Anterix Inc. (NASDAQ:ATEX) Q1 2023 Earnings Conference Call August 8, 2022 4:30 PM ET
Natasha Vecchiarelli - Vice President of Investor Relations and Corporate Communications
Rob Schwartz - President and Chief Executive Officer
Ryan Gerbrandt - Chief Operating Officer
Tim Gray - Chief Financial Officer
Chris Guttman-McCabe - Chief Regulatory and Communications Officer
Conference Call Participants
George Sutton - Craig Hallum
Phil Cusick - JPMorgan
Simon Flannery - Morgan Stanley
Walter Piecyk - LightShed
Good afternoon, ladies and gentlemen, and welcome to the Anterix First Quarter Fiscal Year 2023 Earnings Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Natasha Vecchiarelli. Maya, the floor is yours.
Good afternoon, everyone, and welcome to the Anterix first quarter fiscal year 2023 Investor Call. I'm Natasha Vecchiarelli, Vice President, Investor Relations and Corporate Communications at Anterix. Joining me on the call today are Rob Schwartz, our President and CEO; and Ryan Gerbrandt, our COO; Tim Gray, our CFO; and Chris Guttman-McCabe, our Chief Regulatory and Communications Officer.
Before we begin, please note that during today's presentation, we may make forward-looking statements, either in our prepared remarks or in the associated question-and-answer session. These statements are based on current expectations or beliefs and are subject to risks and uncertainties that may cause actual results to differ materially. Risk factors that may impact our performance are identified in our most recent SEC filings. Our SEC filings can be found on our website or on the SEC's website. Investors are cautioned not to place undue reliance on forward-looking statements, and we disclaim any obligation to update or revise these forward-looking statements after the date of this presentation. Following our prepared remarks, we will have an operator-led question-and-answer session. In addition, at the conclusion of today's call, a replay and transcript of our discussion will be posted to our Investor Relations website.
With that, I'll turn the call over to Anterix' President and CEO, Rob Schwartz.
Good afternoon, everyone, and thank you for joining the call. With our last call being just several weeks ago, I'm going to focus today's discussion on providing an update on our contract progress, customer pipeline an industry movement. And then we'll open up for questions.
As we've said, our Anterix's mission is to be the de facto private broadband solution for utilities. We fully recognize that continuing to close individual deals is a near-term imperative. Our goal is to capture the sector. While accomplishing this goal will take time, I remain confident that we're uniquely built to succeed in this effort.
Let me share three reasons for my confidence. First, we have the right team with our Nextel lineage experienced and successfully pioneering a disruptive and transformative effort. Nextel was the first nationwide wireless platform and drove a range of industries, public safety, construction, utilities and more to adopt a single unified wireless solution.
And at the time, it was also difficult to predict how long we take to execute on that mission. With our focus at Anterix on the utility sector, we have added considerable utility knowledge and experience to our seasoned wireless team to support and advance our efforts. We believe this combination of wireless and utility experience is unmatched. and best positions us to continue to win customers and execute on our business plan.
Second, our solid financial position is a core element of our strategy designed to ensure that we have the time it can take to define a new market, moving industry and secure our de facto mission. We own a unique and valuable nationwide spectrum asset. We have a strong and debt-free balance sheet, operate a lean organization and our prudent steward of capital.
At the end of the quarter, we had $86 million in cash and roughly $50 million in remaining contracted proceeds due to be paid in the next few years. Our capital-efficient model allows the vast majority of contracted proceeds to result in free cash flow. And we have multi-decade customer lease contracts with renewals, with little to no churn, providing significant value well into the future.
And third, we have the right unique product at the right unique time. Anterix is purposely positioned to help solve growing critical and complex challenges for utilities, including grid monetization, renewable energy integration and new environmental reality, including wildfires and massive storms, expanding cyber and physical security risks and a growing focus on energy equity and more. These realities provide strong tailwind of support for the necessity of private broadband networks.
Accordingly, attention is expanding across the sector, reflecting the continuous growth and maturation of all three phases of our pipeline as well as forward movement for a number of our larger and more complex deals.
