Business context and reporting period
Anterix Inc., then named pdvWireless, Inc. and trading as PDVW, filed this Form 10-K for the fiscal year ended March 31, 2019. The company is shifting from legacy mobile communications services toward monetizing its 900 MHz spectrum for private broadband networks serving utilities and other critical-infrastructure and enterprise customers. It held approximately 60% of 900 MHz channels, on average, in the 20 largest U.S. metropolitan markets.
The filing also reports fourth-quarter FY2019 results; it is an annual filing, not a standalone quarterly report. The company had not signed a long-term broadband spectrum lease with a utility or other critical-infrastructure customer.
Financial and operating metrics
| Metric | FY2019 / March 31, 2019 | Prior comparable period |
|---|---|---|
| Revenue | $6.50 million | $6.36 million in FY2018, as restated |
| Gross loss | $0.75 million; approximately 11.6% of revenue | $1.54 million; approximately 24.3% of revenue |
| Operating loss | $42.74 million | $31.73 million in FY2018 |
| Net loss | $41.99 million; $2.88 per share | $24.57 million; $1.70 per share in FY2018, as restated |
| Operating cash flow | $(23.09) million | $(21.99) million in FY2018 |
| Investing cash flow | $(1.67) million | $(2.88) million in FY2018 |
| Cash and cash equivalents | $76.72 million | $98.32 million at March 31, 2018, as restated |
| Total assets / liabilities | $196.75 million / $15.99 million | $220.34 million / $11.81 million at March 31, 2018, as restated |
The company reported no outstanding borrowings at March 31, 2019. Current assets were $78.35 million and current liabilities $8.84 million. Revenue included $4.77 million of service revenue, $0.73 million of spectrum lease revenue and $1.00 million of other revenue. The legacy Motorola spectrum lease generated $0.73 million annually.
Material changes versus the prior comparable period
- Revenue rose 2%, while operating loss widened by approximately $11.0 million and net loss by approximately $17.4 million. The net-loss comparison reflects a $6.5 million noncash tax benefit in FY2018, as restated.
- Gross loss improved by $0.79 million, primarily due to lower handset-related and network costs and reduced headcount costs.
- Operating expenses increased 39% to $41.99 million. FY2019 included $9.60 million of restructuring costs and $0.78 million of long-lived asset impairment; general and administrative expense also increased 23%.
- Cash declined by $21.60 million during FY2019. Operating cash use increased from $21.99 million to $23.09 million.
- The company transferred its TeamConnect customer relationships to A BEEP and Goosetown and arranged to transfer related application intellectual property to TeamConnect LLC for a 19.5% ownership interest. It retained transition, network operating, lease and support obligations.
Outlook, commentary, risks and unusual items
- In March 2019, the FCC unanimously adopted a Notice of Proposed Rulemaking supporting the objective of creating a 900 MHz broadband opportunity. The proposal contemplated a 6 MHz broadband segment, but also sought comment on a 10 MHz option. It was not a final order. Proposed eligibility, incumbent-relocation, spectrum-acquisition and build-out requirements could affect the company’s ability, timing and cost to secure licenses.
- Management intends to pursue long-term spectrum leases, generally for 20 years or more, with customers bearing network deployment and operating costs. The company would bear costs of obtaining licenses, acquiring needed spectrum and retuning or relocating incumbents. No revenue guidance was provided.
- Management said cash on hand should cover financial obligations for at least the next 12 months, but additional capital would be needed to implement long-term plans. A shelf registration permitted offerings of up to $100 million; an at-the-market program registered up to $40 million of common stock. The filing said no securities had been sold under these arrangements through its filing date.
- Restructuring is expected to reduce annual operating costs by approximately $2.1 million. The company expected $0.3 million of further restructuring charges in FY2020 and FY2021 and anticipated completing the relevant cost-reduction actions by July 31, 2019.
- The FY2018 financial statements were restated to correct tax accounting for net operating losses, increasing the FY2018 tax benefit by $6.06 million and reducing reported net loss from $30.63 million to $24.57 million.
- Management reported ineffective internal control over financial reporting and disclosure controls at March 31, 2019, citing the tax-accounting control deficiency and a separate IT user-access and segregation-of-duties weakness. Management expected remediation by the first half of FY2020; the weaknesses had not yet been tested sufficiently to conclude they were remediated.
- Key risks include an unfavorable, delayed or costly FCC outcome; inability to acquire sufficient contiguous spectrum or resolve incumbent holdouts; failure to secure customers; continued losses and financing needs; customer and receivables concentration; and obligations retained after the legacy-business transfers. One carrier represented 25% of FY2019 revenue and 31% of year-end receivables.
Important facts for investors to verify
- Subsequent FCC rulemaking outcomes and the actual county-level requirements, costs and timing for obtaining broadband licenses.
- Whether the company secures additional spectrum, reaches workable incumbent-relocation agreements and signs its first long-term broadband customer lease.
- Cash burn, restructuring savings and the timing and terms of any capital raise, including potential dilution from equity issuance.
- Progress in remediating and testing the disclosed material weaknesses in financial reporting and disclosure controls.
- Revenue collections from the concentrated carrier and the costs, revenues and transition obligations under the A BEEP, Goosetown and TeamConnect LLC agreements.