Anterix(ATEX) - 2019 Q3 - Quarterly Report

Explanatory Note The company restated financial statements for FY2018 and Q4 2017 due to an incorrect interpretation of the TCJA regarding net operating losses, leading to a material deferred tax benefit adjustment - The restatement was necessary because the company incorrectly interpreted the effective dates of the Tax Cuts and Jobs Act of 2017 (TCJA) regarding its Net Operating Losses (NOLs)[4] - Under the correct interpretation, NOLs generated in Fiscal 2018 have an indefinite carryforward period and are not subject to the 80% usage limitation, a "double benefit" the company initially thought was unintended by Congress[4][5][6] - This correction led to the recognition of an additional deferred tax benefit of $5.6 million for the quarter ended December 31, 2017, and $6.0 million for the fiscal year ended March 31, 2018, which was deemed a material impact[30] PART I. FINANCIAL INFORMATION Consolidated Financial Statements The consolidated financial statements for the nine months ended December 31, 2018, show a net loss of $32.4 million, decreased cash, and significant restructuring activities, reflecting ASC 606 adoption and internal control weaknesses Consolidated Balance Sheets As of December 31, 2018, total assets decreased to $203.7 million from $220.3 million, primarily due to reduced cash, while liabilities increased and equity decreased from net losses Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2018 (Unaudited) | Mar 31, 2018 (Restated) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $82,349 | $98,318 | | Total current assets | $84,700 | $100,276 | | Intangible assets | $107,543 | $106,606 | | Total assets | $203,678 | $220,340 | | Liabilities & Equity | | | | Total current liabilities | $7,912 | $5,229 | | Total liabilities | $15,452 | $11,811 | | Accumulated deficit | $(158,903) | $(127,239) | | Total stockholders' equity | $188,226 | $208,529 | Consolidated Statements of Operations For the nine months ended December 31, 2018, the net loss widened to $32.4 million from $16.2 million, driven by $8.5 million in restructuring costs and a $0.7 million impairment charge, despite increased operating revenues Statement of Operations Summary (in thousands) | Metric | Nine Months Ended Dec 31, 2018 | Nine Months Ended Dec 31, 2017 | | :--- | :--- | :--- | | Total operating revenues | $5,199 | $4,579 | | Gross loss | $(363) | $(1,049) | | Restructuring costs | $8,540 | $0 | | Impairment of long-lived assets | $730 | $0 | | Total operating expenses | $33,132 | $22,122 | | Loss from operations | $(33,495) | $(23,171) | | Net loss | $(32,432) | $(16,210) | | Net loss per share | $(2.23) | $(1.12) | Consolidated Statements of Cash Flows For the nine months ended December 31, 2018, operating cash usage was $17.0 million, investing cash usage decreased, and financing activities provided cash, resulting in a $16.0 million decrease in cash and cash equivalents Cash Flow Summary (in thousands) | Activity | Nine Months Ended Dec 31, 2018 | Nine Months Ended Dec 31, 2017 | | :--- | :--- | :--- | | Net cash used by operating activities | $(16,960) | $(16,906) | | Net cash used by investing activities | $(1,434) | $(2,678) | | Net cash provided by (used by) financing activities | $2,425 | $(255) | | Net change in cash and cash equivalents | $(15,969) | $(19,839) | | Cash and cash equivalents, end of period | $82,349 | $104,244 | Notes to Unaudited Consolidated Financial Statements The notes detail the company's strategic shift to 900 MHz spectrum, restructuring of TeamConnect and pdvConnect businesses, adoption of ASC 606, $8.5 million in restructuring costs, $0.7 million asset impairments, and a material weakness in tax accounting controls - The company's primary focus is on regulatory initiatives at the FCC to modernize the 900 MHz band for broadband deployment, transferring its TeamConnect and pdvConnect businesses as part of this strategic shift[26] - On April 1, 2018, the company adopted the new revenue standard ASC 606, recording a cumulative-effect adjustment that reduced the opening accumulated deficit by $0.8 million, primarily due to the capitalization of contract acquisition costs (e.g., sales commissions)[47] - For the nine months ended Dec 31, 2018, the company recorded $8.5 million in restructuring costs, mainly from CEO transition agreements and employee severance, and a $0.7 million non-cash impairment charge on radio assets[62][64] - Subsequent to the quarter end, in January 2019, the company entered into agreements with A BEEP LLC and Goosetown Enterprises, Inc. to transfer its TeamConnect and pdvConnect customer bases and related operations[81] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's strategic focus on 900 MHz spectrum initiatives, a significant restructuring plan including business transfers and workforce reduction to cut $2.1 million in annual costs, and a wider net loss, while affirming sufficient liquidity for the next 12 months Spectrum Initiatives The company's primary strategic initiative involves a regulatory proceeding at the FCC to modernize the 900 MHz spectrum for broadband use, with proposals submitted to address interference, though