The public industry focused on private LTE and Anterix is measurable. There is over 50% of our nationwide spectrum value represented in the combined participation from the C-level leaders of our new utility Strategic Advisory Board. the utilities that have pursued experimental licenses at 900 megahertz and the membership of the independent utility broadband alliance that we have found. And it should not come as a surprise that these are the utilities that we're aggressively working with to help them finalize their 900 megahertz private LTE plans.
Add to that, our 80-plus member Anterix active ecosystem program and our three early adopters, and you can see the tremendous movement across the sector towards 900 megahertz broadband for utilities.
So with that, let's dive into some details of our pipeline. We've heard from investors the request to provide more color on specific pending opportunities in addition to the pipeline stages NPI status that we previously shared. The response within the limitation of our NDAs, I'm going to take you through four deals presently in Phase III of our pipeline, as well as provide a few additional updates.
To start, we've agreed to commercial contract terms, including price term, deployment schedule and more with a large multistate, multi-operating company utility. I'm pleased to say we're presently working through the utility's internal approval process with C-level support, which we believe will lead to a final sign off on the contract terms. We are confident that we are on a solid path towards our next contract is what would be our largest customer to date.
Through this experience, we continue to learn that, like all pioneers, it's difficult to predict the exact timing of when these deals close as pass can and often do evolve as they proceed. As Morgan likes to remind me that our staro once said, patients is better, but it's fruit is sweet.
In our second example involving a large multistate utility, the customer's private LTE network is part of a much larger grid hardening effort, which involves the transmission system, the significant integration of renewable energy and the overall enhancement of resilience.
This broad and complex scope of this project prolongs the duration of their executive review, which is well underway. This relationship began as a 900 megahertz pilot, where the entity explored multiple use cases and has now evolved to include Anterix engaged top to their president [ph] while simultaneously helping their third-party expert to develop a strong private LTE network business case.
A third example involves a multi-state IOU with several operating companies, resulting in an increased complexity, but in turn, a significantly larger scope of opportunity. Comparable historical commitments like this would be achieved over many sequential years, one operating company at a time.
For this utility, however, private LTE is proving a different model, demonstrating a set of strategic benefits best realized across the entire unified service territory. They've developed a comprehensive plan, which has now been validated by multiple third parties and demonstrating among other benefits, significant OpEx savings throughout the program life.
This prospective customer has strong sealable support across their holdings and operating companies. The final opportunity that I'll highlight today is developing at the operating company level of a large multistate holding company. This utility has successfully developed its strategic technical and capital plan to support their private alt network build-out.
We've worked with this utility to align the goals of their deployment with state regulatory priorities and cybersecurity initiatives. A2FC [ph] level involvement given the strategic importance of the solution.
These are four great examples, pulled from our current pipeline over 60 prospective customers, demonstrating the growing demand for 900 megahertz private LTE, a role in the strategic decisions and the value we can bring to the sector.
Looking more broadly, I'm pleased to share that there are multiple utility RFPs under development, where our 900 megahertz spectrum [ph] is being specified. And additionally, worth noting, based on inbound requests, we are now seeing interest from a number of entities that were previously opposed to private LTE, which to us is another strong sign of progress towards our de facto mission.
And while we continue to stay laser-focused on the utility sector and a mission to become the de facto provider of private broadband solutions for nation utilities, we're receiving interest from a range of organizations in other sectors. This inbound interest is reflective of the private broadband network demand we're seeing across critical infrastructure verticals, including pipelines, gas companies, freight rail operators and government installations.
We believe the majority of these entities and the use cases they're pursuing could fit well within the utility private broadband deployment supported by our nationwide network of networks platform strategy.
So when you cut through it all, we are pioneering the transformation of utility sectors communication capabilities, as well as the monetization of our nationwide spectrum asset. We are creating an even more valuable and unique platform that supports the critical need to revolutionize our nation electric grid, a process that we believe will be well worth at the time invested.
And while there is considerable and growing attention in the marketplace regarding private broadband networks, we aren't just talking about it. We are uniquely converting large multi-state customers to commit to build the largest private broadband networks in our nation.
