Anterix Inc (ATEX) 2016 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the pdvWireless Incorporated second-quarter earnings update conference call.

(Operator Instructions)

It is now my pleasure to turn floor over to your host, John Pescatore. Sir, the floor is yours.

Thank you. Good evening, everyone, and welcome to pdvWireless's earning call for the second quarter of FY16. Joining me today to discuss our results are Brian McAuley, our Chairman, Morgan O'Brien, our Vice Chairman and Tim Gray, our Chief Financial Officer. Before we begin, I want to hand it over to Tim to remind us of a few important items.

Thanks, John. Before we begin the substance of today's call, I'd like to make some brief introductory comments. Earlier today we issued a press release which outlines the topics we plan to discuss today. If anyone has not yet had the opportunity to review this press release, it is available on the pdvWireless corporate website at pdvWireless.com, it is also available on the SEC's website. Additionally, I'd like to remind our listeners that this conference call is open to the public and a recording of our discussion will be available on the Company's website.

During this call, we will discuss some factors and matters that are likely to influence our business going forward including statements relating to regulatory issues, expected market launches, customer acceptance of our service offerings and our spectrum initiatives. Any matters discussed today that are not historical facts constitute forward looking statements. These forward looking statements are subject to risks and uncertainties, including those found in the Risk Factors section of our filings with the SEC which could cause our actual results to differ materially from those suggested by our forward looking statements. We encourage all of our listeners review our SEC filings, including our quarterly report on Form 10-Q, which we filed today and our annual report on Form 10K for the fiscal year ended March 31, 2015 for a more complete description of these risks and uncertainties. We undertake no obligation to revise or update these forward looking statements to reflect events or circumstances after the date hereof.

In addition the financial information we plan to discuss on this call includes a non-GAAP financial measure, adjusted EBITDA. The Company defines adjusted EBITDA as net income or loss with adjustments for depreciation and amortization, interest income expense net income taxes, and stock-based compensation. We use adjusted EBITDA to evaluate the Company's performance and provide this financial measure to investors as a supplement to the Company's reported results because we believe this information provides additional insight into the Company's operating performance by disregarding certain nonrecurring items, or items that are not reflective of the day to day offering of its services. Adjusted EBITDA should not be considered in isolation as a substitute for as superior to financial measures calculated in accordance with GAAP. And any reconciliation to those financial statements should be carefully evaluated. As appropriate, the most directly comparable GAAP financial measures and information reconciling these non-GAAP financial measures to the Company's financial results prepared in accordance with GAAP are included in the earnings release, which is posted on the Company's website.

Thanks, Tim. In our second fiscal quarter and over the first six months of our fiscal year, we continue to make progress on our three key business imperatives. Those are launching and developing our DispatchPlus business, advancing the FCC regulatory process, and developing our long-term broadband strategy. While we remain in the early stages of all of these initiatives, we wanted to provide you with an update on our progress.

First I want to speak briefly to our regulatory initiative. As many of you know, last November, together with the Enterprise Wireless Alliance, we filed a joint rule making petition with the FCC asking for realignment of the 900 megahertz band to allow us to use our spectrum to support broadband technologies. We continue to work actively and constructively with interested parties, including 900 megahertz incumbents, and remain optimistic that we'll be able to work through the issues raised in the comments filed with the FCC. Overall, we believe the process is progressing well. While there are always risks in timing and outcome, we remain optimistic about a favorable result. Morgan will speak more about the regulatory process shortly.

Now, I'd like to discuss the progress on the buildout and launch of our next generation DispatchPlus networks in key markets. Previously, we announced that in June we launched our service in Houston and that we had cell sites in service in three additional markets, Dallas, Philadelphia, and Atlanta. We've made good progress in those additional markets, and the vast majority of the design cell sites in those markets are now in service, and we have commenced sales and marketing activities.

