Business context and reporting period
pdvWireless, Inc. (the registrant in this filing) filed this Form 10-Q for the quarter ended December 31, 2017, its fiscal third quarter, and the nine months then ended. The company focused on its 900 MHz spectrum assets and enterprise wireless services, including DispatchPlus push-to-talk in seven U.S. markets. Its principal strategic objective was FCC approval to realign spectrum for potential broadband and advanced wireless services.
Financial performance and position
Amounts below are in U.S. dollars; financial statement figures are in millions except per-share data.
| Metric | Three months ended Dec. 31, 2017 | Prior-year quarter | Nine months ended Dec. 31, 2017 | Prior-year period |
|---|---|---|---|---|
| Revenue | $1.60 | $1.34 | $4.58 | $3.52 |
| Gross loss | ($0.42) | ($0.50) | ($1.05) | ($1.57) |
| Operating loss | ($8.09) | ($7.30) | ($23.17) | ($25.23) |
| Net loss | ($5.72) | ($7.29) | ($21.83) | ($25.17) |
| Basic and diluted loss per share | ($0.40) | ($0.51) | ($1.51) | ($1.75) |
- Revenue grew 20% in the quarter and 30% year to date, primarily from increased DispatchPlus subscribers. Gross loss narrowed, but cost of revenue remained above revenue; gross margin was approximately negative 26% for the quarter and negative 23% year to date.
- Quarterly operating loss widened as operating expenses rose 13%. Nine-month operating expenses fell 7%, mainly because the prior-year period included $5.4 million of FirstNet bid costs; this more than offset higher sales/support, headcount, stock compensation and strategic consulting costs.
- Cash and cash equivalents were $104.2 million at December 31, 2017, down from $124.1 million at March 31, 2017. Nine-month operating cash use was $16.9 million, versus $20.6 million a year earlier; investing cash use was $2.7 million. No material cash interest payments were reported.
- Current assets were $106.6 million and current liabilities $5.3 million, implying working capital of about $101.3 million. Total liabilities were $17.5 million; note payable was about $0.5 million, bearing 0.55% interest and due March 2018. Stockholders’ equity was $209.8 million.
- The company reported a $2.2 million quarterly and $0.9 million nine-month income tax benefit, including a $2.8 million discrete benefit from the reduction in the federal corporate tax rate to 21%. The tax benefit reduced reported net loss; it was non-cash.
Material changes, outlook and risks
- Management said cash on hand was expected to fund financial obligations for at least the next 12 months. It provided no revenue, earnings or other quantitative operating guidance.
- DispatchPlus sales had ramped more slowly than initially expected, attributed to indirect-sales performance, longer sales cycles and network coverage gaps. Management planned to concentrate on the existing seven markets while refining its business model and longer-term strategy.
- The FCC’s 900 MHz proceeding remained open after the company and the Enterprise Wireless Alliance filed comments and replies. The timing and outcome were uncertain; the FCC could propose rules, seek further information, close the proceeding or take another action. A favorable outcome was not assured and could require significant time and resources.
- One Tier 1 carrier accounted for approximately 40% of quarterly and nine-month revenue and 64% of accounts receivable at December 31, 2017, presenting customer concentration risk.
- On February 6, 2018, after the reporting date, the company established at-the-market sales agreements for up to $40 million of common stock. Sales were optional and could dilute shareholders; proceeds, if raised, were intended for general corporate purposes, including FCC initiatives and business development.
- Operating leases required aggregate future rentals of $13.2 million. The company reported no material legal proceedings and no material changes to previously disclosed risk factors. Management assessed disclosure controls as effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether DispatchPlus subscriber growth can improve revenue enough to achieve positive gross margins and reduce cash burn.
- FCC proceeding status, timing, and the practical terms and costs of any eventual spectrum realignment.
- Cash runway assumptions, planned spending, and whether the $40 million ATM facility is used, including the amount and resulting dilution.
- Dependence on the Tier 1 carrier and its contribution to revenue and receivables.
- Effects of the tax-rate change and the reported tax benefits, which were affected by deferred-tax valuation allowances and included a discrete non-cash item.