pdvWireless, Inc. — Form 10-Q summary
Issuer and period: The filing is by pdvWireless, Inc. (not Anterix Inc.) and covers the quarter ended June 30, 2018, the company’s fiscal first quarter. It was filed August 10, 2018. Dollar amounts below are in millions unless noted.
Business context
pdvWireless held licensed 900 MHz spectrum across the United States and was pursuing FCC rule changes to enable broadband and other advanced uses. Its operating businesses included TeamConnect push-to-talk service and pdvConnect software. Management shifted priorities toward spectrum initiatives and began restructuring the operating businesses.
Financial results and liquidity
| Metric | Quarter ended June 30, 2018 | Prior-year quarter |
|---|---|---|
| Revenue | $1.872 | $1.465 |
| Gross loss / gross margin | $(0.274) / (14.6%) | $(0.235) / (16.0%) |
| Operating loss | $(12.619) | $(7.354) |
| Net loss | $(12.302) | $(7.910) |
| Net loss per share | $(0.85) | $(0.55) |
| Cash used in operating activities | $(7.119) | $(6.374) |
| Cash and cash equivalents at quarter-end | $90.936 | $115.541 |
Revenue rose 27.8%, primarily from more TeamConnect subscribers and equipment sales for the newer Diga-Talk offering. Revenue remained below cost of revenue, resulting in a gross loss. Operating expenses included $3.975 million of restructuring costs and $0.534 million of long-lived asset impairment. Interest income was $0.316 million; income tax expense was zero.
Total assets were $212.460 million and total liabilities were $11.753 million at June 30, 2018. The balance sheet reported no debt; a prior note payable had been paid in full by March 31, 2018. Current assets were $93.122 million versus current liabilities of $5.018 million. Cash declined $7.382 million during the quarter. Management said cash on hand should cover obligations for at least 12 months, while noting that future capital needs depend on FCC outcomes, operating costs, revenues, and potential business or spectrum investments.
Material changes, outlook, and risks
- Restructuring and leadership transition: The company eliminated about 20 positions, approximately 20% of its workforce. Management expects the reduction to lower annualized operating costs by $1.6 million. CEO John Pescatore moved to vice chairman; Morgan O’Brien became CEO. Related charges included stock compensation and consulting/transition costs; some cash payments are scheduled over 24 months beginning October 2018.
- Revenue outlook: Management expects TeamConnect and pdvConnect revenue to decline in future periods, citing the planned Fiscal 2019 departure of pdvConnect’s largest customer and the cost-reduction measures. No quantified revenue guidance was provided.
- FCC proceeding: The company was awaiting FCC action on potential 900 MHz band changes. Management said action might occur in fall 2018 based on statements by FCC personnel, but emphasized that this was not an official FCC position, timing was uncertain, and favorable rule changes were not assured. Some proposals also depended on agreements with incumbent licensees.
- Restatement and controls: The filing restated prior financial statements after the company revised its interpretation of the TCJA’s effective dates for Fiscal 2018 tax-loss carryforwards. The revised treatment gives those losses indefinite lives and no 80% utilization limit; the company recognized additional deferred tax benefits of $5.6 million for the quarter ended December 31, 2017 and $6.0 million for the year ended March 31, 2018. Management reported a material weakness in tax-law review controls and concluded disclosure controls were not effective as of June 30, 2018; remediation was underway but not yet validated.
- Accounting and contingencies: ASC 606 adoption increased opening equity by $0.768 million, principally from capitalizing eligible contract acquisition costs. An IRS audit of the company’s March 31, 2016 tax return began in June 2018 and remained ongoing. The filing reported no material litigation. Operating leases totaled $12.497 million in scheduled remaining rentals.
- Concentration and financing risk: One Tier 1 carrier accounted for 33% of quarterly revenue and 52% of quarter-end receivables. The company said it might need additional financing if cash use exceeds expectations or revenue and business development fall short. It had not sold shares under its $40 million at-the-market sales agreements through the filing date.
Important facts for investors to verify
- Confirm the correct issuer and period: this filing names pdvWireless, Inc. and reports the quarter ended June 30, 2018.
- Review the restated tax accounting, its deferred-tax assumptions, and the status of remediation for the material weakness.
- Track the largest pdvConnect customer’s planned departure, subsequent revenue trends, and progress toward the stated $1.6 million annualized cost reduction.
- Monitor FCC actions and any required incumbent-frequency agreements; management’s fall 2018 timing reference was not an official FCC commitment.
- Reconcile the impairment disclosures: the income statement reports $0.534 million, while a property-and-equipment note also describes a $0.7 million non-cash impairment charge.
- Assess cash burn, the company’s 12-month liquidity assertion, carrier concentration, and any future capital raising.