Anterix Inc. — Form 10-Q Summary
Reporting period: Quarter ended December 31, 2019. This is Anterix’s fiscal 2020 third quarter; the filing also reports results for the nine months ended December 31, 2019. Financial amounts below are in U.S. dollars.
Business context
Anterix is shifting from its legacy TeamConnect and pdvConnect communications businesses toward monetizing its 900 MHz spectrum. It is pursuing an FCC proceeding to realign the band for broadband use and describes itself as the largest holder of licensed 900 MHz spectrum, with nationwide coverage. In July 2019, it raised approximately $94.2 million net through a follow-on stock offering.
Financial performance and liquidity
| Metric | Three months ended Dec. 31, 2019 | Three months ended Dec. 31, 2018 | Nine months ended Dec. 31, 2019 | Nine months ended Dec. 31, 2018 |
|---|---|---|---|---|
| Operating revenue | $0.361 million | $1.502 million | $1.237 million | $5.199 million |
| Operating loss | $(9.176) million | $(8.727) million | $(26.957) million | $(33.495) million |
| Net loss | $(8.811) million | $(8.350) million | $(25.900) million | $(32.432) million |
| Net loss per share | $(0.52) | $(0.57) | $(1.60) | $(2.23) |
- Service revenue fell 85% in the quarter and 82% for the nine-month period; total revenue declined 76% in both comparisons. The company attributed the declines mainly to transferring TeamConnect customers to A BEEP and Goosetown and losing pdvConnect customers. Spectrum revenue remained $0.183 million for the quarter and $0.547 million for nine months.
- Direct cost of revenue exceeded revenue by $0.270 million in the quarter and $1.011 million for nine months, before other operating expenses. Operating expenses declined 7% in the quarter and 27% for nine months; the nine-month comparison benefited substantially from lower restructuring charges.
- Cash and cash equivalents were $150.243 million at December 31, 2019, versus $76.722 million at March 31, 2019. Net cash used in operating activities was $21.271 million for the nine months, and investing activities used $1.205 million. Financing activities provided $95.997 million, principally from the July offering.
- Total liabilities were $20.575 million, including $9.148 million of operating lease liabilities. The filing reports no borrowings or debt balance. Management said cash on hand should be sufficient to meet obligations for at least the next 12 months.
- Stockholders’ equity was $255.254 million. Common shares outstanding increased from 14.739 million at March 31, 2019 to 17.147 million at December 31, 2019, principally reflecting the offering.
Material changes, outlook, and risks
- The transfer of the legacy customer businesses took effect in April 2019. Anterix continues to operate certain network facilities and bears related costs while customers are migrated; it also has service-fee and revenue-sharing obligations to TeamConnect LLC.
- The FCC adopted a Notice of Proposed Rulemaking in March 2019. It proposed a framework for 900 MHz broadband licenses, including incumbent relocation and eligibility requirements, but had not issued a final order by the filing. Anterix said the timing and terms remain uncertain and could materially affect license eligibility, spectrum-clearing costs, and commercialization.
- The company intends to lease spectrum to customers for terms of 20 years or longer, with customers expected to fund network deployment and operation. It expects significant costs and operating losses, and does not expect significant revenue, until it obtains broadband licenses and commercializes spectrum; it cautioned that this may not occur.
- There is no specific numerical financial guidance in the filing. Capital needs depend on FCC outcomes, incumbent retuning and relocation, spectrum acquisitions, customer contracts, and ongoing legacy-business obligations.
- Management concluded disclosure controls were not effective at December 31, 2019 because a material weakness related to accounting for tax-law changes remained under remediation. Management said new controls had been implemented and would be tested in the fiscal year-end assessment.
- Anterix reported no material legal proceedings and no material changes to previously disclosed risk factors. Other notable items included a $0.503 million increase in the estimated asset retirement obligation and a $0.594 million deferred tax expense for the nine-month period.
Important facts for investors to verify
- Whether and when the FCC issues a final order, and whether its terms support Anterix’s proposed broadband licensing and clearing plans.
- Expected costs and timing for acquiring spectrum, retuning or relocating incumbents, and the related effect on cash runway.
- Evidence of customer demand, signed spectrum-lease agreements, and a path to meaningful recurring revenue.
- Cash burn and obligations tied to legacy network operations, LLC service arrangements, restructuring, and operating leases.
- Progress in remediating and testing the disclosed material weakness in internal control over financial reporting.
- Revenue concentration: one carrier and one reseller accounted for approximately 87% of accounts receivable at December 31, 2019.