

(32,907)

Payments to non-controlling interest

(262)

Net cash provided by (used in) financing activities

 

98,177

 

(35,087)

Effect of exchange rates on cash

(36)

3

Net increase (decrease) in cash and cash equivalents

 

105,515

 

(80,396)

Cash and cash equivalents at beginning of period

 

40,401

 

149,412

Cash and cash equivalents at end of period

$

145,916

$

69,016

Supplemental disclosure of non-cash investing and financing activities

Property and equipment costs included in accounts payable, accrued expenses and other liabilities

$

39,754

$

39,309

Capitalized stock-based compensation included in property and equipment costs

$

149

$

230

Purchase price for business acquisition included in accrued expenses and other liabilities

$

$

2,961

Debt issuance costs included in accrued expenses and other liabilities

$

$

125

Financed sale of intangible assets held for sale

$

277

$

311

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Boingo Wireless, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

(In thousands, except shares and per share amounts)

1. The business

Boingo Wireless, Inc. and its subsidiaries (collectively “we, “us”, “our” or “the Company”) is a leading global provider of wireless connectivity solutions for smartphones, tablets, laptops, wearables and other wireless-enabled consumer devices. Boingo Wireless, Inc. was incorporated on April 16, 2001 in the State of Delaware. We have a diverse monetization model that enables us to generate revenues from wholesale partnerships, retail sales, and advertising across these wireless networks. Wholesale offerings include distributed antenna systems (“DAS”) or small cells, which are cellular extension networks, multifamily, carrier offload, Wi-Fi roaming, value-added services, private label Wi-Fi, and location-based services. Retail products include Wi-Fi services for military personnel living in the barracks of U.S. Army, Air Force and Marine bases around the world, and Wi-Fi subscriptions and day passes that provide access to over 1.3 million commercial hotspots worldwide. Advertising revenue is driven by Wi-Fi sponsorships at airports, hotels, cafes and restaurants, and public spaces. Our customers include some of the world’s largest carriers, telecommunications service providers, global consumer brands, and property owners, as well as troops stationed at military bases and Internet savvy consumers on the go.

Impact of COVID-19 on our business

The pandemic caused by an outbreak of a new strain of coronavirus (“COVID-19”) has resulted, and is likely to continue to result, in significant national and global economic disruption and may adversely affect our business. Uncertainty exists concerning the magnitude of the impact and duration of the COVID-19 pandemic. As of the date of this filing, we have seen some negative impacts primarily related to travel bans and restrictions, quarantines, shelter-in-place or stay-at-home orders, and business shutdowns. Specifically, the decrease in passenger traffic at our managed and operated venue locations has directly contributed to a decline in new retail single-use access transactions and recurring monthly subscription sign-ups, a decline in revenues generated from wholesale Wi-Fi partners who pay usage-based fees, a decline in available advertising inventory, and a decline in revenue received from tenants at our managed and operated venue locations resulting from the cancellation of Wi-Fi and other services. Although we continue to close and launch new customer deals, we have also experienced an overall reduction in new deal flow with our DAS and wholesale Wi-Fi customers.

Certain states, including California, have issued executive orders requiring all workers to remain at home, unless their work is critical, essential, or life-sustaining. We have transitioned our corporate employees to a work from home model and our employees are performing their functions in the new environment. While we are unable to determine or predict the nature, duration or scope of the overall impact that the COVID-19 pandemic will have on our business, results of operations, liquidity or capital resources, we will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees, customers and stockholders.

2. Summary of significant accounting policies

Basis of presentation

The accompanying interim condensed consolidated financial statements and related notes for the three months ended March 31, 2020 and 2019 are unaudited. The unaudited interim condensed consolidated financial information has been prepared in accordance with the rules and regulations of the SEC for interim financial information. Accordingly, they do not include all information and footnotes required by generally accepted accounting principles (“GAAP”) in the United States of America (“U.S.”) for complete financial statements. These financial statements should be read in conjunction with the audited consolidated financial statements and the accompanying notes for the year ended December 31, 2019 contained in our annual report on Form 10-K filed with the SEC on March 2, 2020. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and in the opinion of management, reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of our results of operations for the three months ended March 31, 2020 and 2019, our cash flows for the three months ended March 31, 2020 and 2019, and our financial position as of March 31, 2020. The year-end balance sheet data was derived from audited consolidated financial statements but does not include all disclosures required by GAAP. Interim results are not necessarily indicative of the results to be expected for an entire year or any other future year or interim period.

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In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Incomes Taxes, which simplifies the accounting for income taxes. The standard removes certain ASC 740 exceptions to reduce the cost and complexity of its application including: i) the exception to the “with-and-without” approach for intraperiod tax allocation when there was a loss from continuing operations and income or a gain from other items such as discontinued operations of other comprehensive income; ii) two exceptions with respect to accounting for outside basis differences of equity method investments and foreign subsidiaries; and iii) the exception to limit the income tax benefit recognized in the interim period in cases where the year-to-date loss exceeded the anticipated loss for the year. The standard also clarified and amended existing guidance including, but not limited to: i) when a step-up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction; ii) accounting for tax effects, both deferred and current, in the interim period that includes the enactment date. The standard is effective for annual periods beginning after December 15, 2020, and interim periods within those reporting periods. Early adoption is permitted with any adjustments reflected as of the beginning of the fiscal year of adoption. We adopted ASU 2019-12 on January 1, 2020 and the adoption of this standard did not have a material impact on our condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which requires customers to apply the same criteria for capitalizing implementation costs incurred in a cloud computing arrangement that is hosted by the vendor as they would for an arrangement that has a software license. The standard is effective for interim and annual periods beginning after December 15, 2019 and early adoption is permitted. The standard can be adopted prospectively or retrospectively. We adopted ASU 2018-15 on January 1, 2020 on a prospective basis for any new implementation costs incurred in a cloud computing arrangement that is hosted by the vendor. The adoption of this standard did not have a material impact on our condensed consolidated financial statements for the three months ended March 31, 2020.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortize cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar investments) and net investments in leases recognized by the lessor in accordance with ASC 842 on leases. In addition, the standard made changes to the accounting for available-for-sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available-for-sale debt securities. Available-for-sale accounting recognizes that values may be realized either through collection of contractual cash flows or through sale of the security. Therefore, the amendments limit the amount of the allowance for credit losses to the amount by which fair value is below amortized cost because the classification as available-for-sale is premised on an investment strategy that recognizes that the investment could be sold at fair value, if cash collection would result in the realization of an amount less than fair value. The standard is effective for interim and annual periods beginning after December 15, 2019 and early adoption is permitted. The standard will be adopted under the modified-retrospective approach with the prospective transition approach required for debt securities for which an other-than-temporary impairment had been recognized before the effective date. We adopted ASU 2016-13 on January 1, 2020 and the adoption of this standard did not have a material impact on our condensed consolidated financial statements.