Additionally, the activity we have seen in Congress and with the administration from by parts and infrastructure legislation to the recent Inflation Reduction Act, supports our efforts and confirms the importance of the issues we're helping utilities address. With the growing tail end of demand for private networks across sectors, requires to address our nation decarbonization and grid modernization goals and with an increasing focus on mitigating the risks to our grid caused by natural and many [ph] disasters, we remain confident that we can achieve our mission to become the de facto provider of private broadband solutions to utility and critical infrastructure sectors, leveraging our 900 megahertz spectrum asset.
With that, I'll turn it over to the operator for questions.
Certainly. [Operator Instructions] Your first question is coming from George Sutton from Craig Hallum. Your line is live.
Q -Unidentified Analyst
Hey. Thank you. This is Adam on for George. Thanks for taking my question. Rob, great to hear about the fourth contract under LOI. Is there an updated contracted proceeds to go along with that?
Thanks, Adam. Good to hear from you. One important point, my last call, we talked about three LOIs, this call we gave some illustrative color on four different deals. There's not a complete overlap there. And we're happy to say that because - so there isn't really a direct correlation of the numbers before and this time. But Ryan maybe you want to fill in some color on that.
Yeah, happy too. Yeah, just to correlate like Rob said, were intentionally drawing at one-to-one relationship between the two, Adam. I'll say specifically, though, the four examples that Rob walk through from Phase III of the pipeline, two of those do specifically at LOIs and two don't. Again, reflecting what we said earlier about the optionality and kind of the multiple ways that we've seen customers really participate in this journey, reflecting their unique needs and complications as they work their way through the process.
What we're really trying to bring attention to as we focus in on kind of later stages of the pipeline, specifically what some of those methods are that utilities are going through and being able to demonstrate specifically where some of these customers are in the pipeline.
So just to highlight again, really what the focus was on the four different examples that we walked through. The first of course was really speaking to a specific example where and its significant level of maturity in the deal, the contract structure, the deployment time lines, elements Rob listed.
You know, really getting to the element now of the executive approval cycle that all utilities go through when they're in a similar shape and form, but all have a unique cycling process that we help stakeholder the way through.
The second was really focusing on how LTE we found is part of a much larger deal that the utility is working on. As we talked a lot about the macro issues facing utilities today, the focus on remodernization or bringing in renewables and clean energy sources become really macro level projects that PLT is a relatively small part of, but it speaks to the level of work that utility needs to do, as they stakeholdering [ph] during those much larger deals, excuse me, we are a relatively small part in.
And the third piece was really focusing on something else that we talked about, the difference between the much larger holding company entities and the operating companies that sit underneath. We've spent significant effort really trying to develop and capturing some of the C-level interest that really has gravitated over to top of the technical details of private LTE and broadband.
And the operating company level discussions have really matured you know, which are by nature much larger transactions, encompassing the multiple operating companies that sit underneath, but require a more significant level of due diligence.
We're working to educate and try that stakeholdering now, think of it in context of actively selling positioning into multiple different operating companies that each have their own unique set of needs and ultimately they are on regulatory requirements. But we believe the benefit of going after the approach that way, far away kind of the extra time effort that it takes to be able to get there.
And the final one is really they were typical of that. We're continuing to see interest even as an individual operating company level who finds a champion in a single utility and then bring that learning back across the holding company with time. And while we believe that opportunity is likely to start at the operating company level, it will with time develop into the rest of the holding company with learnings on the application of that experience.
That's great. And maybe if I focus just on Phase III of the pipeline. Any commentary on the mix there, whether these are opportunities at a parent company or operating company level?
They're split, frankly, like I said, these examples kind of capture a few of them, but we're definitely seeing both. But the highlight I'll kind of take out of it is as we articulated in companies, some of the ones coming through are certainly starting to represent some the large opportunity that we're seeing in the pipeline, which we think is a great example of kind of the next to come in line after first movers in the OA [ph] early adopters as we start moving more deeply you know, went to some of the larger companies out there in the national utility landscape.
Great, thanks. I'll hop back in the queue.
Your next question is coming from Phil Cusick from JPMorgan. Your line is live.
Hey, guys. Thank you. Two, if I can. First, can you give us some idea on the progress on these 4 deals since the May call? And are we talking about weeks, months or years to get to the next siding.
And then second of all, you talked about some, a couple of companies that have multistate in there you give some idea how many states we're talking about? Is it sort of a handful or high single digits getting to double digits? Thank you.