Today, we announced that we have three additional markets, Chicago, the New York metro area, and Washington/Baltimore, with cell sites in service. Having these initial sites in service gives us demonstrable, but limited, service in those markets which allows us to get a headstart on attracting and training distributors and to begin testing sales and marketing programs in those markets as well.

In each of these seven markets at varying stages, we have signed agreements with indirect distributors of our product, we are or will be testing various marketing initiatives including telemarketing, advertising programs, sales incentives, customer promotions, and other sales programs to determine the most cost-effective way to increase revenues. Our goal is to identify what appears to be working best in these diverse markets before we advance our spending and efforts in additional markets. By the way, while we're still focused on these seven markets, we've made much progress in the development of other markets including such things as market selection, determining desired coverage, network design, site development, those types of activities. Given that, we remain optimistic in our ability to have 20 markets with service by the later part of 2016.

Our dealer program has been well received in our market areas. In all seven markets we've announced, we have numerous dealers under distributional agreements. We've experienced and expect to continue to experience a ramp up period after launch in a market as our dealers become more familiar with our network and solutions and they began to invest in their own sales and marketing activities. Once a dealer signs up, the ramp up can include recruiting and hiring of sales reps, developing compensation programs, training and development, and initial prospecting.

In addition, beyond traditional two-way radio dealers, we've also begun to explore alternate sales channels that sell into the same verticals that we're targeting. We're still in the beginning stages of our sales and marketing development efforts and therefore, we're not yet reporting subscriber metrics as it is still too early for those numbers to be meaningful. We can share that we have paying units in service in multiple market areas in our targeted customer verticals including construction, transportation, distribution, maintenance and security, waste and field service.

Further, at this early stage of customer prospecting and acquisition, we're pleased with the interest we're seeing from prospective customers in the business verticals that we expected would be most attracted to our service offerings. In addition, indications from dealers, prospects, and our early sales are positive in terms of the $30 per month bundled price and the value of our differentiated offering.

The third key business imperatives for PDV is developing our long-term broadband strategic plan. As we have stated in our regulatory filings, with a successful outcome at the FCC, we intend to provide broadband services to enterprises with prioritized access for those in critical infrastructure industries. In planning for phase 2 of our business plan we are developing a better understanding of the current and projected needs for communication services in the critical infrastructure space, as well as in other key markets -- vertical markets. Critical infrastructures needs are expected to include both push-to-talk voice and significant data requirements such as the evolving utility needs for smart grid, distribution automation, and demand response. In addition to potential critical infrastructure applications, we see potentials and opportunity within the broad Internet of things category, but more specifically, we are focusing on understanding opportunities in select, nearer-term enterprise machine-to-machine segments where our license spectrum could be a differentiator.

We believe our spectrum position and prioritized network services can provide a more reliable and robust service offering that's better suited to mission-critical high-value applications. We recently enhanced our management team by hiring a very strong leader to drive our strategy and development team. We'll continue to keep you appraised of advances we make in this area. With that said, it's my pleasure to turn the call over to Morgan O'Brien, our Vice Chairman.

Thank you, John and good evening, everybody. Let me start with an FCC update. As many of you have been following for the last almost year, we are one week short now of a year from our original filing at the FCC alongside EWA. We have gotten to the point now where the next step is up to the FCC and there is no prescribed time limit for that happening. So, particular for somebody like myself that feeds on the momentum of the filings, and the contents and the whatever, this is somewhat frustrating but necessary period in which the FCC takes over and takes over the record and decides what it's next moves are going to be. That does not mean that at this point there's nothing we can do, because we consider it a very important objective on our part and these are the instructions that my team gets from all the management at PDV, is to see to what extent, now that we have a record of various issues from incumbents and others, that we can see what we can do to resolve those issues informally and most particularly, try to narrow points of difference. So that's the process we're in.