Principles of consolidation

The unaudited condensed consolidated financial statements include our accounts and the accounts of our majority owned subsidiaries. We consolidate our 70% ownership of Chicago Concourse Development Group, LLC and our 75% ownership of Boingo Holding Participacoes Ltda. in accordance with ASC 810, Consolidation. Other parties’ interests in consolidated entities are reported as non-controlling interests. All intercompany balances and transactions have been eliminated in consolidation.

Marketable securities

Our marketable securities consist of available-for-sale securities with original maturities exceeding three months. According to FASB ASC 320, Investments—Debt and Equity Securities, we have classified securities, which have readily determinable fair values and are highly liquid, as short-term because such securities are expected to be realized within a one-year period. At March 31, 2020 and December 31, 2019, we had $29,301 and $40,214, respectively, in marketable securities.

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Marketable securities are reported at fair value with the related unrealized gains and losses reported as other comprehensive income (loss) until realized or until a determination is made that an other-than-temporary decline in market value has occurred. No significant unrealized gains and losses have been reported during the periods presented. Factors considered by us in assessing whether an other-than-temporary impairment has occurred include the nature of the investment, whether the decline in fair value is attributable to specific adverse conditions affecting the investment, the financial condition of the investee, the severity and the duration of the impairment and whether we have the ability to hold the investment to maturity. When it is determined that an other-than-temporary impairment has occurred, the investment is written down to its market value at the end of the period in which it is determined that an other-than-temporary decline has occurred. The cost of marketable securities sold is based upon the specific identification method. Any realized gains or losses on the sale of investments are reflected as a component of interest income and other expense, net.

For the three months ended March 31, 2020, we had no significant realized or unrealized gains or losses from investments in marketable securities classified as available-for-sale. As of March 31, 2020, we had $39 of cumulative unrealized loss, net of tax, which was $0 as of March 31, 2020 due to the full valuation allowance established against our deferred tax assets, in accumulated other comprehensive loss. As of December 31, 2019, we had $21 of cumulative unrealized gains, net of tax, which was $0 as of December 31, 2019 due to the full valuation allowance established against our deferred tax assets, in accumulated other comprehensive loss.

Segment and geographic information

We operate as one reportable segment; a service provider of wireless connectivity solutions across our managed and operated network and aggregated network for mobile devices such as laptops, smartphones, tablets and other wireless-enabled consumer devices. This single segment is consistent with the internal organization structure and the manner in which operations are reviewed and managed by our Chief Executive Officer, the chief operating decision maker.

All significant long-lived tangible assets are held in the United States of America. We do not disclose sales by geographic area because to do so would be impracticable.

The following is a summary of our revenue disaggregated by product offerings:

                                                                                                                                                                              

Three Months Ended 

March 31, 

    

2020

    

2019

Revenue:

Military/multifamily

$

22,707

$

25,897

DAS

22,196

24,095

Wholesale—Wi-Fi

 

9,743

 

11,020

Retail

2,959

3,926

Advertising and other

 

2,281

 

1,535

Total revenue

$

59,886

$

66,473

Revenue recognition

We generate revenue from several sources including: (i) DAS customers that are telecom operators under long-term contracts for access to our DAS at our managed and operated locations, (ii) military and retail customers under subscription plans for month-to-month network access that automatically renew, and military and retail single-use access from sales of hourly, daily or other single-use access plans, (iii) arrangements with property owners for multifamily properties that provide for network installation and monthly Wi-Fi services and support for residents and employees, (iv) arrangements with wholesale Wi-Fi customers that provide software licensing, network access, and/or professional services fees, and (v) display advertisements and sponsorships on our walled garden sign-in pages. Software licensed by our wholesale platform services customers can only be used during the term of the service arrangements and has no utility to them upon termination of the service arrangement.

Revenues are recognized when a contract with a customer exists and control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services and the identified performance obligation has been satisfied. Contracts entered into at or near the same time with the same customer are combined and accounted for as a single contract if the contracts have a single commercial objective, the amount of consideration is

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dependent on the price or performance of the other contract, or the services promised in the contracts are a single performance obligation. Contract amendments are routine in the performance of our DAS, wholesale Wi-Fi, and advertising contracts. Contracts are often amended to account for changes in contract specifications or requirements or expand network access services. In most instances, our DAS and wholesale Wi-Fi contract amendments are for additional goods or services that are distinct, and the contract price increases by an amount that reflects the standalone selling price of the additional goods or services; therefore, such contract amendments are accounted for as separate contracts. Contract amendments for our advertising contracts are also generally for additional goods or services that are distinct; however, the contract price does not increase by an amount that reflects the standalone selling price of the additional goods or services. Advertising contract amendments are therefore generally accounted for as contract modifications under the prospective method. Contract amendments to transaction prices with no change in remaining services are accounted for as contract modifications under the cumulative catch-up method.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC 606, Revenue from Contracts with Customers. A contract’s transaction price is allocated to each distinct performance obligation and is recognized as revenue when, or as, the performance obligation is satisfied, which typically occurs when the services are rendered. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Our contracts with customers may include multiple performance obligations. For such arrangements, we allocate revenue to each performance obligation based on its relative standalone selling price. We generally determine standalone selling prices based on the prices charged to customers. Judgment may be used to determine the standalone selling prices for items that are not sold separately, including services provided at no additional charge. Most of our performance obligations are satisfied over time as services are provided. We generally recognize revenue on a gross basis as we are primarily responsible for fulfilling the promises to provide the specified goods or services, we are responsible for paying all costs related to the goods or services before they have been transferred to the customer, and we have discretion in establishing prices for the specified goods or services. Revenue is presented net of any sales and value added taxes.

