Anterix Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended September 30, 2019 (fiscal second quarter and first half of fiscal 2020). The company changed its name from pdvWireless, Inc. to Anterix Inc. in August 2019.
Business context
Anterix is focused on developing broadband use of its nationwide 900 MHz spectrum, primarily for utilities and other critical-infrastructure customers. It is pursuing FCC rule changes to realign the band. The company transferred its TeamConnect business and support for pdvConnect to third parties in 2019, shifting its focus toward spectrum initiatives.
Financial results and liquidity
| Metric | Three months ended Sept. 30 | Six months ended Sept. 30 |
|---|---|---|
| Operating revenue, 2019 | $423,000 | $876,000 |
| Operating revenue, 2018 | $1.824 million | $3.694 million |
| Operating loss, 2019 | $8.245 million | $17.781 million |
| Net loss, 2019 | $7.715 million | $17.089 million |
| Net loss, 2018 | $11.780 million | $24.082 million |
| Operating cash used, 2019 | Not separately presented for the quarter | $14.543 million |
| Investing cash used, 2019 | Not separately presented for the quarter | $503,000 |
| Financing cash provided, 2019 | Not separately presented for the quarter | $95.818 million |
- Quarterly revenue fell 77% year over year; first-half revenue fell 76%. Service revenue declined 81% in both comparisons, while spectrum revenue remained $182,000 for the quarter and $364,000 for the half year. Other revenue ended following the business transfers.
- Quarterly operating expenses were $8.668 million, versus $13.973 million a year earlier; first-half expenses were $18.657 million, versus $28.462 million. Lower restructuring costs contributed substantially to the decline. Revenue remained far below operating expenses.
- Cash and cash equivalents were $157.494 million at September 30, 2019, up from $76.722 million at March 31. The increase primarily reflected $94.244 million in net proceeds from a July stock offering of 2,222,223 shares at $45 per share.
- Total liabilities were $20.419 million, including $9.531 million in operating lease liabilities. The balance sheet reports no borrowing debt. Current assets were $158.280 million and current liabilities $7.960 million.
- Management said available cash should fund obligations for at least the next 12 months. No revenue, profit, or margin guidance was provided.
Material changes and unusual items
- The company’s transfer of TeamConnect customers and the loss of a pdvConnect customer drove the steep revenue decline. A previously announced loss of pdvConnect’s largest customer took effect in October 2019.
- After quarter-end, a Tier 1 carrier partner gave notice that it would end its contract with Anterix effective October 31, 2019 and market pdvConnect directly through TeamConnect LLC from November 1. Anterix holds a 19.5% interest in the LLC.
- In July 2019, Anterix raised approximately $94.2 million net through an equity offering, increasing shares outstanding and cash available for its initiatives.
- Adoption of lease accounting in April 2019 put right-of-use assets and lease liabilities on the balance sheet. At September 30, lease liabilities totaled $9.531 million; the weighted-average remaining lease term was 5.35 years.
- First-half deferred income tax expense was $463,000, associated with limitations on use of certain net operating losses against deferred tax liabilities on indefinite-lived spectrum assets.
Outlook, risks, and contingencies
- The FCC had issued a Notice of Proposed Rulemaking, but had not issued a final order. The proposal’s terms, timing, and outcome remain uncertain; the filing cautions that a final order could be delayed, materially differ from the proposal, or never be issued.
- Eligibility for broadband licenses may require acquiring additional spectrum and relocating incumbents. Anterix expects these activities to require significant management effort and expense; actual costs and timing depend on FCC rules and negotiations with incumbents.
- The company expects operating losses and does not expect significant revenue until it obtains broadband licenses and commercializes its spectrum, if it can do so. It expects legacy-business revenue to continue declining for several quarters.
- Management reported disclosure controls were not effective at September 30, 2019 because a previously identified material weakness involving accounting for tax-law changes was still being remediated. Management said remediation measures were in place and would be tested during the fiscal year-end assessment.
- Anterix reported no material legal proceedings and no material changes to previously disclosed risk factors. Customer and receivables concentration remains relevant: two domestic carriers represented 67% of accounts receivable at September 30.
Important facts for investors to verify
- Progress, final terms, and timing of FCC action on the 900 MHz proceeding, including eligibility and incumbent-relocation requirements.
- Cash burn and expected costs for spectrum acquisition, retuning, leases, and remaining obligations tied to the transferred businesses.
- Financial impact of the October 2019 customer termination and the carrier contract transfer to TeamConnect LLC.
- Whether legacy revenue declines stabilize and whether prospective utility and critical-infrastructure customers commit to commercial agreements.
- Completion and testing of remediation for the material weakness in internal controls, and potential dilution from equity compensation and outstanding awards.