pdvWireless, Inc. (now Anterix Inc.) — Form 10-Q summary
Reporting period: Quarter and six months ended September 30, 2017; the quarter ended date corresponds to fiscal Q2. The filing registrant is pdvWireless, Inc.
Business context and results
The company held extensive 900 MHz spectrum and operated DispatchPlus push-to-talk service in seven U.S. metropolitan markets. Its principal strategic initiative was seeking FCC changes that could enable broadband use of the band.
- Revenue: Q2 revenue was $1.513 million, up 33% year over year; six-month revenue was $2.978 million, up 36%. Growth primarily reflected more DispatchPlus subscribers.
- Profitability: Q2 gross loss was $0.398 million versus $0.534 million; six-month gross loss was $0.634 million versus $1.071 million. Gross margins were approximately negative 26% and negative 47% for the respective Q2 periods, and negative 21% and negative 49% for the six-month periods.
- Operating costs and net loss: Six-month operating expenses declined to $14.446 million from $16.853 million, largely because prior-year FirstNet bid costs did not recur; sales and support expense increased. Six-month net loss narrowed to $16.109 million from $17.884 million. Q2 net loss widened to $8.199 million from $7.833 million, including $0.656 million of income tax expense.
- Cash flow: Six-month operating cash use was $11.308 million, compared with $15.290 million. Investing cash use was $2.446 million, mainly spectrum-license purchases and network equipment; financing provided $0.214 million from option exercises. Cash decreased $13.540 million to $110.543 million.
- Liquidity and obligations: Current assets were $111.800 million and current liabilities $4.039 million. Total liabilities were $18.423 million. Note payable was approximately $0.497 million, bearing 0.55% interest and due March 2018. Non-cancelable office and tower lease payments totaled $13.702 million. Management believed cash on hand would cover obligations for at least 12 months.
- Other metrics: Wireless licenses, the company’s principal asset, were carried at $106.353 million; $1.677 million of license acquisitions were recorded in the six months. The company reported $214.516 million in stockholders’ equity.
Material changes and management commentary
- Service revenue rose to $2.268 million for six months from $1.651 million. Spectrum lease revenue remained $0.364 million, while other revenue increased to $0.346 million from $0.172 million.
- Management said DispatchPlus sales were ramping more slowly than expected, citing indirect-channel performance, longer sales cycles, and coverage gaps caused by delayed site deployment. It was concentrating resources on the initial seven markets and had prepared initial designs for more than 13 potential additional markets.
- The FCC’s August 2017 Notice of Inquiry examined multiple possible approaches to the 900 MHz band and effectively superseded the company’s earlier petition. The company and partners filed comments and reply comments; a favorable outcome is uncertain and could require significant time and resources.
- The company recorded $1.305 million of six-month income tax expense, a non-cash charge principally related to tax amortization of indefinite-lived licenses that could not offset existing deferred tax assets. Management expected approximately $2.6 million of such tax expense for fiscal 2018.
Outlook, risks, and contingencies
No numerical revenue or earnings guidance was provided. The company cited future capital needs as dependent on DispatchPlus revenue growth, operating costs, sales execution, and FCC developments. It had an effective shelf registration permitting up to $100 million of securities offerings, but said future financing availability and terms were uncertain. Key risks include slow customer adoption, reliance on third-party sales channels, regulatory uncertainty, and customer concentration: one carrier represented about 40% of Q2 and six-month revenue and 66% of receivables at September 30, 2017. No material litigation or material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Progress and eventual FCC action on the 900 MHz proceeding, including whether rules enable broadband use.
- DispatchPlus subscriber growth, sales-cycle trends, network coverage, and progress toward positive gross margins.
- Cash burn relative to management’s stated 12-month liquidity expectation and potential financing plans.
- Carrier concentration and collection exposure, plus license valuation and impairment assumptions.
- Drivers and expected duration of tax expense from amortization of indefinite-lived licenses.