Payment terms vary on a contract-by-contract basis, although terms generally require payment within 30 to 60 days for non-recurring payments, the first day of the monthly or quarterly billing cycle for recurring payments for DAS and wholesale Wi-Fi contracts, and the first day of the month prior to the month that services are provided for multifamily contracts. We apply a practical expedient for purposes of determining whether a significant financing component may exist for our contracts if, at contract inception, we expect that the period between when we transfer the promised good or service to the customer and when the customer pays for that good or service will be one year or less. In instances where the customer pays for a good or service one year or more in advance of the period when we transfer the promised good or service to the customer, we have determined our contracts generally do not include a significant financing component. The primary purpose of our invoicing terms is not to receive financing from our customers or to provide customers with financing but rather to maximize our profitability on the customer contract. Specifically, inclusion of non-refundable upfront fees in our long-term customer contracts increases the likelihood that the customer will be committed through the end of the contractual term and ensures recoverability of the capital outlay that we incur in expectation of the customer fulfilling its contractual obligations. We may also provide service credits to our customers if we fail to meet contractual monthly system uptime requirements and we account for the variable consideration related to these service credits using the most likely amount method.

For contracts that include variable consideration, we estimate the amount of consideration at contract inception under the expected value method or the most likely amount method and include the amount of variable consideration that is not considered to be constrained. Significant judgment is used in constraining estimates of variable consideration. We update our estimates at the end of each reporting period as additional information becomes available.

Timing of revenue recognition may differ from the timing of invoicing to customers. We record unbilled receivables (contract assets) when revenue is recognized prior to invoicing, deferred revenue (contract liabilities) when revenue is recognized after invoicing, and receivables when we have an unconditional right to consideration to invoice and receive payment in the future. We present our DAS, multifamily, and wholesale Wi-Fi contracts in our condensed consolidated balance sheet as either a contract asset or a contract liability with any unconditional rights to consideration presented separately as a receivable. Our other customer contracts generally do not have any significant contract asset or contract liability balances. Generally, a significant portion of the billing for our DAS contracts occurs prior to revenue recognition, resulting in our DAS contracts being presented as contract liabilities. In contrast, our wholesale Wi-Fi contracts that contain recurring fees with annual escalations are generally presented as contract assets as revenue is recognized prior to invoicing. Our multifamily contracts can be presented as either contract liabilities or contract assets primarily as a result of timing of invoicing for the network installations.

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We recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year. We have determined that certain sales incentive programs meet the requirements to be capitalized. Total capitalized costs to obtain a contract were immaterial during the three months ended March 31, 2020 and are included in prepaid expenses and other current assets and non-current other assets on our condensed consolidated balance sheets. We apply a practical expedient to expense costs as incurred for costs to obtain a contract with a customer when the amortization period would have been one year or less, the most significant of which relates to sales commissions related to obtaining our advertising customer contracts. Contract costs are evaluated for impairment in accordance with ASC 310, Receivables.

DAS

We enter into long-term contracts with telecom operators at our managed and operated locations. The initial term of our contracts with telecom operators generally range from five to twenty years and the agreements generally contain renewal options. Some of our contracts provide termination for convenience clauses that may or may not include substantive termination penalties. We apply judgment in determining the contract term, the period during which we have present and enforceable rights and obligations. Our DAS customer contracts generally contain a single performance obligationprovide non-exclusive access to our DAS or small cell networks to provide telecom operators’ customers with access to the licensed wireless spectrum, together with providing telecom operators with construction, installation, optimization/engineering, maintenance services and agreed-upon storage space for the telecom operators’ transmission equipment, each related to providing such licensed wireless spectrum to the telecom operators. The performance obligation is considered a series of distinct services as the performance obligation is satisfied over time and the same time-based input method would be used to measure our progress toward complete satisfaction of the performance obligation to transfer each distinct service in the series to the customer. Our contract fee structure generally includes a non-refundable upfront fee and we evaluated whether customer options to renew services give rise to a material right that should be accounted for as a separate performance obligation because of those non-refundable upfront fees. We apply significant judgment in determining whether the customer options to renew services give rise to a material right that should be accounted for as a separate performance obligation. We believe that a material right generally does not exist for our DAS customer contracts that contain renewal options because the telecom operators’ decision to renew is highly dependent upon our ability to maintain our exclusivity as the DAS service provider at the venue location and our limited operating history with venue and customer renewals. The telecom operators will make the decision to incur the capital improvement costs at the venue location irrespective of our remaining exclusivity period with the venue as the telecom operators expect that the assets will continue to be serviced regardless of whether we will remain such exclusive DAS service provider. Our contracts also provide our DAS customers with the option to purchase additional future services such as upgrades or enhancements. This option is not considered to provide the customer with a material right that should be accounted for as a separate performance obligation since the cost of the additional future services depends entirely on the market rate of such services at the time such services are requested and we are not automatically obligated to stand ready to deliver these additional goods or services as the customer may reject our proposal. Periodically, we install and sell DAS networks to customers where we do not have service contracts or remaining obligations beyond the installation of those networks and we recognize build-out fees for such projects as revenue when the installation work is completed, and the network has been accepted by the customer.

Our contract fee structure may include varying components of an upfront build-out fee and recurring access, maintenance, and other fees. The upfront build-out fee is generally structured as a firm-fixed price or cost-plus arrangement and becomes payable as certain contract and/or construction milestones are achieved. Our DAS and small cell networks are neutral-host networks that can accommodate multiple telecom operators. Some of our DAS customer contracts provide for credits that may be issued to existing telecom operators for additional telecom operators subsequently joining the DAS network. The credits are generally based upon a fixed dollar amount per additional telecom operator, a fixed percentage amount of the original build-out fee paid by the telecom operator per additional telecom operator, or a proportionate share based upon the split among the relevant number of telecom operators for the actual costs incurred by all telecom operators to construct the DAS network. In most cases, there is significant uncertainty on whether additional telecom operator contracts will be executed at inception of the contract with the existing telecom operator. We believe that the upfront build-out fee is fixed consideration once the build-out is complete and any subsequent credits that may be issued would be accounted for in a manner similar to a contract modification under the prospective method because (i) the execution of customer contracts with additional telecom carriers is at our sole election and (ii) we would not execute agreements with additional telecom carriers if it would not increase our revenues and gross profits at the venue level. Further, the credits issued to the existing telecom operator changes the transaction price on a go-forward basis, which corresponds with the decline in service levels for the existing telecom operator once the neutral-host DAS network can be accessed by the additional telecom operator. The recurring access, maintenance, and other fees generally escalate on an annual basis. The recurring fees are variable consideration until the contract term and annual escalation dates are fixed. We estimate the variable consideration for our recurring fees using the most likely amount method based on the expected commencement date for the services. We evaluate our estimates of variable consideration each

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period and record a cumulative catch-up adjustment in the period in which changes occur for the amount allocated to satisfied performance obligations.