In order for those type discussions to be candid and therefore productive, we of course execute a nondisclosure agreements, so we don't talk about them. But the essence of it is identify issues, narrow points of difference, so that we can hopefully go to the FCC and of course, in the event that we arrived at significant agreements that reduce the conflict in the proceedings, we then file ex-partes and go into the FCC and whatever. In the meantime though, we think that the record as it currently stands after 11 plus months, is sufficient for the commission to go forward and we're optimistic that with what they currently have the records they could issue a notice of proposed rule making. We have reason to believe that the staff is working on this process and that if they have to -- if they need to contact us for additional information, of course, that would be part of the process.

Moving to the second part of what I spend most of my time on, which is acquisitions, we are very blessed that we were able to raise significant capital to make some acquisitions to improve our spectrum position at 900 megahertz, and that's the process we're in. We have completed deals. We have a number of others in the pipeline.

But in order to avoid signaling to brokers and potential sellers who are very carefully watching this process, of course, we're not disclosing the prices we are paying. In the cases of the transactions we're doing now, the deals are small and no one deal is material to our overall financial. I hope you can understand that with brokers and potential sellers watching us, we are hesitant to try to describe exactly the prices we are paying. However, I can say that in the context of what we were hoping and expecting these transactions are tracking satisfactorily. And we're being very selective as to the market and the price we pay because we think we need to make haste slowly here.

There is no such thing as a deal that we must have in this space. There is no hot dog stand that can block our skyscraper. So, we're working selectively, market by market, try to identify the best acquisitions for us to make, and that's the process that we are engaged in. Let me now turn it over to Tim Gray, our Chief Financial Officer, and any questions on this I'll be happy to take afterwards.

Thanks, Morgan. I will review the key highlights of the Company's financial results for the second quarter of FY16. My review is not intended to replace the full financial disclosure enclosed in the Company's quarterly report on Form 10-Q filed with the SEC today. And we encourage listeners to review that filing for additional information.

Revenue for the quarter ended September 30, 2015 was $811,000 compared to $689,000 for the quarter ended September 30, 2014. For the fiscal second quarter, the Company reported a net loss of $5.46 million, or negative $0.38 per share. Compared with a net loss of $3.02 million, or negative $0.25 per share the previous year. The increase in revenue for the quarter is principally a result of the spectrum leasing revenue for Motorola. General and administrative expenses for the three months ended September 30, 2015 were $4.59 million, an increase of $2.09 million, or 84% from $2.5 million for the three months ended September 30, 2014. The increase for the quarter is primarily due to planned increases in headcount and had related cost in order to support the Company's business initiatives.

Adjusted EBITDA for the quarter with a negative $4.27 million as compared with the negative $1.45 million the prior quarter. The increase in adjusted EBITDA losses in the second fiscal quarter were caused by the combination of the decrease in gross margin related to operating costs of our network buildout and planned higher selling, general and administrative costs associated with the Company's implementation of its business plan.

The Company has a strong cash position with $169.3 million in available cash as of September 30, 2015. The Company's intangible asset balance shows a decrease of $216,000 in the quarter, which is a result of the closing of several deals to buy additional spectrum licenses, offset by the timing of the receipt of channels in a spectrum swap with the spectrum license holder. We have a receivable of approximately $1.5 million in other assets to reflect the channels due the Company in the exchange. In the second quarter ended September 30, 2015, the Company spent approximately $2.8 million for the acquisition of equipment and design of its networks.

In closing, I think it's important to reiterate some important guidance. We have completed enough of the market buildout to be confident in the following network buildout assumptions. The number of sites per market will average 10 sites. The cost per site will be in the range of $150,000 to $200,000 per site, with the markets we are building as we move forward coming in at the middle of that range. Total capital expenditures for all 20 market areas will range from $30 million to $40 million. Monthly site operating expenses on a GAAP basis will not exceed $2,500 per site. I'll now turn it back over to John.