timing and outcome remain uncertain - The company is pursuing a regulatory proceeding at the FCC to realign the 900 MHz band to enable broadband and other advanced technologies[95] - In response to an FCC Notice of Inquiry (NOI), the company and EWA proposed shifting the broadband allocation by 400 kHz to address potential interference concerns from incumbents[96][97] - The company is awaiting the next step from the FCC, which could be a Notice of Proposed Rulemaking, but the timing and ultimate outcome are not guaranteed[97] Restructuring and Realignment Plan To focus on spectrum initiatives, the company transferred TeamConnect and pdvConnect businesses, eliminated 20 positions (30% of workforce), and closed its San Diego office, expecting $2.1 million in annualized operating cost reductions - The company entered into agreements with A BEEP and Goosetown to transfer its TeamConnect and pdvConnect businesses, allowing it to focus on its core spectrum initiatives[100] - In connection with the business transfers, the company eliminated 20 positions (30% of workforce) and closed its San Diego office[104] - The restructuring actions are expected to decrease operating costs by approximately $2.1 million on an annualized basis[104] Results of Operations For the nine months ended December 31, 2018, operating revenues increased 13.5% to $5.2 million, but the net loss widened to $32.4 million due to $8.5 million in restructuring costs and a $0.7 million asset impairment, despite reduced sales and support expenses Comparison of Operations (in thousands) | Metric | Nine Months Ended Dec 31, 2018 | Nine Months Ended Dec 31, 2017 | | :--- | :--- | :--- | | Total operating revenues | $5,199 | $4,579 | | Gross loss | $(363) | $(1,049) | | General and administrative | $18,882 | $15,341 | | Sales and support | $3,116 | $5,009 | | Restructuring costs | $8,540 | $0 | | Net loss | $(32,432) | $(16,210) | Liquidity and Capital Resources As of December 31, 2018, the company had $82.3 million in cash, with $17.0 million used in operations for the nine months, and management believes current cash is sufficient for at least the next 12 months, supported by cost reductions - The company held $82.3 million in cash and cash equivalents at December 31, 2018[112] - Net cash used in operating activities was $17.0 million for the nine months ended December 31, 2018, primarily driven by a net loss of $32.4 million, offset by non-cash charges like stock-based compensation[112] - Management believes current cash is sufficient to fund operations for at least the next 12 months[115] Quantitative and Qualitative Disclosures about Market Risk The company's market risk is limited to immaterial interest income sensitivity from short-term cash investments, with no exposure to foreign currency risk as all operations are U.S. dollar-denominated - The company's primary market risk is interest rate sensitivity on its cash and cash equivalents, which is considered immaterial due to the short-term nature of the instruments[119] - There is no exposure to foreign currency risk as all transactions are in U.S. dollars[119] Controls and Procedures Management concluded that disclosure controls were ineffective as of December 31, 2018, due to a material weakness in internal control over financial reporting related to tax law interpretation, leading to a financial restatement, with a remediation plan in progress - Management concluded that disclosure controls and procedures were not effective as of December 31, 2018[120] - A material weakness exists in internal control over financial reporting due to an error in interpreting the Tax Cuts and Jobs Act of 2017 (TCJA), which resulted in a restatement of prior financial statements[121] - A remediation plan, including new controls and training, has been implemented but was not yet deemed effective as of the report date[122][123] PART II. OTHER INFORMATION Legal Proceedings The company is not currently involved in any material legal proceedings - The company is not involved in any material legal proceedings at this time[126] Risk Factors An updated risk factor highlights the potential failure to effectively execute the transfer of TeamConnect and pdvConnect businesses, which could lead to higher costs, lower revenues, and increased reliance on successful spectrum initiatives - An updated risk factor warns that the company may fail to effectively execute the transfer of its TeamConnect and pdvConnect businesses[128] - Potential negative outcomes include higher costs, lower-than-anticipated revenues, higher customer churn, and potential litigation if partners fail to meet obligations[130][131] - The transfer of these businesses increases the company's reliance on a successful outcome of its current spectrum initiatives with the FCC[131] Unregistered Sales of Equity Securities and Use of Proceeds As of December 31, 2018, the company has used approximately $24.0 million of the $64.8 million net proceeds from its May 2015 public offering, with no material change to the expected use of remaining funds - From a May 2015 public offering that raised $64.8 million, the company has used approximately $24.0 million through December 31, 2018[132]