Thanks, Phil. I'm going to let Ryan jump in there. Just sort of set up on it. As you since May, we didn't give color on the court specific deals in May. But what I did say in my comments is that we're seeing progress across the pipeline, meaning that we're seeing advancements in growth in each of the base of the pipeline.
And these are all of the large deals we're talking about now and the online these are multistate deals that I don't have to give the exact number of states, but have a significant impact into the overall footprint our success. Ryan, do you want to comment on the first question?
Yes, a little more color, right? I mean we're seeing progress all the time. I think to think about it. Certainly, as Rob said, while we didn't specifically focus on these deals individually at May. We're progressing all these activities in parallel the growing sales and supporting everything and see momentum moving forward. Sometimes it's faster than other times, like you see with any kind of complex transaction.
But we're continuing to see them move forward as development working forward. In terms of the specifics on the states, as Rob said, these be a couple a variety of different scenarios. I can't get into specifics on how many are in them, but definitely span some of the larger companies, the only utilities in the U.S.
And any idea of weeks, months, a year before we're going see one of these signed maybe the rule out a shorter term rather than longer term..
Yes. So I appreciate the question. I think as we emphasized in my comments earlier, we're confident about -- great path, especially the first example that I talked about if any, we learned our lesson about predicting the precision of that is not a good place to be. But the overall movement in that specific transaction we highlighted, we're confident we'll see that moving forward at a good pace.
Got it. Thanks, Rob.
Thank you. Your next question is coming from Simon Flannery from Morgan Stanley. Your line is live.
Great. Thank you very much. Good evening. Thank you for the color on those four examples. What's the status of the third LOI that was not in those four deals?
Look, I think as we said in the prior call, those other lines were comprised of both Phase II and -- so you can use your imagination that like every one of these deals, we use an LOI as a tool. As Ryan said, it's not a necessity in every deal, but it's a tool to get alignment of commitment, right, the letter of intent, it takes the intention of the parties. And so in one of those 3 cases, we used it earlier in the pipeline to be able to align on our priorities and the other 2, it was used later.
So what I can tell you that every one of our deals, nothing has fallen out, everything remains in the pipeline was for and that's very important given our mission being a fact of standards is not that we're losing deals to competition or to utilities not moving forward just the opposite. Everything progresses. As Ryan said, there are good days and bad days about the speed of that progress, but we continue to push them all forward
Just like one other point there, too. I think the most notable thing from the pipeline that I don't want to overlook is the comment that we're seeing development in all phases of pipelines. I mean we're seeing overall growth in the pipeline, overseeing the development of accounts working through.
And obviously, that's inclusive of deals they're working on the contract -- is one we're not -- when we're seeing the kind of movement that I would hope to be seeing kind of into this phase in a level of education and momentum in the [indiscernible] earlier about the activities in the market.
It's resonating its way down in the activities you're seeing in the data day activities of the sales team are driving. And it excites me at kind of the volume of that activity that we're seeing and puts us still on good track to keep the total market moving forward, which is necessary to achieve a standard gold as we said.
Great. And I think is, you don't want to give a specific forecast. I think you did reiterate your confidence in the $1.8 billion on or around fiscal '24. Is that still the case?
Yes, it remains our target. It doesn't move plus or minus a quarter or 2 in that target for us, it's about the long form term value opportunity that I talked about earlier. It's about driving the industry adoption holistically, so we've got to deliver on deals, an we know that, and we will continue to do so. the precision of that target, it remains our target, and we're sticking with it.
Great. And I think the big carriers are all starting to talk about the B2B opportunities, private network stand-alone 5G, you've got the hyperscalers in there as well. What are you seeing on the competitive landscape? And -- are they trying to compete against your utilities and maybe try to win some of those customers away from you?
Yes. Look, Simon, from our view, and when we talked about being a pioneer, as you know, when we filed our FCC petition now over 6, 7 years ago, it was about pondering private networks as a concept, which that was unheard of. Now absolutely, there's no shortage of people talking about it. I think what's important is, as I said, what we're achieving. And I really think we are the leading private LTE movement -- they were leading a movement at this time, the footprint that we've established with our -- just our existing customers already, I think, is bigger probably than everybody else combined from a scale standpoint.
