Business context and reporting period
This is pdvWireless, Inc.’s Form 10-K for the fiscal year ended March 31, 2018, filed June 5, 2018. Although the request metadata says “2017 Q4,” the filing covers FY2018; it also reports fourth-quarter results. The company held nationwide 900 MHz spectrum and focused on seeking FCC approval to realign part of the band for broadband, while operating TeamConnect push-to-talk service in seven metropolitan areas and offering pdvConnect applications.
Key financial metrics
| Metric | FY2018 | FY2017 |
|---|---|---|
| Operating revenue | $6.36 million | $4.79 million |
| Gross profit (loss) | ($1.54 million) | ($2.26 million) |
| Gross margin | (24.3%) | (47.3%) |
| Operating loss | ($31.73 million) | ($32.78 million) |
| Net loss | ($30.63 million) | ($39.19 million) |
| Net loss per share, basic and diluted | ($2.12) | ($2.72) |
| Cash used in operating activities | $21.99 million | $26.50 million |
| Cash and cash equivalents at year-end | $98.32 million | $124.08 million |
FY2018 revenue comprised $4.80 million service revenue, $0.73 million spectrum lease revenue and $0.83 million other revenue. Fourth-quarter FY2018 revenue was $1.78 million and net loss was $8.80 million. At March 31, 2018, total assets were $220.34 million, total liabilities $17.87 million and stockholders’ equity $202.47 million. The company reported no note payable outstanding; its $1.29 million note was repaid by year-end. Current assets were $100.28 million and current liabilities $5.23 million. Operating lease obligations totaled $12.97 million.
Material changes versus the prior comparable period
- Revenue rose 33%, primarily from TeamConnect growth; service revenue increased $1.18 million. Spectrum lease revenue was unchanged.
- Gross loss narrowed by $0.72 million as revenue growth exceeded higher network operating and depreciation costs.
- Operating loss improved by $1.06 million. General and administrative expense declined $1.69 million, partly because FY2017 included costs for a FirstNet bid opportunity; sales and support expense increased $1.32 million.
- Net loss improved by $8.56 million, including the absence of FY2017’s $6.50 million income-tax charge. FY2018 reported a $0.44 million tax benefit.
- Cash declined $25.77 million during FY2018. Investing outflows were $2.88 million, including $1.93 million for spectrum acquisitions.
- One Tier 1 carrier represented 39% of FY2018 revenue, compared with two carriers representing 38% and 10% in FY2017.
Outlook, management commentary, risks and unusual items
- FCC proceeding: The company was awaiting FCC action on its 900 MHz Notice of Inquiry. Its proposal included a potential 3-by-3 MHz broadband allocation, but approval, timing and the eventual rules were uncertain. A proposed frequency exchange with the Association of American Railroads remained tentative.
- Customer concentration: A Tier 1 carrier notified the company that its largest pdvConnect customer planned to discontinue service during FY2019. That customer generated $2.4 million, or 37% of FY2018 revenue; the filing warns of a material revenue impact.
- Restructuring after year-end: On June 1, 2018, the board approved eliminating about 20 positions, or 20% of the workforce, to lower costs and refocus on spectrum initiatives. Management expected a roughly $0.3 million FY2019 charge and $1.6 million in annualized savings.
- CEO transition after year-end: Morgan O’Brien became CEO on April 23, 2018, succeeding John Pescatore, who became vice chairman. The company expected $1.7 million in cash liabilities and a $2.8 million non-cash stock-compensation charge related to transition and consulting arrangements.
- Management said cash on hand was expected to fund obligations for at least the next 12 months. The company nevertheless cautioned that continued losses, weaker revenues, regulatory delays and additional development costs could require further financing; an at-the-market facility allowed up to $40 million in share sales, but none had been sold by the filing date.
- TeamConnect customer growth had been slower than expected, with challenges including dealer performance, long sales cycles, device costs, competition and coverage gaps. The board was reviewing the businesses’ future prospects.
- FY2018 included a substantial valuation allowance against deferred tax assets; the filing also describes a tax benefit from the Tax Cuts and Jobs Act. The IRS notified the company in May 2018 that it would audit its FY2016 tax return.
- The financial statements received an unqualified audit opinion. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not attest to internal controls under the emerging-growth-company exemption. No material legal proceedings were reported.
Most important facts an investor should verify
- Whether and when the FCC authorizes 900 MHz realignment, and the final licensing, relocation and operating conditions.
- The expected timing and financial effect of losing the pdvConnect customer contributing 37% of FY2018 revenue, including collection of carrier receivables.
- Whether the announced restructuring achieves the stated $1.6 million annualized savings and what further changes the business review produces.
- Cash burn, remaining liquidity and potential financing or share dilution, particularly as spectrum initiatives continue.
- The accuracy and comparability of tax disclosures, including the valuation allowance, tax-law benefit and pending IRS audit.