Anterix Inc. — Form 10-Q Summary
Business context and reporting period
This report covers the three months ended June 30, 2020, Anterix’s first quarter of fiscal 2021. Anterix is focused on commercializing its 900 MHz spectrum for private broadband networks serving utilities and other critical-infrastructure customers. The FCC approved its 900 MHz band Report and Order on May 13, 2020; the company is now working to qualify for broadband licenses and pursue prospective customers. Its legacy TeamConnect and pdvConnect businesses have been transferred to third parties.
Financial results and liquidity
| Metric | Three months ended June 30, 2020 | Comparable 2019 period |
|---|---|---|
| Operating revenue | $0.256 million | $0.453 million |
| Operating expenses | $10.844 million | $9.989 million |
| Operating loss | $15.266 million | $9.536 million |
| Net loss | $15.130 million | $9.374 million |
| Net loss per share, basic and diluted | $0.88 | $0.63 |
| Cash used in operating activities | $4.612 million | $9.030 million |
| Cash used in investing activities | $9.094 million | $0.247 million |
Service revenue was $74,000 and spectrum revenue was $182,000. Direct costs of revenue were $548,000, exceeding revenue; the filing reports no gross-margin measure. The quarter’s operating loss included a $4.678 million loss on cancellation and disposal of licenses, described below.
Cash and cash equivalents were $124.766 million at June 30, down from $137.453 million at March 31, 2020. Current assets were $126.388 million and current liabilities $6.775 million. Total liabilities were $19.938 million, including $8.279 million of operating lease liabilities. The balance sheet reports no borrowings or other conventional debt. Stockholders’ equity was $234.447 million.
Material changes versus the prior period
- Revenue declined 43%, primarily because pdvConnect customers were transferred to TeamConnect LLC effective April 1, 2020. Spectrum revenue was unchanged.
- Net loss widened to $15.130 million from $9.374 million. Operating expenses rose 9%; general and administrative expense increased 18%, including higher headcount-related costs and consulting for FCC initiatives. Depreciation and amortization and stock compensation also increased.
- Cash used in operations decreased versus the prior year, while investing cash outflow rose substantially due primarily to $8.991 million of wireless-license acquisitions.
- Interest income fell 88% to $41,000, which the company attributed to lower cash balances following spectrum-acquisition payments.
Outlook, commentary, risks and unusual items
- License program and expected costs: Under the FCC order, the company must meet county-level eligibility requirements, including a 90% broadband-segment test, and surrender 240 channels or make anti-windfall payments. Anterix estimates combined clearing, spectrum-acquisition and anti-windfall costs of $130 million to $160 million, with most expected to be spent by the end of fiscal 2024. Spending pace will depend on customer demand, market opportunity and lease income.
- License cancellation: In accordance with the FCC order and its agreement with the Association of American Railroads, Anterix cancelled licenses during the quarter. It received no licenses or cash reimbursement for the cancelled licenses, only credit toward future eligibility and anti-windfall calculations, and recorded a $4.678 million loss.
- Liquidity and financing: Management believes cash on hand is sufficient for at least 12 months, but says additional capital may be needed to implement its plans. The company has an effective shelf registration permitting up to $150 million of securities and registered up to $50 million of common stock for at-the-market sales; it reported no sales under either arrangement through the filing date.
- Risks and contingencies: COVID-19 could affect targeted customers, the economy, license qualification and commercialization; the impact could not be reasonably estimated. License costs, retuning and customer-contract timing are also uncertain. One domestic carrier accounted for about 73% of accounts receivable, although the balance was only approximately $25,000. The company reported no material legal proceedings and no material changes to the risk factors in its latest 10-K.
- Other developments: An executive succession plan followed the FCC order, with a new CEO effective July 1, 2020. An August 4, 2020 amendment documented the April transfer of pdvConnect customers to the LLC in exchange for a portion of recurring revenues.
Important facts for investors to verify
- Progress in qualifying for broadband licenses, including the 90% test, channel surrender requirements and any anti-windfall payments.
- Whether the $130 million to $160 million estimated license-clearing and acquisition costs change, and how they compare with cash available and any financing raised.
- Commercial customer agreements, expected lease revenues and the timing of commercialization; the filing provides no specific revenue guidance.
- Cash burn, spectrum-acquisition spending and the extent to which the reported 12-month liquidity expectation remains valid.
- Recurring-revenue payments and ongoing obligations tied to the transferred TeamConnect and pdvConnect businesses, including tower and support costs.