Anterix Inc. (then pdvWireless, Inc.) — Form 10-Q Summary
Reporting period: Three months ended June 30, 2016 (the company’s fiscal first quarter), compared with the three months ended June 30, 2015. The filing was signed August 9, 2016.
Business context
The company was building DispatchPlus, a private push-to-talk wireless service for dispatch-oriented businesses, and operating in seven U.S. metropolitan markets. It was also pursuing a proposed realignment of 900 MHz spectrum for broadband use and other spectrum opportunities, including FirstNet. The filing uses the name pdvWireless, Inc.
Financial performance and position
| Metric | Quarter ended June 30, 2016 | Prior-year quarter |
|---|---|---|
| Operating revenue | $1.05 million | $0.84 million |
| Gross profit (loss) | $(0.54) million | $0.47 million |
| Operating expenses | $9.54 million | $4.84 million |
| Operating loss | $(10.07) million | $(4.37) million |
| Net loss | $(10.05) million | $(4.35) million |
| Net loss per share, basic and diluted | $(0.70) | $(0.32) |
| Cash used in operating activities | $9.60 million | $7.41 million |
| Cash used in investing activities | $0.68 million | $1.40 million |
- Revenue increased 24%, primarily from DispatchPlus. Service revenue was $765,305; spectrum lease revenue was $182,186; other revenue was $98,291.
- Gross margin was approximately negative 51% versus positive 55% in the prior-year quarter, reflecting costs of operating the newly launched networks.
- Cash and cash equivalents were $143.2 million at June 30, down from $153.5 million at March 31. Total assets were $264.4 million and stockholders’ equity was $253.5 million.
- Total liabilities were $10.9 million. The promissory note balance was $991,810, including $494,545 current and $497,265 long-term; it bears 0.55% interest. Current assets of $144.6 million substantially exceeded current liabilities of $3.9 million.
- No financing cash flow occurred in the quarter. The company reported no material market-risk exposure from a 10% interest-rate change and no foreign-currency exposure.
Changes, outlook, and risks
- Operating costs rose sharply: cost of revenue increased to $1.58 million, largely from network operating costs, headcount, and handset sales. General and administrative expense rose to $7.75 million, including $3.3 million of consulting related to spectrum initiatives, including FirstNet. Sales and support and product development expenses also increased.
- Management said DispatchPlus sales had ramped more slowly than initially expected, citing indirect-sales performance, longer sales cycles, and delays in planned network-site deployments. It was concentrating on its initial seven markets while preparing designs and site work for more than 13 additional markets.
- Management estimated initial network deployment costs of $1.5 million to $2.0 million per metropolitan market. Potential FirstNet participation could require an additional $4 million to $5 million through the proposed November 2016 award date, with possible further spending if the process is delayed and the company elects to continue.
- Management expected available cash to cover obligations for at least the next 12 months, but cautioned that revenue may develop more slowly or cash use may exceed expectations; future financing may be needed, and availability or terms are not assured.
- The FCC had not decided on the company’s 900 MHz petition. Management considered a Notice of Inquiry the most likely next step, but said it could take significant time and resources and there was no assurance of favorable FCC action. FirstNet and other spectrum opportunities were also uncertain.
- The company reported no material litigation and no material changes to the risk factors in its prior annual report. It disclosed $10.67 million of remaining minimum office and tower lease payments.
- Management stated that disclosure controls and procedures were effective at quarter-end and that no material change in internal control over financial reporting occurred during the quarter.
Important facts for investors to verify
- DispatchPlus customer growth, sales conversion, market coverage, and whether revenue can outpace network and operating costs.
- Cash burn, the stated 12-month liquidity outlook, and the timing and cost of further market launches or FirstNet participation.
- Progress and outcomes in the FCC 900 MHz proceeding, FirstNet process, and other spectrum initiatives.
- The concentration of revenue and receivables among two Tier 1 carrier partners; those carriers represented 50% of quarterly revenue and approximately 73% of quarter-end receivables.
- How the $3.3 million of spectrum-related consulting expense and other elevated spending evolve in subsequent periods.