Anterix Inc. (then pdvWireless, Inc.) — Form 10-Q Summary
Reporting period: Quarter and six months ended September 30, 2015 (the company’s fiscal second quarter of FY2016; fiscal year ended March 31). The filing was issued under the name pdvWireless, Inc.
Business context and strategy
The company was developing private, wide-area push-to-talk (PTT) networks and workforce-management services for dispatch-oriented businesses. It commercially launched DispatchPlus in greater Houston in June 2015 and was building out networks in other metropolitan areas. Its legacy pdvConnect application business continued to generate most service revenue, while the company expected DispatchPlus to become its principal near-term operating business. The company also pursued FCC spectrum realignment initiatives.
Financial performance and position
| Metric | Three months ended September 30, 2015 | Six months ended September 30, 2015 |
|---|---|---|
| Operating revenue | $811,458 | $1,652,318 |
| Gross profit (gross margin) | $320,873 (39.5%) | $786,559 (47.6%) |
| Operating loss | $5,489,176 | $9,862,467 |
| Net loss | $5,458,633 | $9,809,704 |
| Basic and diluted loss per share | $0.38 | $0.70 |
| Cash flow from operations | Not presented for the quarter | $(10,066,925) |
| Cash flow from investing | Not presented for the quarter | $(5,359,543) |
| Cash flow from financing | Not presented for the quarter | $64,832,221 |
- At September 30, cash and cash equivalents were $169.3 million; total assets were $282.4 million, total liabilities $10.7 million, and stockholders’ equity $271.7 million.
- No debt balance was reported at September 30, 2015. The company reported no interest expense in the 2015 periods; prior-year interest expense related to debt obligations settled in September 2014.
- Cash increased $49.4 million over the six months, principally reflecting $64.8 million of net proceeds from the May 2015 follow-on stock offering. The company reported using approximately $2.2 million of those proceeds through September 30.
Changes versus the prior comparable periods
- Quarterly revenue rose 17.7% to $811,458; six-month revenue rose 8.7% to $1.65 million. Spectrum lease revenue from Motorola contributed $182,186 in the quarter and $364,372 for six months, compared with $30,365 in the prior-year six-month period.
- Service revenue declined 5.6% for the quarter and 14.7% for six months, which management attributed to increased customer churn in pdvConnect. The international carrier relationship ended in July 2015.
- Gross profit fell 31.1% for the quarter and 22.4% for six months, as DispatchPlus network support costs increased and legacy application revenue and contribution declined.
- Operating expenses increased 87.0% for the quarter and 76.0% for six months, largely reflecting hiring and other costs to support DispatchPlus, higher sales and marketing activity, and public-company and professional fees. The six-month operating loss widened to $9.86 million from $5.04 million.
- Operating cash flow shifted from $4.74 million provided in the prior-year six months to $10.07 million used, while investing cash use fell substantially from $90.34 million, which had included the Sprint spectrum-asset payment.
Outlook, risks and unusual items
- Management estimated total capital costs of $30 million to $40 million, including amounts already spent, to deploy the network in 20 major metropolitan areas. Six-month purchases of equipment and network construction were approximately $4.21 million.
- Management believed available cash would fund obligations for at least the next 12 months, but cautioned that rollout spending could exceed expectations and DispatchPlus revenue could develop more slowly or be lower than anticipated. Additional financing might be needed; availability and terms were uncertain.
- The filing reports that DispatchPlus had generated no significant revenue to date. The company’s revenue depended in part on carrier partners, and receivables were concentrated: two carriers represented approximately 67% and 20% of receivables at September 30.
- Wireless licenses were treated as indefinite-lived intangible assets; management reported no impairment indicators at September 30. The company had $8.13 million of future minimum rentals under office and tower leases.
- In October 2015, the company agreed to acquire wireless licenses for $1.5 million, payable as $200,000 cash and a $1.3 million promissory note due March 15, 2018, with interest based on the short-term Applicable Federal Rate.
- The company reported no material legal proceedings and no material changes to previously disclosed risk factors. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether the network rollout is on schedule and within the $30–$40 million estimated cost, and how much of that estimate remains to be spent.
- DispatchPlus customer additions, revenue, churn, and unit economics as commercial operations expand; the filing says significant revenue had not yet been generated.
- The filing gives inconsistent deployment descriptions: the notes cite sites in six additional metropolitan areas, while MD&A cites three additional areas beyond Houston.
- Cash use, financing needs, and the effect of the $1.5 million post-period license acquisition and related promissory note.
- Ongoing legacy pdvConnect churn and carrier concentration in both service revenue and accounts receivable.