Q2 2020 Earnings Call
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Good afternoon, ladies and gentlemen, and welcome to the entire second quarter update conference call. At this time, all participants have been placed on to listen only mode and we will open the floor for your questions or comments. After the presentation. It is now my pleasure for me to your host Natasha Ceccarelli Ma'am the floor is yours.
Good afternoon, everyone and thank you for joining with me today, our Brian Colley, Our chairman Morgan Obrien, our CEO , Rob Schwartz, President and COO and Jim Gray, our CFO before we begin I'd like to highlight that during our call. We will present, both GAAP and non-GAAP financial measures.
Conciliation of non Cat GAAP measures is included in todays 8-K, which can be found on our Investor Relations page.
Please also note that we may make reference to forward looking statement and our actual results could differ materially from those insight.
Information regarding the risk factors that could cause such differences can be found in our public filings, including our most recently filed Form 10-Q for the quarter ended September Thirtyth 2019.
With that I'd like to turn the call overseas right.
Thank you Natasha thank everybody for joining us this afternoon.
It's been five years since the church proposed to the FCC modification of the rules at 900 megahertz to permit the operation of the six megahertz broadband segment in the bad.
Well no decision is final until about a five FCC commissioners and the publication of the final order.
We didn't terex are encouraged by recent signs that a positive outcome maybe near.
For example on October nine.
The wireless Bureau, the FCC issued a decision granting a request by interacts with the licensing freeze be lifted department incumbents to file applications to relocate out of the proposed broadband segment.
This does not prejudge rulemaking of course, but to US. It suggests that the staff is actively considering a broadband allocation as proposed.
In addition, the record in the proceeding reflects a number of recent meetings with the Bureau staff on issues that we interpret as underlying a favorable decision on the merits of creating a broadband segment.
Focus on the details of how that process might work.
As reflected in a series of X Party filings made by and Terex there have been discussions with the FCC in a wide range of technical and operational issues around free purposes the bread.
Our experience suggests to us as the staff is getting ready to make final recommendations in the proceeding to the commissioners.
Optimistic that the outcome will be consistent with the brought been album allocation as we have sought as we continue the regulatory process and Terex has been active on a number of other fronts. These the most important other steps necessary to be ready immediately upon a final order clear spectrum and make it available for broadband years after the recent capital.
A race and terex prioritize the hiring of staff for the recruiting process.
Over the last few months, we team we anticipate meeting for the first phase of returning.
And then hand staff with a combined 150 years every Tuesday experience is now on the job implementing our plans.
Also we're pleased that need anyway, our partner in filing the original budget petition recently announced an agreement with and Terex to play an integral role in the returning process.
As our investors now there are approximately 400 and commit licensees, who will need to be true rather rise relocated to clear the six megahertz broadband segment that's proposed.
A large number of these incumbents are members of the VW way.
I have long established relationships with the staff of Egypt, we aim for frequency coordination.
So it makes sense CDW way playing it introductory his role tuning process.
The layout the FCC decision when its published and to minimize disruption to operations and to facilitate the returning.
Many incumbents are likely to prefer a simple re tune of channels from one part of 900 megahertz to another.
Something which their existing equipment can accommodate easily.
And they use the opportunity to see if another band spectrum I'd make more sense.
Or they may choose to request from in Terex and offer to purchase their license.
We believe VW way is the perfect neutral arbiter to make these discussions productive and to speed up the process overall.
Many other actions are underway to reduce the size of the retooling task into given terex stronger spectrum position.
Recently, three spectrum transaction sits in contracted.
The proposed rules require all 20 M.T.A. licenses to be included any application for broadband.
So we prioritized acquiring M.T.A. agreements.
I've only 11 MTV licenses that are not already in our name.
We either have signed agreements or an active discussions was seven.
Our experience so far.
Although these are still early days would suggest that the process of enhancing our spectrum position will fall pretty much in line with earlier expectations.