We generally recognize revenue related to our single performance obligation for our DAS customer contract monthly over the contract term once the customer may access the DAS network and we commence maintenance on the DAS network.

Military and retail

Military and retail customers must review and agree to abide by our standard “Customer Agreement (With Acceptable Use Policy) and End User License Agreement” before they are able to sign up for our subscription or single-use Wi-Fi network access services. Our military and retail customer contracts generally contain a single performance obligationprovide non-exclusive access to Wi-Fi services, together with performance of standard maintenance, customer support, and the Wi-Finder app to facilitate seamless connection to the Company’s Wi-Fi network. The performance obligation is considered a series of distinct services as the performance obligation is satisfied over time and the same time-based input method would be used to measure our progress toward complete satisfaction of the performance obligation to transfer each distinct service in the series to the customer. Our contracts also provide our military and retail subscription customers with the option to renew the agreement when the subscription term is over. We do not consider this option to provide the customer with a material right that should be accounted for as a separate performance obligation because the customer would not receive a discount if it decided to renew and the option to renew is cancellable within 5 days’ notice prior to the end of the then current term by either party.

The contract transaction price is determined based on the subscription or single-use plan selected by the customer. Our military and retail service plans are for fixed price services as described on our website. From time to time, we offer promotional discounts that result in an immediate reduction in the price paid by the customer. Subscription fees from military and retail customers are paid monthly in advance. We provide refunds for our military and retail services on a case-by-case basis. Refunds and credit card chargeback amounts are not significant and are recorded as contra-revenue in the period the refunds are made, or chargebacks are received.

Subscription fee revenue is recognized ratably over the subscription period. Revenue generated from military and retail single-use access is recognized when access is provided, and the performance obligation is satisfied.

Multifamily

We enter into long-term contracts with property owners. The initial term of our contracts with property owners generally range from three to five years and the contracts may contain renewal options. Some of our contracts provide termination for convenience clauses that may or may not include substantive termination penalties. We apply judgment in determining the contract term, which is the period during which we have present and enforceable rights and obligations. Our customer contracts generally contain two performance obligations: (i) install the network required to provide Wi-Fi services; and (ii) provide Wi-Fi services and technical support to the residents and employees. Our contracts may also provide our property owners with the option to renew the agreement. We do not consider this option to provide the property owner with a material right that should be accounted for as a separate performance obligation because the property owner would not receive a discount if it decided to renew and the option to renew is generally cancellable by either party subject to the notice of non-renewal requirements specified in the contract. Our contracts may also provide our customers with the option to purchase additional future services. We do not consider this option to provide the customer with a material right that should be accounted for as a separate performance obligation since the cost of the additional future services are generally at market rates for such services and we are not automatically obligated to stand ready to deliver these additional goods or services because the customer may reject our proposal.

Our contract fee structure includes a network installation fee and recurring Wi-Fi service and support fees. The network installation fee is generally structured as a firm-fixed price arrangement and becomes payable as certain contract and/or installation milestones are achieved. We generally estimate variable consideration for unpriced change orders using the most likely amount method based on the expected price for those services. If network installations are not completed by specified dates, we may be subject to network installation penalties. We estimate the variable consideration for our network installation fees using the most likely amount method based on the amount of network installation penalties we expect to incur. Title to the network generally transfers to the property owner once installation is completed and the network has been accepted. We generally recognize revenue related to our network installation performance obligation using a cost-to-cost method over the network installation period. We may provide latent defect warranties for materials and installation labor services related to our network installation services. Our warranty obligations are

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generally not accounted for as separate performance obligations as warranties cannot be separately purchased and warranties do not provide a service in addition to the assurance that the network will function as expected.

The recurring fees commence once the network is launched with recurring fees generally based upon a fixed or variable occupancy rate. The recurring Wi-Fi service fees may be adjusted prospectively for changes in circuit and/or video content costs, and Wi-Fi support fees may escalate on an annual basis. We estimate the variable consideration for our recurring fees using the expected value method with the exception of the variable consideration related to actual occupancy rates, which we record when we have the contractual right to bill. We evaluate our estimates of variable consideration each period and record a cumulative catch-up adjustment in the period in which changes occur for the amount allocated to satisfied performance obligations. We recognize revenue related to the recurring fees on a monthly basis over the contract term as the Wi-Fi services and support is rendered, and the performance obligation is satisfied.

Wholesale Wi-Fi

We enter into long-term contracts with enterprise customers such as telecom operators, cable companies, technology companies, and enterprise software/services companies, that pay us usage-based Wi-Fi network access and software licensing fees to allow their customers' access to our footprint worldwide. We also enter into long-term contracts with financial institutions and other enterprise customers who provide access to our Wi-Fi footprint as a value-added service for their customers. The initial term of our contracts with wholesale Wi-Fi customers generally range from one to three years and the agreements generally contain renewal options. Some of our contracts provide termination for convenience clauses that may or may not include substantive termination penalties. We apply judgment in determining the contract term, the period during which we have present and enforceable rights and obligations. Our wholesale Wi-Fi customer contracts generally contain a single performance obligation-provide non-exclusive rights to access our Wi-Fi networks to provide wholesale Wi-Fi customers' end customers with access to the high-speed broadband network that may be bundled together with integration services, support services, and/or performance of standard maintenance. The performance obligation is considered a series of distinct services as the performance obligation is satisfied over time and the same time-based input method or usage-based output method would be used to measure our progress toward complete satisfaction of the performance obligation to transfer each distinct service in the series to the customer. Our contracts may also provide our enterprise customers with the option to renew the agreement. This option is not considered to provide the customer with a material right that should be accounted for as a separate performance obligation because the customer would not receive a discount if it decided to renew and the option to renew is generally cancellable by either party subject to the notice of non-renewal requirements specified in the contract. Our contracts may also provide our wholesale Wi-Fi customers with the option to purchase additional future services. We do not consider this option to provide the customer with a material right that should be accounted for as a separate performance obligation since the cost of the additional future services are generally at market rates for such services and we are not automatically obligated to stand ready to deliver these additional goods or services because the customer may reject our proposal. Periodically, we install and sell Wi-Fi networks to customers where we do not have service contracts or remaining obligations beyond the installation of those networks and we recognize build-out fees for such projects as revenue when the installation work is completed, and the network has been accepted by the customer.

