Anterix(ATEX) - 2020 Q4 - Annual Report

Part I Business Anterix commercializes 900 MHz spectrum for private broadband networks, leasing it long-term to utility and critical infrastructure customers following a favorable FCC order - Anterix is the largest holder of licensed spectrum in the 900 MHz band in the U.S. and focuses on commercializing these assets for private broadband networks for utility and critical infrastructure customers[7] - On May 13, 2020, the FCC approved a Report and Order to modernize and realign the 900 MHz band, creating a 6 MHz broadband segment, which is foundational to Anterix's business plan[7][11] - The primary business model is the long-term leasing of broadband spectrum (generally 20 years or longer) to customers, who will be responsible for the costs of deploying and operating their private networks[24] - The company has identified the electric utility industry as its initial target market, citing the industry's grid modernization efforts and need for secure, reliable, and high-capacity communication networks[26] - In December 2018, the company transferred its historical TeamConnect and pdvConnect businesses to reduce operating costs and focus entirely on its FCC initiatives and future broadband opportunities[30] Overview and Strategy Anterix's strategy converts 900 MHz narrowband spectrum to broadband licenses, leasing them long-term to critical infrastructure enterprises - The company's strategy focuses on converting its narrowband spectrum to broadband and leasing it to critical infrastructure enterprises nationwide[23] - Anterix intends to pursue licenses based on customer opportunities and will opportunistically engage in spectrum transactions to optimize clearing costs[24] - The company is working with federal and state agencies to gain support for utilities to include the costs of leasing spectrum and deploying private LTE networks into their rate bases[24] The 900 MHz Report and Order and Licensing The FCC's May 2020 order created a 6 MHz broadband segment, requiring Anterix to meet specific tests for county-level licenses - The FCC established the "county" as the base unit for obtaining a broadband license, with three main eligibility requirements[12] - Anterix must hold >50% of licensed channels in a county, control 90% of channels in the new broadband segment, and surrender 240 channels (or make an Anti-Windfall Payment) to the FCC[12][13][14][16] - As of the filing date, Anterix claims to satisfy the 50% Licensed Spectrum Test in over 3,100 counties[13] - Systems with 45 or more integrated sites are deemed "Complex Systems" and are exempt from mandatory retuning, requiring voluntary agreements; most are operated by target utility customers[18] Competition and Market Anterix targets electric utilities and critical infrastructure, facing competition from Tier 1 carriers and private radio operators - The initial target market is the electric utility industry, which is undergoing a transformation requiring advanced communication networks for grid modernization[26] - Competitors include Tier 1 carriers, private radio operators, and other technology companies with more resources, established customer relationships, and greater political influence[29] - A significant milestone was the execution of a non-binding Letter of Intent with Ameren Corporation in April 2020 for a long-term spectrum lease, following a successful pilot program[28] Regulation and Corporate Information Anterix's operations are heavily regulated by the FCC, with new broadband licenses having 15-year terms and performance requirements - The company's operations are regulated by the FCC, which issues licenses and governs their use, transfer, and renewal; new broadband licenses will have 15-year terms with build-out requirements[34][35] - As of March 31, 2020, Anterix had 59 employees[36] - The company relies on patents, trademarks, and confidentiality agreements to protect its intellectual property[33] Risk Factors Key risks include high costs and delays in obtaining and commercializing broadband licenses, competition, regulatory reliance, and financial uncertainties Risks Related to Obtaining Broadband Licenses, the Retuning Process and the Use of Our Spectrum Risks include costly and delayed broadband license acquisition, incumbent holdouts, "Complex Systems" exemptions, and COVID-19 impacts - The ability to obtain broadband licenses on favorable and timely terms is critical; failure to do so would materially harm the business[39] - The mandatory retuning process may be ineffective against incumbent holdouts, and the exemption for "Complex Systems" creates a significant hurdle in counties where they operate[39][40] - The COVID-19 pandemic could adversely impact the business by delaying negotiations with incumbents, hindering commercialization efforts, and disrupting interactions with governmental agencies[42] - Success depends on gaining support from federal and state regulators who oversee the target utility customers, as their approval may be necessary for utilities to pass on the costs of leasing spectrum[44] Risks Related to Our Business Business risks include lack of operating history, inaccurate expense estimates, continued net losses, and intense competition - The