In a variety of other ways the team it and Terex is continuing to prepare for a future as provider broadband spectrum for private enterprise users.
Our thinking is not varied from putting emphasis on the electric utility industry.
As we have laid out in a lot of detail in the record to this proceeding.
And to our investors.
The pace of grid monetization and the challenges entailed seem to create a compelling opportunity for wide scale adoption ability he broadband technology.
And while we may not provide the only way of meeting the challenges we think our spectrum at 900 megahertz provides the best of most economical way of doing so.
It's worth noting however, the utilities are not alone and appreciating the value of wireless broadband.
We're starting to see other potential uses of the spectrum showing interest in the prospect at 900 megahertz broadband spectrum will become available for private system use.
I'd like to conclude my comments by saying that we recognize that this long process, the regulatory scrutiny and record building.
As taxing on the patients if investors.
We're lucky to have investors, who understand just how much is involved in being successful in this kind of undertaking.
There is a definite upside in the passage of time however.
And we're seeing that every day as more and more attention is being paid to the opportunities for private broadband.
Well LTV was definitely in U.S back when we filed a petition.
Literally billions of devices deployed around the world sense.
Well the advantages of Ltd for latency security in throughput for being discussed by enterprises back then.
The passage of time is pretty much greater understanding its value.
Being it and terex throughout this process has given us a chance to appreciate the complexity of decision, making at large private enterprises.
And there need to proceed with caution.
Now whenever we can feel every day the momentum that is building for bringing this amazing new technology and to use the critical infrastructure, which modern life is built.
We are understandably [noise].
Just to see the regulatory process run its course.
Put our spectrum to use.
I'll now turn it over to Rob.
Thanks, Morgan and good afternoon, everyone.
I'd summarize the theme for this first half of interest this fiscal year as momentum.
You just heard from Morgan about the continued progress with the FCC and our belief that we're approaching the end zone for near term report in order.
In parallel I want to highlight three other important areas have been terex is momentum.
First we are working intensively with a large group of potential customers to book Foster and see the growing commercial demand or private LT solutions second we're continuing to build our industry wide top down initiatives are seeing expanding industry support and involvement and third we continue to build our operational organiser.
And to be commercially commercially ready for our broadband future [noise].
So let me start with a customer progress.
Looking broadly at our targeted customer verticals and the critical infrastructure industries. They represent there continues to be increasing awareness and movement towards private broadband networks to facilitate their mission critical communications needs.
We're seeing this rising tide of interest from electric utilities as well as from other industrial enterprise sectors.
There's a growing appreciation for the value of private LT networks to solve an increasing number of vital use cases for these sectors.
And scarce options, if any that provide the advantages of 900 megahertz low band spectrum that works within the existing Ltd ban standards to secure a cost effective solutions.
These factors increasing the I will be 900 megahertz to be a preferred choice.
As a result of this continued increase in market demand coupled with our expanding team's hard work, we see a seasoning of our pipeline in anticipation of the FCC order as potential customers get deeper understanding of the full possibilities and value creation of private LTV.
Utilities are developing their business cases for a more robust telecom capability identifying the need for spectrum as evident in the Horrifies, an RFP is for modernize networks.
While many of these customer relationships are subject to non disclosure agreements a valuable indicator of this progress is reflecting is reflected in the public filings for 900 megahertz broadband experimental licenses at the FCC that entities are using for pilots and other programs to date. There are five broadband licenses granted that leverage our 900 megahertz spec.
Including the two recent grants to excellent and U.P.S.M. ring was the first to file for experimental license and recently completed its initial broadband pilot of 900 megahertz private LT successfully demonstrating 14 different use cases.
This project is position has positioned amarin to be a leader in advocating for the immediate need for 900 megahertz private LT both at the FCC, but also within the industry.
Southern company the pioneer in private LTE deployment for utilities also filed experimental license to leverage and Terex is 900 megahertz spectrum for the growing requirements their travel set up to test the capacity and latency of various applications and use cases to support electric and gas utility operations as well as confirm.