Our contract fee structure may include varying components of a minimum fee and usage-based fees. Minimum fees represent fixed price consideration while usage-based fees represent variable consideration. With respect to variable consideration, our commitment to our wholesale Wi-Fi customers consists of providing continuous access to the network. It is therefore a single performance obligation to stand ready to perform and we allocate the variable fees charged for usage when we have the contractual right to bill. The variable component of revenue is recognized based on the actual usage during the period.

Wholesale Wi-Fi revenue is recognized as it is earned over the relevant contract term with variable consideration recognized when we have the contractual right to bill.

Advertising

We generally enter into short-term cancellable insertion orders with our advertising customers for advertising campaigns that are served at our managed and operated locations and other locations where we solely provide authorized access to a partner’s Wi-Fi network through sponsored and promotional programs. Our sponsorship advertising arrangements are generally priced under a cost per engagement structure, which is a set price per click or engagement, or a cost per install structure for third party application downloads. Our display advertising arrangements are priced based on cost per thousand impressions. Insertion orders may also include bonus items. Our advertising customer contracts may contain multiple performance obligations with each distinct service. These

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distinct services may include an advertisement video or banner impressions in the contract bundled with the requirement to provide network, space on the website, and integration of customer advertisement onto the website, and each is generally considered to be its own performance obligation. The performance obligations are considered a series of distinct services as the performance obligations are satisfied over time and the same action-based output method would be used to measure our progress toward complete satisfaction of the performance obligation to transfer each distinct service in the series to the customer.

The contract transaction price is comprised of variable consideration based on the stated rates applied against the number of units delivered inclusive of the bonus units subject to the maximums provided for in the insertion order. It is customary for us to provide additional units over and above the amounts contractually required; however, there are a number of factors that can also negatively impact our ability to deliver the units required by the customer such as service outages at the venue resulting from power or circuit failures and customer cancellation of the remaining undelivered units under the insertion order due to campaign performance or budgetary constraints. Typically, the advertising campaign periods are short in duration. We therefore use the contractual rates per the insertion orders and actual units delivered to determine the transaction price each period end. The transaction price is allocated to each performance obligation based on the standalone selling price of each performance obligation.

Advertising revenue is recognized ratably over the service period based on actual units delivered subject to the maximums provided for in the insertion order.

Leases

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use assets, current portion of operating and finance leases, and long-term portion of operating and finance leases in our condensed consolidated balance sheets. Finance leases are included in property and equipment, net, current portion of operating and finance leases, and long-term portion of operating and finance leases in our condensed consolidated balance sheets.

Operating and finance lease right-of-use (“ROU”) assets and ROU liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. The ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. We have lease agreements with lease and non-lease components, which are accounted for separately for the asset classes maintained. We exclude short-term leases with a lease term of 12 months or less at commencement date from our condensed consolidated balance sheets.

Income taxes

We calculate our interim income tax provision in accordance with ASC 270, Interim Reporting, and ASC 740, Accounting for Income Taxes. At the end of each interim period, we estimate the annual effective tax rate and apply that rate to our ordinary quarterly earnings. The tax expense or benefit related to significant, unusual, or extraordinary items is recognized in the interim period in which those items occur. In addition, the effect of changes in enacted tax laws, rates, or tax status is recognized in the interim period in which the change occurs. Excess windfall tax benefits and tax deficiencies related to our stock option exercises and restricted stock unit (“RSU”) vesting are recognized as an income tax benefit or expense in our condensed consolidated statements of operations in the period they are deducted on the income tax return. Excess windfall tax benefits and tax deficiencies are therefore not anticipated when determining the annual effective tax rate and are instead recognized in the interim period in which those items occur.

The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment, including the expected operating income (loss) for the year, projections of the proportion of income (loss) earned and taxed in various states, permanent and temporary differences as a result of differences between amounts measured and recognized in accordance with tax laws and financial accounting standards, and the likelihood of recovering deferred tax assets generated in the current year. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained, or as the tax environment changes.

As of March 31, 2020, we were in a net tested loss position in our subsidiaries located outside of the U.S. in the event that we generate earnings in these subsidiaries, our intention is to indefinitely reinvest these earnings outside the U.S. If we were to remit our foreign earnings, we would be subject to state incomes taxes or withholding taxes imposed on actual distributions, or currency

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transaction gains (losses) that would result in taxation upon remittance. However, the amounts of any such tax liabilities resulting from the repatriation of foreign earnings are not material.

Foreign currency translation

Our Brazilian subsidiary uses the Brazilian Real as its functional currency. Assets and liabilities of our Brazilian subsidiary are translated to U.S. dollars at period-end rates of exchange, and revenues and expenses are translated at average exchange rates prevailing for each month. The resulting translation adjustments are made directly to a separate component of other comprehensive loss, which is reflected in stockholders’ equity in our condensed consolidated balance sheets. As of March 31, 2020 and December 31, 2019, the Company had $(2,406) and $(1,447), respectively, of cumulative foreign currency translation adjustments, net of tax, which was $0 as of March 31, 2020 and December 31, 2019 due to the full valuation allowance established against our deferred tax assets, in accumulated other comprehensive loss.

The functional currency for our other foreign subsidiaries is the U.S. dollar. Gains and losses from the revaluation of foreign currency transactions and monetary assets and liabilities are included in the condensed consolidated statements of operations.

