Business context and reporting period
pdvWireless, Inc. (the issuer named in the filing; the request metadata identifies Anterix) filed this Form 10-Q for the quarter ended December 31, 2018, its fiscal third quarter, and the nine months then ended. The company focused on developing its 900 MHz spectrum for future broadband and other wireless services, while operating push-to-talk and related offerings. Financial figures below are in U.S. dollars; dollar amounts are in millions unless stated otherwise.
Financial and operating metrics
| Metric | Quarter ended Dec. 31, 2018 | Prior-year quarter | Nine months ended Dec. 31, 2018 | Prior-year nine months |
|---|---|---|---|---|
| Revenue | $1.50 | $1.60 | $5.20 | $4.58 |
| Gross loss | $(0.11) | $(0.42) | $(0.36) | $(1.05) |
| Operating loss | $(8.73) | $(8.09) | $(33.50) | $(23.17) |
| Net loss | $(8.35) | $(0.10) | $(32.43) | $(16.21) |
| Net loss per share | $(0.57) | $(0.01) | $(2.23) | $(1.12) |
| Cash used by operating activities | Not provided for quarter | Not provided for quarter | $(16.96) | $(16.91) |
Quarterly gross margin was approximately negative 7.5%; nine-month gross margin was approximately negative 7.0%. Cash and cash equivalents were $82.35 million at December 31, 2018, down from $98.32 million at March 31, 2018. Total current assets were $84.70 million and current liabilities $7.91 million. Total liabilities were $15.45 million; the filing reports no outstanding debt at period-end, and the prior note payable had been repaid in March 2018. Stockholders’ equity was $188.23 million.
Material changes versus comparable periods
- Quarterly revenue declined 6.2%, primarily because of lower pdvConnect revenue following the loss of a customer. Nine-month revenue increased 13.5%, reflecting TeamConnect subscriber growth and higher equipment-related revenue, partly offset by lower pdvConnect revenue.
- Gross loss narrowed in both periods, which management attributed to lower handset sales, reduced headcount costs and lower costs to maintain the 900 MHz network.
- Quarterly operating loss widened to $8.73 million. Nine-month operating loss increased by $10.32 million, reflecting higher general and administrative costs, $8.54 million of restructuring costs and $0.73 million of asset impairment. Sales and support expense declined following workforce reductions.
- Prior-year net losses were reduced by tax benefits: $7.80 million for the comparative quarter and $6.50 million for the comparative nine months. The 2018 periods recorded no income tax expense. The company restated previously issued 2017 and fiscal 2018 financial statements after revising its interpretation of TCJA net operating loss rules.
- Nine-month operating cash use was broadly flat year over year. Cash declined by $15.97 million over the nine months, after $1.43 million of investing outflows and $2.43 million of financing inflows, principally stock-option proceeds.
Outlook, commentary, risks and unusual items
- Management said available cash should cover financial obligations for at least the next 12 months, but noted that higher-than-expected spending, slower revenue development or a need for additional capital could affect liquidity. The company may seek debt or equity financing; availability and terms are uncertain.
- The company was awaiting FCC action on its proposal to realign the 900 MHz band for broadband use. Timing and outcome were uncertain; approval is not assured, and the process may require significant time and resources. The company also cited delay from the government shutdown and dependencies involving incumbent licensees and a tentative frequency-exchange arrangement.
- In January 2019, the company agreed to transfer TeamConnect customers and related arrangements to A BEEP and Goosetown, and entered an MOU to transfer application intellectual property to a new LLC in exchange for a 19.5% ownership interest. The company will continue paying certain network costs for two years, provide transition services, and receive portions of future revenue under the agreements. The filing describes these as subsequent events, not completed period-end transactions.
- Management estimated that business transfers and related cost actions would reduce annual operating costs by approximately $2.1 million. It expected about $0.9 million of additional restructuring charges in fiscal 2019 and another $0.2 million in fiscal 2020–2021; completion was anticipated by July 31, 2019. The company also reported an earlier annualized savings estimate of $1.6 million from workforce reductions.
- Unusual charges included $8.54 million of nine-month restructuring costs, largely transition-related stock compensation and cash obligations, and a $0.73 million noncash impairment of TeamConnect radio assets. The company had $3.31 million of accrued restructuring costs at December 31, 2018.
- Disclosure controls were deemed ineffective because a material weakness in tax-law review controls led to the financial-statement restatement. Remediation controls and training had been introduced, but had not operated long enough to establish effectiveness. The IRS was auditing the company’s fiscal 2016 tax return; the audit was ongoing.
- Revenue and receivables were concentrated: one Tier 1 carrier accounted for 28% of nine-month revenue and 43% of accounts receivable at December 31, 2018. The company reported no material legal proceedings.
Key facts for investors to verify
- Confirm the FCC proceeding’s status, timing, and potential requirements, including incumbent relocation and frequency-exchange dependencies.
- Review the A BEEP, Goosetown and LLC agreements for transition costs, revenue-sharing terms, remaining network obligations, and execution risks.
- Assess cash burn against management’s 12-month liquidity statement and the expected restructuring savings, charges and cash payments.
- Track remediation and testing of the material weakness, and developments in the IRS audit.
- Reconcile the filing’s restated comparative figures and accounting-policy effects; ASC 606 adoption changed reported revenue and expenses modestly.