And as you can see by what we talked about in the pipeline, like all of the people who have publicly spoken in some way, right? I went through the folks who are involved in our advisory board for our platform, the experiment licenses, those were now members of Ava [ph] and which continues to grow. And that's half of the national the value of our spectrum in the nation at least. And so just as far as the impact we were having on private LTE overall, yes, there's other, I would say, we're talking about it, but I don't think it's from a competitive standpoint, I'm really talking about the wide area of coverage that we're talking about when you measure whether it's on pops or square miles or otherwise, I'm confident we have a far more substantial position and see a lot opportunity for growth.
Next question is coming from Katherine from Beverley Financial. Your line is live
Q – Unidentified Analyst
Hi, there. So as you know, next [ph] not had the continuous 8 megahertz block a 900 megahertz spectrum in LMS stand between up and down end of your 3x3 [ph]. So that probably needs 5 megahertz to broadcast the timing required for TerraPointe teristial GPS network leaving 3 megahertz surplus potentially can be repurposed for communications. A question for me for you guys, IS do you think 35x3 LP phis investment utilities? Or are there some customers that is that are of going to a 5x5 if that were possible in the future? Thanks.
Yes. Let me take your second question first, and then I'll go to the earlier part of it. Yes, absolutely. We think 3 as a starting point for a private network is plenty of spectrum. And there's a lot of good examples of the customers we've signed to date who have done their deep analysis of capacity planning, the southern company who runs private on that 6 megahertz spectrum as well.
And they've made the concession to also allow other third parties of the like-minded parties to utilize that network. So they actually have capacity to handle their own needs as well as others. You understood your question about Nexa, and we know those folks and have a lot of respect for their business model, serving the vertical aspect of location. I think the spectrum is really not directly comparable to what we have.
And we have exclusive use of our spectrum, specifically for LTE, and I think that there's some different kind of usage, like I said before, about other spectrum bands, there a lot of different bands designated for a lot of different uses. And so for us, starting with the 6 megahertz and like every good carrier model, there's always opportunity to expand. As we say, that's a rich man problem if your but fill the capacity and utilize it all, it means you have such powerful use cases and you can probably think about adding more spectrum other layers to that layer cake as you expand the model.
Thank you. Your next question is coming from Walter Piecyk from LightShed. Your line is live
Hey, Rob, what's going to dialogue around [indiscernible] the variety of companies that you're talking to existing LOIs and otherwise.
Sure. So thanks, Walt. The CBrS [ph] dialog, I think, continues to grow as a complementary aspect to low-band spectrum with 900 being sub-1 gig serves a very different purpose of what CBRS does as a solution set bras is great spectrum. I've already described by folks in that space is super WiFi, right? The places that a lot of the use cases that Wi-Fi was okay, but we're proprietary whether it's license or unlicensed.
We have numerous customers and prospective customers that CBRS is part of their either license and license part of their model, and they continue to drive that dual band solution, right, no different than everyone is using WiFi in their offices and steps outside and goes on to a wider cellular network. CBRS will be the same thing for a lot of these customers were in a factory in an office in a substation, they can use it for more capacity, it's going to complement.
Another important point about it, though, is that we've got our Interactive ecosystem, as I mentioned earlier, with 80 different companies and growing within that solution set, one of the key things we did was identify the need for communications modules that can bridge the gap between CBRS or and and triband. And one of the opportunities we've got is because we've driven that crowd sourcing of vendors to collectively drive a module maybe to make a solution set just for that need. It's a really good going example of why there needs to be an intermediary like us to help drive the solution set. That's one of many examples that you'll see that the ecosystem is driving.
Let me ask the question this right. Do you have -- when you're having discussions with your again, existing licensees or feel that you sold to as well as the 4 LOIs as well as other people at different stages of this call.
Walt, you still with us. All right, operator we can proceed and we’ll go back to Walt if he calls back in.
Certainly. Thank you, everyone. That concludes our Q&A session. I will now hand the conference back to our host for closing remarks. Please go ahead.
Thanks very much, and thank you, everybody, for your continued interest and time today. We look forward to talking to all soon. Have a great day.
Thank you, ladies and gentlemen. This does conclude today’s event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.+