Anterix Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2020 (fiscal 2021 second quarter); comparisons are with the corresponding 2019 periods. Balance-sheet comparisons are to March 31, 2020. Amounts below are in U.S. dollars; financial statement figures are in thousands unless stated otherwise.
Business context
Anterix is shifting from legacy mobile communications services toward commercializing its 900 MHz spectrum for private broadband networks serving utilities and other critical-infrastructure customers. The FCC’s 900 MHz Report and Order became effective August 17, 2020. Anterix is now seeking broadband licenses and pursuing potential spectrum leases; it reported meeting the 50% licensed-spectrum test in more than 3,100 of 3,223 counties.
Financial performance and liquidity
| Metric | Three months ended September 30 | Six months ended September 30 |
|---|---|---|
| Operating revenue, 2020 / 2019 | $248 / $423 | $504 / $876 |
| Operating loss, 2020 / 2019 | $(16,267) / $(8,306) | $(31,532) / $(17,843) |
| Net loss, 2020 / 2019 | $(16,280) / $(7,715) | $(31,410) / $(17,089) |
| Net loss per share, 2020 / 2019 | $(0.94) / $(0.46) | $(1.82) / $(1.09) |
- Second-quarter service revenue fell 73% to $66,000; spectrum revenue was unchanged at $182,000. Six-month revenue declined 42%, mainly following the transfer of pdvConnect customers to TeamConnect LLC.
- Direct cost of revenue was $515,000 against $248,000 of revenue in the quarter, and $1.063 million against $504,000 for six months. The filing does not present a conventional gross-margin measure.
- Operating expenses rose 100% to $17.349 million in the quarter and 51% to $28.193 million for six months. Stock compensation was a major driver: $8.618 million in the quarter and $10.573 million for six months, including expense triggered by the FCC order and a former-chairman award modification.
- Six-month operating cash use was $14.741 million, versus $14.543 million a year earlier; investing cash use was $8.034 million, principally for spectrum licenses. Cash declined by $21.243 million from March 31 to $116.210 million.
- At September 30, current assets were $118.627 million and current liabilities $6.479 million. Total liabilities were $19.323 million, including $7.785 million of operating lease liabilities. The filing reports no borrowings or other financial debt.
Material changes and unusual items
- Six-month revenue decreased as pdvConnect customers moved to TeamConnect LLC; the LLC pays Anterix a portion of recurring customer revenue. Legacy business transfers have reduced operating costs but left continuing support, lease and other obligations.
- Anterix recorded a $4.7 million loss in the first quarter from licenses cancelled under the FCC/AAR arrangement, with FCC credit toward future license eligibility and anti-windfall calculations but no direct reimbursement. A September license exchange generated a $1.1 million gain; the net six-month loss from disposal of intangible assets was $3.849 million. Second-quarter results included a net disposal gain of $829,000.
- Six-month spectrum-license acquisitions totaled approximately $10.8 million. Intangible assets were $117.341 million at September 30.
- Stock compensation increased substantially after the FCC order became effective and performance-award target conditions were met. The company also recognized a $29,000 non-cash impairment of network-site costs.
Outlook, risks and contingencies
- Management estimates combined spectrum-clearing, acquisition and anti-windfall costs of $130 million to $160 million, with the significant majority expected to be spent by the end of fiscal 2024. Timing and spending pace depend on customer demand, market opportunities and lease income.
- Management believes cash on hand is sufficient for at least 12 months, but says additional capital may be needed. A $150 million shelf registration and $50 million at-the-market program were available; no securities had been sold under them through the filing date.
- License qualification entails acquiring or retuning incumbent channels, satisfying FCC tests, surrendering 240 channels per county, and potentially making anti-windfall payments. Complex-system exemptions and the required relocation of AAR operations may affect clearing and timing.
- COVID-19 effects on customers, the economy, licensing and commercialization remain uncertain. Management says it is managing cash flow and considers liquidity adequate; it cannot reasonably estimate the pandemic’s potential financial impact.
- Revenue and receivables are concentrated: one carrier and one reseller accounted for approximately 93% of receivables at September 30. The filing reports no material legal proceedings and no material changes to previously disclosed risk factors. Disclosure controls were deemed effective.
- No formal revenue or earnings guidance is provided. Management’s forward-looking statements are subject to risks and are not guarantees of results.
Important facts for investors to verify
- Progress toward FCC broadband-license eligibility, incumbent clearing and actual license awards, including the timing and amount of anti-windfall payments.
- Whether utility and critical-infrastructure customers sign binding, economically meaningful spectrum-lease agreements, and when those agreements produce cash revenue.
- Updated expected spectrum investment costs versus the $130–$160 million estimate, and the effect of spending on liquidity and potential financing or dilution.
- Cash burn, legacy-business support and lease obligations, and the status of customer migration off the MotoTRBO systems.
- Customer and receivables concentration, and the underlying causes of elevated stock-based compensation and recurring operating losses.