Thanks, Tim. In closing, we remain focused on the opportunities ahead. We have very much enjoyed recent meetings with many of our investors at various events. We continue to get great insight and questions and ideas regarding our regulatory initiatives, enhancing our spectrum position, and to the launch and ramp up of a dispatch networks. We appreciate everyone's patience as we forge ahead with the development of our DispatchPlus business, the ongoing pursuit of our regulatory and spectrum initiatives, and the necessary groundwork for identifying and positioning ourselves for attractive future broadband opportunities.

Given the early stage of our business, we are also grateful for the understanding that we don't yet have the volume of operating metrics of the more mature wireless business. Keep in mind it has been a little over a year since we closed on the spectrum purchase from Sprint. With a growing team now over 70 strong, we've made substantial progress in the development and deployment of DispatchPlus, in pursuing our FCC initiatives to enhance the capacity in usability over spectrum, and more recently, in planning for a broadband future.

We are working aggressively on developing our key foundational initiatives and will continue to provide appropriate transparency on all major developments. We fully expect that as we move closer to our next fiscal year, we will be able to provide more and more detail of the business. We remain focused on executing our plan to become the best private wireless carrier dedicated to business and critical infrastructure.

Now, I'd like to turn it over to the operator to facilitate questions.

Thank you. Ladies and gentlemen, the floor is now open for questions.

(Operator Instructions)

Please hold while we pole for questions. It looks like your first question is coming from David Dixon. Please announce your affiliation and then pose your question.

Thank you. Thank you operator David Dixon FBR. So thanks gents. John and Morgan I'm guessing a lot of the discussions that you're having with industry are confidential, but could you give us a sense of what's giving you the confidence at these discussions with the 900 incumbents to bridge these gaps progressing? I'd like to get a sense of how you characterize the value of those discussions because and this falls into my second question really.

The FCC being a consensus driven body, I think the initial thinking there was to rely on the FCC to set the goal post for us, and bridge the gaps from there. Now it seems like you're seeing some progress with informal discussions with industry. So to what extent is very benefit for the FCC to perhaps hold off on a MPRM until you bridge some or all of the gaps, or is it the MPRM process that is better suited to bridge that gap? That would be great to get some insight there. Thanks.

You want me to take a stab at that John?

Sure Morgan.

David, I think the best way to characterize it is, we now at PDV have intensively studied and try to understand every argument made in opposition to the proposal. And to reach out, and identify, and work with those were making those arguments and make sure we understand them. And since we believe, that as we've said repeatedly, that we can operate in the environment without causing harmful interference, try to make sure that we try to, as I've said before, narrow any points of difference. And of course, if you can do that, it always helps the FCC process.

On the other hand, I think the FCC is quite capable, and they've shown us many times, of splitting babies. And that's a process that may be what finally happens here. They are the ones that have the final say so.

But rather than be frustrated by the passage of time, which is kind of a necessary part of this, we think that it's a constructive and productive to continue these discussions. And when we reach a point where it's no longer productive a constructive we stop.

Right, and do you get a sense or is it too early to put a framework around the timing for when you get to that point based on how those discussions are going, appreciating that they're obviously confidential in detail? But if there some sense it you can give us as investors, some sense of that timing?

Let me fall back on our mantra which is these processes, in our experience and we've had a lot of experience in this area, take 18 to 24 months. I think what I'm seeing is, is consistent with that, we're 11 plus months into this. I still feel good about that time frame.

Okay. Thank you.

Okay your next question is coming from James Breen. Please announce your affiliation with the question.

Thanks. James Breen from William Blair. Can you just talk about the early progression you've seen in the markets you launched midyear and just generally how that's going and sort of the interest you've seen from some of the businesses, enterprises in those markets? Thanks.

Sure. We can talk about the interest in the verticals that we've previously been targeting. And I mentioned those earlier as being sort of construction, field service, transportation, distribution. For example, school buses, there is a lot of activity there. And the critical need for the type of dispatch service we are providing.

I think it is important to recognize that we are sort of building out the distribution, it's and an indirect distribution to remind everyone, so we are selling through a channel and our first sale is essentially to the distribution partners in a market. So now that we have a little bit of that under our belt, we're starting to see examples.

