Anterix Inc. — Form 10-Q Summary
Reporting period: Three months ended June 30, 2019, Anterix’s fiscal first quarter of fiscal 2020. The company was formerly pdvWireless, Inc.; it changed its name to Anterix Inc. on August 6, 2019. Financial amounts below are in U.S. dollars unless noted.
Business context and strategy
Anterix is focused on commercializing its 900 MHz spectrum for private broadband networks serving utilities and other critical-infrastructure and enterprise customers. Its plan depends chiefly on FCC action to realign the band and establish rules allowing broadband licenses. The company transferred its TeamConnect customers and related business operations to A BEEP and Goosetown effective April 1, 2019, shifting focus and resources toward its spectrum initiatives. As of June 30, the planned transfer of application intellectual property to a new LLC had not been completed, and Anterix had not recorded its contemplated 19.5% ownership interest.
Financial performance and liquidity
| Metric | Three months ended June 30, 2019 | Prior-year quarter |
|---|---|---|
| Operating revenue | $453,000 | $1.872 million |
| Gross loss | $1.036 million | $274,000 |
| Operating expenses | $8.500 million | $12.345 million |
| Loss from operations | $9.536 million | $12.619 million |
| Net loss | $9.374 million | $12.302 million |
| Basic and diluted loss per share | $0.63 | $0.85 |
| Net cash used in operating activities | $9.030 million | $7.119 million |
| Capital expenditures / investing cash used | $247,000 | $155,000 |
Revenue fell 76%, primarily because TeamConnect customers were transferred. Service revenue declined 80% to $271,000; spectrum revenue was unchanged at $182,000; other revenue was zero. Cost of revenue declined 31%, but the lower revenue base contributed to a larger gross loss. Operating expenses fell 31%, largely because prior-year restructuring and impairment charges were not repeated; general and administrative expense rose 17% to $6.490 million, including higher stock compensation and professional services. The 2019 quarter also included a $292,000 state income-tax expense and $100,000 of other income related to transferred customers and rights.
Cash and cash equivalents were $69.022 million at June 30, down from $76.722 million at March 31. Current assets were $70.507 million and current liabilities $8.288 million. The balance sheet reported no borrowings; it included $9.869 million of operating lease liabilities, current and noncurrent combined. Stockholders’ equity was $174.544 million. Operating cash use exceeded the prior-year quarter despite the smaller net loss, reflecting working-capital movements, including lower accounts payable and accrued expenses.
After quarter-end, Anterix completed a registered stock offering in July, selling 2,222,223 shares at $45 per share for approximately $94.1 million in net proceeds. Underwriters had an option to purchase up to 333,333 additional shares through August 15, 2019. The filing states cash on hand was expected to fund obligations for at least 12 months; that statement preceded the offering and should be read alongside the subsequent proceeds.
Material changes, outlook and risks
- The FCC adopted a Notice of Proposed Rulemaking in March 2019; comments and reply comments were filed by July 2. The proposal contemplated a 3 MHz broadband segment, license-eligibility requirements, incumbent relocation or protection, and possible approaches to holdouts. No final FCC order had been issued, and its timing and terms were uncertain.
- Anterix said it expected significant operating losses and no significant revenue until it could obtain broadband licenses and commercialize its spectrum, if successful. It did not provide numerical revenue or earnings guidance. Retuning incumbents, acquiring additional spectrum, and meeting FCC license conditions may require substantial time and expense.
- The company had not signed its first long-term spectrum lease with a utility or other critical-infrastructure customer. Customer demand, deployment economics, regulatory support, incumbent relocation, access to additional spectrum, and competition all remain material uncertainties.
- Management estimated that transferring the legacy businesses and the December 2018 cost reductions would reduce annualized operating costs by approximately $2.1 million. The related cost-reduction actions were completed by July 31, 2019; additional retention-related restructuring charges were expected.
- Disclosure controls and procedures were deemed ineffective as of June 30 because a material weakness concerning review of changing tax legislation remained under remediation. Management expected remediation by the quarter ending September 30, 2019. The separate IT user-access control weakness was reported as remediated.
- The filing reported no material legal proceedings and no off-balance-sheet arrangements. It identified no material change to other risk factors beyond updates associated with the offering.
Important facts for investors to verify
- Whether and when the FCC issues a final order, and whether its terms allow Anterix to qualify for broadband licenses on commercially viable terms.
- The cost and timing of incumbent relocation, additional spectrum acquisitions, and any required railroad-related exemption or agreement.
- Progress toward executed customer contracts, customer-funded network deployment, and recurring spectrum-lease revenue.
- Actual cash burn and liquidity after the July offering, including the outcome of the underwriters’ additional-share option.
- Completion and effectiveness of remediation of the tax-related material weakness, and completion of the planned legacy-business intellectual-property transfer.