Anterix Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended March 31, 2020. The filing also provides unaudited fourth-quarter results; the requested “2019 Q4” label does not match the annual reporting period of this 10-K.
Business context
Anterix is focused on commercializing its licensed 900 MHz spectrum for private broadband networks serving utilities and other critical-infrastructure customers. It is the largest holder of licensed spectrum in the band across the contiguous United States, Alaska, Hawaii and Puerto Rico. The company transferred its TeamConnect and pdvConnect operations to focus on spectrum licensing and leasing.
On May 13, 2020, after fiscal year-end, the FCC approved an order creating a 6 MHz broadband segment in the 900 MHz band. Anterix’s plan is to secure county-based broadband licenses and lease them to customers, generally on long terms; customers are expected to fund network deployment and operations.
Financial results and liquidity
| Metric | FY2020 | FY2019 | Change / context |
|---|---|---|---|
| Operating revenue | $1.564 million | $6.499 million | Down 76%; primarily reflected the transfer of TeamConnect customers and losses in pdvConnect. |
| Service revenue | $835,000 | $4.774 million | Down 83%. |
| Spectrum revenue | $729,000 | $729,000 | Flat; primarily recognized ratably under the Motorola spectrum arrangement. |
| Operating expenses | $38.947 million | $49.238 million | Down 21%, substantially due to lower restructuring costs. |
| Loss from operations | $37.383 million | $42.739 million | Loss narrowed. |
| Net loss | $37.638 million | $41.993 million | Loss narrowed; basic and diluted loss per share was $2.29 versus $2.88. |
| Operating cash flow | $(30.957) million | $(23.089) million | Cash use increased year over year. |
| Investing cash flow | $(4.426) million | $(1.666) million | Included $4.0 million of wireless-license acquisitions. |
| Financing cash flow | $96.114 million | $3.159 million | Primarily $94.2 million net proceeds from the July 2019 equity offering. |
Fourth-quarter FY2020 revenue was $327,000 and net loss was $11.738 million, compared with fourth-quarter FY2019 revenue of $1.302 million and net loss of $9.561 million. The filing does not provide quarterly cash-flow figures.
At March 31, 2020, cash and cash equivalents were $137.453 million, total current assets were $142.152 million, and current liabilities were $8.823 million. Total assets were $267.397 million and total liabilities were $22.331 million. No conventional borrowings are reported; liabilities include operating lease obligations. The company reported $8.746 million present value of operating lease payments.
Revenue was far below operating costs and the company remained loss-making. Management said cash on hand was expected to fund obligations for at least 12 months. It estimated total spectrum clearing, acquisition and licensing costs of $130–$160 million, with the significant majority expected to be spent by the end of fiscal 2024. Management said spending pace would depend on customer demand, market opportunity and lease income.
Material changes and notable items
- The July 2019 follow-on offering raised approximately $94.2 million net and increased shares outstanding; year-end shares issued and outstanding were 17.185 million, versus 14.739 million a year earlier.
- Revenue fell sharply as legacy customers transitioned to A BEEP and Goosetown. Anterix retained certain network, lease, support and customer-related obligations during the transition.
- FY2020 restructuring costs fell to $236,000 from $9.598 million. Depreciation and amortization rose to $3.591 million, including $1.1 million of additional depreciation following a revised estimated useful life for network sites.
- Income tax expense was $2.402 million, mainly deferred tax expense; the CARES Act changed the tax treatment of certain net operating losses. The company reported approximately $125.5 million of federal NOL carryforwards, subject to applicable limits.
- Management reported effective disclosure controls and internal control over financial reporting as of March 31, 2020. Previously identified material weaknesses were reported as remediated.
Outlook, risks and contingencies
- To obtain a broadband license county by county, Anterix must meet the FCC’s 50% licensed-spectrum test, secure control or agreements covering 90% of licensed channels in the broadband segment, and satisfy the 240-channel requirement. It reported meeting the 50% test in more than 3,100 counties, but license applications and costs remained dependent on further FCC procedures and county-specific clearing.
- Incumbent negotiations, mandatory retuning, anti-windfall payments, and systems exempt from mandatory retuning (“Complex Systems”) could delay licensing or raise costs. The AAR transition agreement provides for its six channels to be exchanged for an Anterix nationwide 10-channel license, with cooperation to clear three channels in the broadband segment.
- Anterix had not signed a binding long-term spectrum lease with a utility or other critical-infrastructure customer as of the filing. An April 2020 Ameren letter of intent was non-binding and occurred after fiscal year-end.
- COVID-19 could disrupt licensing, negotiations, customer investment, regulatory processes and capital access; the ultimate financial impact was not estimable in the filing.
- Other key risks include building a compatible Band 8 equipment ecosystem, long customer sales cycles, utility regulatory approval to recover costs from ratepayers, competition from larger carriers and technology providers, and the ability to retain or renew licenses by meeting build-out requirements.
- The company disclosed no material legal proceedings and no recorded accrual for litigation contingencies. It stated that the likelihood of a material adverse legal outcome was considered remote.
Key facts for investors to verify
- Whether Anterix meets the FCC’s county-level eligibility tests and obtains broadband licenses, and the actual clearing and anti-windfall costs versus its $130–$160 million estimate.
- Whether the Ameren discussions or other customer prospects result in binding, economically attractive long-term leases; verify lease terms, timing of payments and customer-funded deployment assumptions.
- Cash burn and remaining liquidity relative to spectrum investment plans, operating costs and any need for additional financing or dilution.
- Progress clearing channels held by Complex Systems and the railroads, and the extent to which these parties could delay licensing in priority markets.
- Effects of COVID-19, utility regulatory decisions, equipment availability and license build-out requirements on commercialization timing and customer adoption.