For instance, we can reference a security company in Houston market that was interviewed by the Houston Chronicle last month. They were an early customer and they use it to do residential security services. They have a team of officers out patrolling residential buildings. And they like the instant and immediate and reliable nature of the push-to-talk services that we provide. And you know the school bus was another example.

So the good news is it's coming exactly in those verticals that we've previously talked about. There's customers in multiple markets now, clearly we want more of them. And so from that standpoint I wish we were six months or year further along. But the indications are positive.

And the other anecdotal information is that as our sales team gets in front of end-user decision-makers they are not, they are responsive as we talk about the solution the problems we solve in their particular vertical. We've got some opportunities being worked in, private ambulance services for example. And so in those situations, when we get to a decision-maker, we know it's going to take some time to close the sale, but we're not been shut down.

They do see a value and a dedicated purpose built dispatch network. And our goal now is to support the dealer channel by investing in various marketing activities that are totally geared toward getting qualified leads to be able, in those verticals, to be able to provide to the dealers and our sales team to get early wins that we can replicate across the markets.

And do you have your own employees working directly with the dealer channel to sort of educate them as they go out and try to sell the product to the end dealer?

Absolutely. We have local account managers that work with the dealers. We also have a marketing team at corporate that gets out. We've got someone dedicated to training that goes out and supplements and works with the local account managers.

So we think it's very important to work with the channel, even in the early stages there actually our team is making the calls on the customers and I think getting those first wins to show the dealers, to some extent, because it is a little bit of a different model than they've used to been. Because they been focused more on private systems, and equipment sales, and maintenance, and this is more of a commercial wide area, recurring sale. So getting out and showing them, with them, is important.

Great. Thank you.

Okay. You have another question coming from David Dixon, at FBR. Sir your line is live.

Thank you, operator. So I just want to turn to the update on the market launch timing per quarter. I wanted to just get your thoughts on whether you are considering LTE in any markets given what we've seen thus far from southern. It looks like you're building an LTE network out on three by three versus given the progress that we seem to be having on the regulatory front.

I think we initially talked about three to four per quarter. Should we be thinking about that a little differently going forward as you evaluate the merits of looking at LTE? In other words --

I think to step back David. That's a great question. Thank you. And I think when we started out, year-over-year go now, in those early discussions we were talking primarily about phase 1. And we established a base business case that would work while we at least began the regulatory initiative aimed at securing the ability to use our spectrum for broadband.

So in that view of the world, we almost intentionally put a wall up between getting started in the dispatch business and the regulatory initiative. As we are now almost a year into the regulatory initiative it's incumbent upon us to be looking over the wall and as we are optimistic we have begun a more significant planning effort for phase 2 and in that case you do look at those kind of things. I think you don't want us to be moving forward just to meet X amount of markets per quarter.

But I think it's important for us to be thoughtful about that and as we get closer to broadband and let's say we've identified an anchored tenant in a market that we've yet to launch. Pick Seattle in critical infrastructure, and work closer to broadband, we may very well want to pivot. And I think you'd want us to pivot to move forward that way. But we still have to have approval for broadband because otherwise we just can't deploy the three by three.

Right.

So is developing the right balance between moving aggressively forward and moving forward thoughtfully. And I think that's the approach with the seven markets we've announced, putting our effort and resources into developing the right sales formula. Very similar.

A year ago all of our metrics around the build plan and the cost to build and how long it would take. All of those metrics were assumptions. And we've proven out the first stage of phase 1, which was to build. And we're comfortable with those things. And now we need to do the same on the sales and marketing activity.

So I think rather than look at this as a straight line quarter to quarter, it's lets get the winning formula in the markets that we have infrastructure and investment in first. And continue to push forward on the regulatory front. And so specifically, on LTE, we do have as I mentioned hired a great resource to manage our strategy and development team. And we are looking very hard at the opportunities that relate to enterprise and critical infrastructure for broadband and will be able to make adjustments as we move forward.