company may not accurately estimate operating expenses for obtaining licenses and commercializing spectrum, which could lead to cash shortfalls and the need for additional financing[47] - Anterix has no operating history with its proposed business plan, making it difficult to evaluate prospects and future financial results[47] - The company has incurred net losses each year since inception and expects to continue incurring significant net losses in the future[50] - Competitors, including Tier 1 carriers, have significantly more resources, greater pricing flexibility, and long-term relationships with targeted customers[48] Risks Related to Our Organization and Common Stock Organizational and stock risks include reliance on key personnel, managing growth, concentrated ownership, and stock price volatility - The company's success depends significantly on its executive officers and key personnel[53] - A significant concentration of ownership exists, with funds affiliated with Owl Creek Asset Management holding ~30.5% and the top five institutional holders owning ~56.5% of outstanding shares as of May 15, 2020, limiting the influence of other shareholders[59] - The company is a "smaller reporting company," which allows for reduced public company reporting requirements[59] - Anterix does not intend to pay dividends for the foreseeable future, retaining earnings to finance business development[60] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[64] Properties Anterix leases its corporate headquarters in New Jersey and a second office in Virginia, owning no real property - The company leases office space in Woodland Park, NJ (19,276 sq. ft.) and McLean, VA (5,365 sq. ft.)[65] - The company does not own any real property[65] 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[66] Mine Safety Disclosures This item is not applicable to the company - Not applicable[67] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Anterix common stock trades on Nasdaq under 'ATEX'; the company has never paid dividends and made no equity repurchases in fiscal 2020 - The company's common stock trades on the Nasdaq Capital Market under the symbol 'ATEX'[68] - The company has never paid cash dividends and does not intend to in the foreseeable future[69] - No equity securities were repurchased during the fiscal year ended March 31, 2020[72] Selected Financial Data This item is not applicable as Anterix is a smaller reporting company - Not applicable to smaller reporting companies[73] Management's Discussion and Analysis of Financial Condition and Results of Operations MD&A covers the company's transition to 900 MHz spectrum commercialization, reporting revenue decline, reduced expenses, a net loss, and future license acquisition costs - The company anticipates the total cost of securing broadband licenses from the FCC will range from $130 to $160 million, with the majority to be spent by the end of fiscal year 2024[76] Fiscal 2020 vs. Fiscal 2019 Results of Operations | Metric | Fiscal 2020 (in thousands) | Fiscal 2019 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Total Operating Revenues | $1,564 | $6,499 | -76% | | Total Operating Expenses | $38,947 | $49,238 | -21% | | Loss from Operations | $(37,383) | $(42,739) | -12.5% | | Net Loss | $(37,638) | $(41,993) | -10.4% | - As of March 31, 2020, the company had cash and cash equivalents of $137.5 million[90] - In July 2019, the company completed a follow-on offering, raising net proceeds of approximately $94.2 million[90] Results of Operations Fiscal 2020 operating revenues decreased 76% to $1.6 million due to business transfer, while total operating expenses fell 21% to $38.9 million, resulting in a $37.6 million net loss Operating Revenues (Fiscal Year Ended March 31) | Revenue Type | 2020 (in thousands) | 2019 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Service revenue | $835 | $4,774 | -83% | | Spectrum lease revenue | $729 | $729 | 0% | | Other revenue | $0 | $996 | -100% | | Total operating revenues | $1,564 | $6,499 | -76% | Operating Expenses (Fiscal Year Ended March 31) | Expense Category | 2020 (in thousands) | 2019 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Direct cost of revenue | $2,833 | $4,652 | -39% | | General and administrative | $19,876 | $19,617 | 1% | | Sales and support | $3,846 | $3,673 | 5% | | Product development | $2,693 | $2,286 | 18% | | Depreciation and amortization | $3,591 | $2,846 | 26% | | Stock compensation expense | $5,826 | $5,784 | 1% | | Restructuring costs | $236 | $9,598 | -98% | | Impairment of long-lived assets | $46 | $782 | -94% | | Total operating expenses | $38,947 | $49,238 | -21% | Liquidity and Capital Resources As of March 31, 2020, Anterix had $137.5 million in cash, with $96.1 million from financing activities, primarily a stock offering Cash Flow Summary (Fiscal Year Ended March 31) | Cash Flow Activity | 2020 (in thousands) | 2019 (in thousands) | | :--- | :--- | :--- | | Net cash used by operating activities | $(30,957) | $(23,089) | | Net cash used by investing activities | $(4,426) | $(1,666) | | Net cash provided by financing activities | $96,114 | $3,159 | - The company believes its cash on hand of $137.5 million is sufficient to meet financial obligations for at least the