Business context and reporting period
pdvWireless, Inc. (the issuer in this filing; now known as Anterix Inc.) filed this Form 10-Q for the quarter ended September 30, 2018, its fiscal second quarter, and the six months ended September 30, 2018. The company held licensed 900 MHz spectrum and operated TeamConnect push-to-talk and pdvConnect services while pursuing FCC approval to realign spectrum for potential broadband use.
Financial performance and liquidity
Amounts below are in millions of dollars except per-share data; the filing presents financial statements in thousands.
| Metric | Three months ended Sep. 30, 2018 | Prior-year quarter | Six months ended Sep. 30, 2018 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $1.824 | $1.513 | $3.694 | $2.978 |
| Gross profit (loss) | $0.026 | $(0.398) | $(0.254) | $(0.634) |
| Operating loss | $(12.148) | $(7.724) | $(24.768) | $(15.080) |
| Net loss | $(11.779) | $(8.199) | $(24.082) | $(16.107) |
| Basic and diluted loss per share | $(0.81) | $(0.57) | $(1.66) | $(1.12) |
Quarterly revenue rose 20.6%; six-month revenue rose 24.1%. Service and other revenue increased, while spectrum revenue was unchanged. Quarterly gross profit turned slightly positive, but six-month gross loss remained. Losses widened, notably with restructuring charges and higher general and administrative expense. No income tax expense was recorded in 2018.
At September 30, cash and cash equivalents were $85.6 million, down from $98.3 million at March 31. Six-month operating cash use was $12.2 million, investing cash use $1.1 million, and financing cash provided $0.7 million. Current assets were $87.7 million and current liabilities $6.2 million. The balance sheet reported no borrowings; the prior note payable had been paid in full by March 31. Management said cash on hand should cover obligations for at least 12 months, while noting that additional funding may be required.
Material changes, outlook, and risks
- Restructuring and strategy: The company shifted focus and resources toward FCC spectrum initiatives, changed its CEO, and reduced its workforce by about 20 positions in June and seven more in August. It expected the June workforce reduction to lower annualized costs by $1.6 million. Six-month restructuring expense was $8.1 million, including stock compensation and transition/consulting costs; $3.2 million remained accrued at quarter-end, with payments extending 18–24 months.
- Revenue outlook: The largest customer of a Tier 1 carrier partner planned to discontinue pdvConnect service during fiscal 2019. Management reported a small sequential decline in these business revenues and expected further declines. One carrier accounted for 28% of quarterly revenue and 41% of accounts receivable at September 30.
- FCC dependency: The company was awaiting FCC action on its 900 MHz proceeding. Management was optimistic but emphasized timing was uncertain and there was no assurance the FCC would authorize broadband use. Proposed changes also depended on FCC approvals and a tentative frequency-exchange arrangement with the Association of American Railroads.
- Restatement and controls: The filing reflects restated prior-year financial information after the company revised its interpretation of TCJA effective dates for tax-loss carryforwards. It recognized an additional deferred tax benefit of $6.0 million for fiscal 2018. Management reported a material weakness in controls over review of changing tax law and concluded disclosure controls were ineffective as of September 30; remediation was underway but not yet complete.
- Other items: The company recorded a $0.5 million noncash impairment of TeamConnect radio assets. An IRS audit of the fiscal 2016 tax return was ongoing. Noncancelable office and tower lease payments totaled $11.9 million after September 30, 2018. The filing reported no material litigation and no material change to previously disclosed risk factors.
Most important facts for investors to verify
- Whether the FCC advances or adopts rules enabling the proposed 900 MHz broadband configuration, and whether related incumbent and railroad agreements are completed.
- The timing and financial effect of the largest pdvConnect customer’s departure and the resulting revenue decline.
- Whether cash burn, restructuring payments, and spectrum investment remain consistent with management’s stated 12-month liquidity expectation, and whether external capital becomes necessary.
- Whether the tax-accounting control weakness is remediated and whether any further restatements or tax-audit effects arise.
- How much of reported revenue and receivables remains concentrated in the Tier 1 carrier partner, and the future economics of the legacy services.