Great. And just as a segue very quickly, have you had any more thoughts around how you can better leverage your Nextel heritage in terms of the sales and marketing effort?

Well, I think first of all, some of the team as you may know are former Nextel team members, especially on the sales and marketing side, who have done this before and have built distribution, in a verticals, in the business that we are targeting in phase 1 and also looking at phase 2 and broadband. So I think that's one big area, is leveraging some of those people.

Our experience and everything we know about the two-way radio world is incorporated and also what we've done in our solutions business for the last 10 years this is all we have done. It's our DNA to serve businesses and enterprise. And so our network, our customer support, all aspects of it, is directed at serving businesses and that's very different than consumer.

The other thing that, as we get out to customers, it is resonating that this is the former, it's not Nextel 2, but there is some recognition that the team that, and especially the founders of Nextel being involved with pdvWireless, and that we're coming back to town with the service that's wide area push-to-talk. No, it's not IDENT, but it's a very, very good next generation push-to-talk solution. And I think that, that's resonating in our telemarketing scripts and in some of the various email campaigns and things that we've done to start seeding the market.

Right. Okay. That's terrific. And then just turning to any updates on enterprise partnerships that you might be seeing, momentum building on that front at all? Then I think you mentioned enterprise machine to machine opportunities. Are you looking at LTE as a platform to provide end-to-end type services or is that still within the wide band -- sorry -- within the wide area PDT. --

I think the technology we are deploying for broadband, where we're obviously LTE is a primary view, but of course you are looking at all the alternatives for our spectrum. And right now we could, putting together some of the spectrum, there are opportunities to access some wide band as you look out.

It's not a primary focus, but as Morgan and his team they are out in the critical infrastructure community talking to various utilities about their near-term and long-term needs, we might find areas, and there are opportunities that come up, to say could we put our spectrum to work for them to help them get over a specific spectrum constraint they have today while we work through? So we could really look at what's available today on our existing technologies on existing on our current frequencies and what's available tomorrow as we get through to the broadband approval process, here.

Okay. Great.

Morgan do you want to address anything else on that?

Let me just add one thing David. Our hypothesis going into this, and many of the people on this call heard us make this hypothesis, was that if you propose rule changes that are going to impact incumbents and the incumbents include a lot of critical infrastructure that as you go through the process of trying to get to consensus, your meeting and discussing and getting into the planning folks of the critical infrastructure players. And that hypothesis is now borne out and we're having those discussions.

It won't surprise anybody to know that those discussions don't proceed rapidly. That these are huge, complicated companies and complicated issues, but we're having exactly the kind of conversations I'd hoped we'd have.

Okay.

And you can imagine that many -- all of these companies we're talking to have existing solutions and networks. And as technologies are reaching end-of-life, understanding what their future requirements are. There might be great opportunity to start today with a narrow band solution that works for them and then evolve to broadband. So that's all part of what we say regulatory process, we're still -- it's not solely regulatory, it is beginning to establish the relationships in critical infrastructure and beginning that sales process, if you will, over time.

Okay. Great.

I think how we approach conflict in the resolution of conflict is something that means a lot to these companies. They consider communications a lifeline, literally a lifeline. And if you propose a rule change that could possibly influence that negatively, of course they are concerned.

On the other hand, they all know that communications is going broadband and they know how much more you can do if you have the reliability and the priority access that they need, combined with all the smartphone functionality, that is compelling. And it's a process, we have to go through that process.

Okay. That's terrific. Thanks for the update.

Thanks David.

(Operator Instructions)

Okay we appear to have no questions in queue.

Okay. Well, then I want to thank everyone for their time today. As always we are available. Feel free to reach out to any of us as things come up as we look into the future. But again thank you for your time.

Thank you ladies and gentlemen. This does conclude today's conference call. You may disconnect the phone lines at this time and have a wonderful day. Thank you for your participation.