next 12 months[90][91] - In April 2020, the company filed a $150 million shelf registration statement to provide flexibility for future capital access[91] Contractual Obligations as of March 31, 2020 | Obligation Type | Total (in thousands) | Due in 2021 (in thousands) | | :--- | :--- | :--- | | Operating lease obligations | $11,963 | $2,703 | | Restructuring reserve | $636 | $636 | | Asset retirement obligations | $886 | $246 | | Monthly service fee obligations | $446 | $446 | | Total | $13,931 | $4,031 | Quantitative and Qualitative Disclosures about Market Risk This item is not applicable for smaller reporting companies - Not applicable for smaller reporting companies[96] Financial Statements and Supplementary Data This section includes the company's audited consolidated financial statements for fiscal years 2020 and 2019, with auditor's report and notes - The financial statements listed in Item 15 are filed as part of this report and appear on pages F-2 through F-28[96] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting or financial disclosure matters - None[96] Controls and Procedures Management concluded disclosure controls and internal control over financial reporting were effective as of March 31, 2020 - Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2020[97] - Management determined that the company maintained effective internal control over financial reporting as of March 31, 2020[97] - There were no changes in internal control over financial reporting during the fourth quarter of fiscal 2020 that materially affected, or are reasonably likely to materially affect, internal controls[99] Other Information On January 28, 2020, the company entered a Transition Agreement with AAR to clear 900 MHz channels, facilitating broadband segment development - The company entered into a Transition Agreement with the Association of American Railroads (AAR) on January 28, 2020, to facilitate the clearing of AAR's channels from the 900 MHz broadband segment[102] Part III This part of the report, covering Items 10 through 14, addresses directors, executive officers, corporate governance, executive compensation, security ownership, related transactions, and principal accountant fees Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2020 proxy statement - Information is incorporated by reference from the proxy statement for the 2020 annual meeting of stockholders[103] Executive Compensation Information on executive compensation is incorporated by reference from the 2020 proxy statement - Information is incorporated by reference from the proxy statement for the 2020 annual meeting of stockholders[104] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership of beneficial owners and management is incorporated by reference from the 2020 proxy statement - Information is incorporated by reference from the proxy statement for the 2020 annual meeting of stockholders[105] Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2020 proxy statement - Information is incorporated by reference from the proxy statement for the 2020 annual meeting of stockholders[106] Principal Accountant Fees and Services Information on principal accountant fees and services is incorporated by reference from the 2020 proxy statement - Information is incorporated by reference from the proxy statement for the 2020 annual meeting of stockholders[107] Part IV Exhibits and Financial Statement Schedules This section lists the consolidated financial statements and all exhibits filed with or incorporated by reference into the Form 10-K - This section lists the financial statements and all exhibits filed with the Annual Report[107][108] Financial Statements Report of Independent Registered Public Accounting Firm Grant Thornton LLP issued an unqualified audit opinion on Anterix Inc.'s consolidated financial statements for fiscal years 2020 and 2019 - Grant Thornton LLP provided an unqualified audit opinion on the company's financial statements for fiscal years 2020 and 2019[117] - The report highlights the adoption of the new lease accounting standard (ASC 842) as of April 1, 2019[118] Consolidated Financial Statements The consolidated financial statements show total assets of $267.4 million and a net loss of $37.6 million for fiscal 2020, with increased cash from financing activities Consolidated Balance Sheet Highlights (as of March 31) | Account (in thousands) | 2020 | 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $137,453 | $76,722 | | Total current assets | $142,152 | $78,346 | | Intangible assets | $111,526 | $107,548 | | Total assets | $267,397 | $196,753 | | Total current liabilities | $8,823 | $8,839 | | Total liabilities | $22,331 | $15,989 | | Total stockholders' equity | $245,066 | $180,764 | Consolidated Statement of Operations Highlights (Year Ended March 31) | Account (in thousands) | 2020 | 2019 | | :--- | :--- | :--- | | Total operating revenues | $1,564 | $6,499 | | Loss from operations | $(37,383) | $(42,739) | | Net loss | $(37,638) | $(41,993) | | Net loss per share | $(2.29) | $(2.88) | Notes to Consolidated Financial Statements The notes detail accounting policies, 900 MHz spectrum commercialization, lease accounting, business transfers, revenue recognition, intangible assets, and income tax