Use of estimates

The preparation of accompanying condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the accompanying condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Assets and liabilities which are subject to significant judgment and the use of estimates include the allowance for doubtful accounts, recoverability of goodwill and long-lived assets, valuation allowances with respect to deferred tax assets, useful lives associated with property and equipment, valuation of ROU assets and ROU liabilities, valuation and useful lives of intangible assets, contract assets and contract liabilities including estimates of variable consideration, and the valuation and assumptions underlying stock-based compensation and other equity instruments. On an ongoing basis, we evaluate our estimates compared to historical experience and trends, which form the basis for making judgments about the carrying value of assets and liabilities.

Fair value of financial instruments

Fair value is defined as the price that would be received from selling an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, we consider the principal or most advantageous market in which it would transact, and we consider assumptions that market participants would use when pricing the asset or liability.

The accounting guidance for fair value measurement also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is as follows:

Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2—Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The carrying amount reflected in the accompanying condensed consolidated balance sheets for cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, other assets, accounts payable, accrued expenses and other liabilities, and deferred revenue approximates fair value due to the short duration and nature of these financial instruments.

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3. Restructuring

In December 2019, the Company approved and adopted a plan to restructure the Company's business operations to drive long term sustainable revenue growth, better align resources, improve operational efficiencies and to increase profitability. Under this plan, the Company's management and employees will be focused primarily on managing its key business of i) providing services to the wireless carriers, ii) generating business on military bases, and iii) growing the Company's multifamily business, in addition to managing the profitability of the Company's legacy business such as retail and advertising. As part of the business realignment plan, the Company eliminated approximately 80 positions. We expect these actions to be substantially completed in the first half of 2020 and the Company expects to modify its reportable segments in the period that such actions are completed.

Restructuring activity for the three months ended March 31, 2020 was as follows:

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

    

Accrued Employee

Severance and

Benefits

Balance, December 31, 2019

$

2,249

Additional accruals

 

Adjustments

 

Cash payments

 

(2,224)

Non-cash settlements

 

Balance, March 31, 2020

$

25

Substantially all of the accrued restructuring balance as of March 31, 2020 is expected to be paid within the next 12 months and was recorded within accrued expenses and other liabilities on the consolidated balance sheets.

4. Cash and cash equivalents and marketable securities

Cash and cash equivalents and marketable securities consisted of the following:

                                                                                                                                                                                    

    

March 31, 

    

December 31, 

2020

2019

Cash and cash equivalents:

Cash 

$

4,712

$

6,061

Money market accounts

 

141,204

 

34,340

Total cash and cash equivalents

$

145,916

$

40,401

Short-term marketable securities-available-for-sale:

Marketable securities

$

29,301

$

40,214

Total short-term marketable securities

$

29,301

$

40,214

All contractual maturities of marketable securities were less than one year at March 31, 2020. Marketable securities consist primarily of debt securities which include commercial paper and debt instruments including notes issued by foreign or domestic industrial and financial corporations and governments which pay in U.S. dollars and carry a rating of A or better. For the three months ended March 31, 2020 and 2019, interest income was $296 and $714, respectively. Interest income is included in interest income and other expense, net in the accompanying condensed consolidated statements of operations.

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5. Contract assets and contract liabilities

The opening and closing balances of our contract asset, net and contract liability, net balances from contracts with customers for the three months ended March 31, 2020 were as follows:

Contract

Contract

    

Assets, Net

    

Liabilities, Net

Balance at December 31, 2019

$

967

$

227,889

Balance at March 31, 2020

608

237,690

Change

$

(359)

$

9,801

The current and non-current portions of our contract assets, net are included within prepaid expenses and other current assets and other assets, respectively, and current and non-current portions of our contract liabilities, net are included within deferred revenue and deferred revenue, net of current portion, respectively, in our condensed consolidated balance sheets. Contract assets, net is generated from our multifamily and wholesale Wi-Fi contracts and the change in the contract assets, net balance includes activity related to amounts invoiced offset by revenue recognized from performance obligations satisfied in the current reporting period.

Contract liabilities are recorded when fees are collected, or we have an unconditional right to consideration (a receivable) in advance of delivery of goods or services. The change in contract liabilities, net balance is related to customer activity associated with each of our product offerings including the receipt of cash payments and the satisfaction of our performance obligations. Revenues for the three months ended March 31, 2020 include the following:

Three Months Ended 

    

March 31, 2020

Amounts included in the beginning of period contract liability balance

$

24,970

Amounts associated with performance obligations satisfied in previous periods

 

13

As of March 31, 2020, the aggregate amount of the transaction price allocated to remaining service performance obligations for our DAS contracts was $222,221. We expect to recognize this revenue as service is provided over the remaining contract term. As of March 31, 2020, our DAS contracts have a remaining duration of less than one year to approximately fifteen years.

Certain of our wholesale Wi-Fi contracts include variable consideration based on usage. This variable consideration has been excluded from the disclosure of remaining performance obligations. As of March 31, 2020, the aggregate amount of the transaction price allocated to remaining service performance obligations for certain of our wholesale Wi-Fi contracts with guaranteed minimum consideration was $9,984. We expect to recognize this revenue as service is provided over the remaining contract term. As of March 31, 2020, our wholesale Wi-Fi contracts have a remaining duration of less than one year to approximately fifteen years.

Information about remaining performance obligations that are part of a contract that has an original expected duration of one year or less have been excluded from the above, which primarily consists of network installations for our multifamily customers and monthly service contracts.

6. Property and equipment

The following is a summary of property and equipment, at cost less accumulated depreciation and amortization:

    

March 31, 

    

December 31, 

2020

2019

Leasehold improvements

$

555,106

$

550,427

Construction in progress

 

84,800

 

78,343

Software 

 

62,418

 

60,814

Computer equipment

 

16,637

 

16,707

Furniture, fixtures and office equipment

 

2,379

 

2,140

Total property and equipment

 

721,340

 

708,431

Less: accumulated depreciation and amortization

 

(336,704)

 

(328,188)

Total property and equipment, net

$

384,636

$

380,243

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Depreciation and amortization expense, which includes depreciation and amortization for property and equipment under finance leases, is allocated as follows in the accompanying condensed consolidated statements of operations:

                                                                                                                                                                                  

Three Months Ended 

March 31, 

    

2020

    

2019

Network access

$

10,950

$

11,582

Network operations

 

4,667

 

4,386

Development and technology

 

2,733

 

2,779

General and administrative

 

296

 

262

Total depreciation and amortization of property and equipment

$

18,646

$

19,009

7. Accrued expenses and other liabilities

Accrued expenses and other liabilities consisted of the following:

                                                                                                                                                                                     

    

March 31, 

    

December 31, 

2020

2019

Accrued customer liabilities

$

20,167

$

19,403

Accrued construction in progress

10,128

18,197

Revenue share

10,081

9,844

Accrued taxes

 

3,965

 

3,642

Salaries and wages

 

2,425

 

6,023

Accrued professional fees

806

1,196

Accrued partner network

531

687

Other

 

6,837

 

6,160

Total accrued expenses and other liabilities

$

54,940

$

65,152

8. Convertible Notes

In October 2018, the Company sold, through the initial purchasers, convertible senior notes (“Convertible Notes”) to qualified institutional buyers pursuant to Rule 144A of the Securities Act of 1933, as amended, for gross proceeds of $201,250. The Convertible Notes are senior, unsecured obligations with interest payable semi-annually in cash at a rate of 1.00% per annum on April 1st and October 1st of each year. The Convertible Notes will mature on October 1, 2023 unless they are redeemed, repurchased or converted prior to such date. Prior to April 1, 2023, the Convertible Notes are convertible at the option of holders only during certain periods and upon satisfaction of certain conditions. Thereafter, the Convertible Notes will be convertible at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. Upon conversion, the Convertible Notes may be settled in shares of the Company’s common stock, cash or a combination of cash and shares of the Company’s common stock, at the Company’s election.

The Convertible Notes have an initial conversion rate of 23.6323 shares of common stock per $1,000 principal amount of the Convertible Notes, which will be subject to customary anti-dilution adjustments in certain circumstances. This represents an initial effective conversion price of approximately $42.31 per share, which represents a premium of approximately 30% to the $32.55 per share closing price of the Company’s common stock on October 2, 2018, the date the Company priced the offering.

The Company may redeem all or any portion of the Convertible Notes, at its option, on or after October 5, 2021, at a redemption price equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date, if the last reported sale price of the Company’s stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides written notice of redemption.

Holders of Convertible Notes may require the Company to repurchase their Convertible Notes upon the occurrence of certain events that constitute a fundamental change under the indenture governing the Convertible Notes at a fundamental change repurchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to, but excluding, the date of repurchase. In connection with certain corporate events or if the Company issues a notice of redemption prior to the maturity date, it will, under

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certain circumstances, increase the conversion rate for holders who elect to convert their Convertible Notes in connection with such corporate event or notice of redemption.

In connection with the pricing of the Convertible Notes, the Company entered into privately negotiated capped call transactions with a financial institution. The capped call transactions initially cover, subject to customary anti-dilution adjustments, the number of shares of the Company’s common stock that initially underlie the Convertible Notes. The cap price of the capped call transactions is initially $65.10 per share of the Company’s common stock, representing a premium of 100% above the closing price of $32.55 per share of the Company’s common stock on October 2, 2018, and is subject to certain adjustments under the terms of the capped call transactions. The capped call transactions are expected generally to reduce potential dilution to the Company’s common stock upon conversion of the Convertible Notes and/or offset the potential cash payments that the Company could be required to make in excess of the principal amount of any converted Convertible Notes upon conversion thereof, with such reduction and/or offset subject to a cap based on the cap price.

The following table summarizes the Convertible Notes as of March 31, 2020:

                                                                                                                                                                   

    

March 31, 

2020

Par value of the Convertible Notes

$

201,250

Unamortized debt discounts

 

(34,657)

Unamortized debt issuance costs

 

(3,453)

Net carrying value of Convertible Notes

$

163,140

The fair value of our Convertible Notes was $177,100 as of March 31, 2020. The estimated fair value of Convertible Notes is based on market rates and the closing trading price of the Convertible Notes as of March 13, 2020 and is classified as Level 2 in the fair value hierarchy. As of March 31, 2020, the if-converted value of the Convertible Notes did not exceed the principal amount.

Debt issuance costs are amortized on an effective interest basis over the term of the Convertible Notes. Debt issuance cost amortization expense, net of amounts capitalized, is included in interest expense and amortization of debt discount in the accompanying condensed consolidated statements of operations for the three months ended March 31, 2020. The following table sets forth interest expense related to the Convertible Notes for the three months ended March 31, 2020 and 2019:

                                                                                                                                                                  

    

Three Months Ended March 31,

2020

 

2019

Contractual interest expense

$

503

$

503

Amortization of debt issuance costs

 

220

208

Amortization of debt discount

 

2,156

2,006

Total

$

2,879

$

2,717

Effective interest rate of the liability component

 

7.1

%

7.1

%

During the three months ended March 31, 2020 and 2019, we capitalized $650 and $465, respectively, of amortization and interest expense related to the Convertible Notes.

Amortization expense for our debt discount and debt issuance costs through 2023 are as follows:

                                                                                                                                                                 

    

Debt

    

Debt Issuance

Discounts

Costs

April 1, 2020―December 31, 2020

$

6,708

$

681

January 1, 2021―December 31, 2021

 

9,528

 

955

January 1, 2022―December 31, 2022

 

10,241

 

1,015

January 1, 2023―December 31, 2023

 

8,180

 

802

$

34,657

$

3,453

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9. Credit Facility

In February 2019, we entered into a Credit Agreement (the “Credit Agreement”) and related agreements with Bank of America, N.A. acting as agent for lenders named therein, including Bank of America, N.A., Silicon Valley Bank, Bank of the West, Zions Bancorporation, N.A. dba California Bank & Trust, and Barclays Bank PLC (the “Lenders”), for a secured credit facility in the form of a revolving line of credit of up to $150,000 (the “Revolving Line of Credit”) and a term loan of $3,500 (the “Term Loan” and together with the Revolving Line of Credit, the “Credit Facility”). We may use borrowings under the Credit Facility for general working capital and corporate purposes. In general, amounts borrowed under the Credit Facility are secured by a lien against all assets, with certain exclusions.

As of March 31, 2020, we had $100,000 outstanding under the Revolving Line of Credit and $2,722 outstanding under the Term Loan. As of December 31, 2019, we had no amounts outstanding under the Revolving Line of Credit and $2,722 outstanding under the Term Loan. Amounts borrowed under the Revolving Line of Credit and Term Loan will bear variable interest at the greater of LIBOR plus 1.75% - 2.75% or Lender’s Prime Rate plus 0.75% - 1.75% per year and we will pay a fee of 0.25% - 0.5% per year on any unused portion of the Revolving Line of Credit. The Term Loan requires quarterly payments of interest and principal until it is repaid in full on the maturity date but may be prepaid in whole or part at any time. Our Credit Facility will mature on April 3, 2023. Repayment of amounts borrowed under the Credit Facility may be accelerated in the event that we are in violation of the representations, warranties and covenants made in the Credit Agreement, including certain financial covenants set forth therein, and under other specified default events including, but not limited to, non-payment or inability to pay debt, breach of cross default provisions, insolvency provisions, and change of control.

The Company is subject to customary financial and non-financial covenants under the Credit Facility, including a minimum quarterly consolidated senior secured leverage ratio, a minimum quarterly consolidated total leverage ratio, a maximum quarterly consolidated fixed charge coverage ratio, and cash on hand minimums.

Principal payments due under our Term Loan through 2023 are as follows:

                                                                                                                                                                

    

Principal Payments

April 1, 2020―December 31, 2020

$

778

January 1, 2021―December 31, 2021

 

778

January 1, 2022―December 31, 2022

 

778

January 1, 2023―December 31, 2023

 

388

$

2,722

Debt issuance costs are amortized on a straight-line basis over the term of the Credit Facility. Amortization expense related to debt issuance costs, net of amounts capitalized, are included in interest expense and amortization of debt discount in the accompanying condensed consolidated statements of operations for the three months ended March 31, 2020. Amortization and interest expense capitalized during the three months ended March 31, 2020 amounted to $131. No amounts were capitalized during the three months ended March 31, 2019. Amortization and interest expense expensed during the three months ended March 31, 2020 and 2019 amounted to $114 and $56, respectively. The interest rate for the Credit Facility for the three months ended March 31, 2020 was 3.7%.

Amortization expense for our debt issuance costs through 2023 are as follows:

    

Amortization Expense

April 1, 2020―December 31, 2020

$

343

January 1, 2021―December 31, 2021

 

457

January 1, 2022―December 31, 2022

 

457

January 1, 2023―December 31, 2023

 

120

$

1,377

10. Leases

We have operating and finance leases for corporate offices, datacenters, data communication equipment and database software. Our operating leases have remaining lease terms of less than one year to nine years and our finance leases have remaining lease terms of one month to fifteen months. Some of our operating leases may include one or more options to renew and can extend the lease term from one year to ten years. The exercise of operating lease renewal options is at our sole discretion. Certain leases also

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include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Some of our operating lease agreements include options to terminate the leases upon written notice and may include early termination penalties. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. As of March 31, 2020, assets recorded under finance leases were $12,280 and accumulated depreciation and amortization associated with finance leases was $5,910. As of December 31, 2019, assets recorded under finance leases were $12,280 and accumulated depreciation and amortization associated with finance leases was $5,387.

The components of lease expense were as follows:

    

    

Three Months Ended March 31,

2020

2019

Operating lease expense

$

859

$

885

Finance lease expense:

 

  

 

  

Depreciation and amortization of assets included in property and equipment, net

538

524

Interest on lease liabilities

 

 

56

Total finance lease expense

$

538

$

580

Interest on lease liabilities capitalized during the three months ended March 31, 2020, which is excluded from the above table, amounted to $24. No amounts were capitalized during the three months ended March 31, 2019.

Supplemental cash flow information related to leases was as follows:

    

Three Months Ended March 31,

2020

 

2019

Cash paid for amounts included in the measurement of lease liabilities:

 

  

Operating cash flows from operating leases

$

(1,056)

$

(977)

Operating cash flows from finance leases

 

(24)

(56)

Financing cash flows from finance leases

 

(818)

(1,176)

Right-of-use assets obtained in exchange for lease obligations:

 

Operating leases

 

16,916

Operating lease ROU assets obtained in exchange for lease obligations for the three months ended March 31, 2019 include the effects of the adoption of ASC 842, Leases, effective January 1, 2019, which resulted in the recording of $16,916 of operating lease ROU assets as of January 1, 2019.

Other information related to leases was as follows:

    

March 31, 2020

 

Weighted average remaining lease term:

 

  

Operating leases

 

5.9

years

Financing leases

 

1.0

years

Weighted average discount rate:

 

Operating leases

 

5.3

%

Finance leases

 

3.2

%

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Future minimum lease payments under non-cancellable leases as of March 31, 2020 as presented in accordance with ASC 842 were as follows:

    

Operating

    

Finance

 

Leases

Leases

April 1, 2020―December 31, 2020

$

2,510

$

1,941

January 1, 2021―December 31, 2021

 

3,695

 

574

January 1, 2022―December 31, 2022

 

3,692

 

January 1, 2023―December 31, 2023

 

3,645

 

January 1, 2024―December 31, 2024

 

3,655

 

January 1, 2025―December 31, 2025

 

3,707

 

Thereafter

 

1,528

 

Total future minimum lease payments

 

22,432

 

2,515

Less: Imputed interest

 

(3,213)

 

(40)

Total

 

19,219

 

2,475

Current portion of operating and finance leases

 

2,586

 

2,344

Long-term portion of operating and finance leases

$

16,633

$

131

11. Notes payable

We enter into financed maintenance arrangements for some of our leased data communication equipment. Future minimum lease payments under notes payable as of March 31, 2020 were as follows:

                                                                                                                                                                 

    

Notes Payable

April 1, 2020―December 31, 2020

$

1,071

January 1, 2021―December 31, 2021

 

95

Total future minimum payments

 

1,166

Less: Imputed interest

 

(10)

Total

 

1,156

Current portion of note payable

 

1,131

Long-term portion of notes payable

$

25

12. Fair value measurement

The following table sets forth our financial assets and liabilities that are measured at fair value on a recurring basis:

                                                                                                                                                                                   

At March 31, 2020

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets:

Money market accounts

$

141,204

$