The lack of interference to systems operating in adjacent beds.
In phase two of our important worked with the department of Energys National Renewable Energy lab were in rail is now underway, which also leverages an FCC experimental license and real continues to analyze the performance of private LTE broadband networks in communications dependent controlled architectures, such as advanced distribution management systems known as a dms.
[noise]. This important program includes an industry advisory board of seven leading utilities that COVID-19 different states. The phase two of this program expands the private LTL network to include a full suite of utility grid automation devices and the Dms control system similar wireless congestion scenarios will be 10.
Tested with high impact communications, such as control signals and prioritize over normal traffic such as meter reads.
We look forward to sharing more results with you from this project in coming quarters.
Excellent through its Delmarva subsidiary stated its recent we granted experimental license filing it intends to use private LTE network.
For electric distribution and gas system sensors, and controls substation backhaul monitoring and buy and control of customer owned distributed energy Inverters.
The broad range of applications at these sites includes distribution automation skater remote engineering access fly Fi telepathy.
Push to talk in general workforce mobility applications and U.P.S. as publicly stated in its 900 megahertz FCC experimental license filing intends to provide internet connectivity to various quite devices smartphones tablets push to talk devices and edge router supporting wired connectivity to computers and other network devices.
They tend to then migrate to U.P.S. is internal data network. So testing can continue with production U.P.S. applications.
They also stated intention deployed 900 megahertz, LT and a common network with CBRN infrastructure.
We're continuing to prioritize our federal and state efforts as part of our top down program as we work to drive utility industry regulators to understand and support our initiatives at the federal level, we're working to educate key agencies on how our solution support grid modernization and the requirements for private communications networks.
These associations include the National Institute of standards, and technology or NIST, The department of energy and the Federal Energy regulation Commish Regulatory Commission.
At the state level.
We're also actively working to educate regulators about the need for and availability of private LTV to benefit electric consumers.
For example, we recently attended and have presented at meetings with a National Association of regulatory utility commissioners or network, including being invited to educate the commission staff on these important topics.
We see these industry wide initiatives as a catalyst to bring industry together towards the adoption and funding a private broadband networks.
A great example of our collective work with the industry is our founding of utilities broadband alliance or above.
Since its launch in February has evolved to be a robust utility member driven organization and a form that allows you to fill is to collaborate with vendors to understand and simplify the deployment of private LTE networks.
Just last month of his first member summit was hosted by fellow founding member Southern company at their Alabama power facilities.
About 150 participants attended including utility executives industry technology leaders, along with participation from the U.S. Department of Energy NIST Edison Electric Institute National Rural Electric Cooperative Association, navigating Ericsson, Nokia Motorola Cisco Fettered wireless and really great supporting team at Alabama.
Power, who opened their doors and demonstrated their private LTE network and the innovative critical use cases it solves.
At the someone I participate on a panel addressing the complementary nature of spectrum, including 900, megahertz, Crs Crs and even the unlicensed bands.
This discussion given the recent Cpos FCC progress was timely as we're often asked it interacts how we view Crs.
We see CBS as a complement to our low band offering were low band provides valuable cost effective wider a coverage think of a statewide service territory of utility and CBS is a great complimentary band for campus or venue solutions to add capacity.
Dramatically as needed.
And terex.
As a member of the CBS Alliance and together with industry participants had been working collectively develop solutions for critical infrastructure providers, including facilitating dual band trials.
Tami Barrett the CEO of southern link summarized it well under keynote at the summit.
Good modernization and communication networks are in lock step one cannot happen without the other private wireless broadband is a key component of the strategy, providing the security and resiliency our networks need.
Other has made incredible progress I found it very gratifying to see the strong membership engagement and clear underlying message resonating throughout the event the industry is spoken and the utilities need private broadband now to self critical needs.
In another important initiative, we're actively working on a program to help utilities in California mitigate future wildfire risks by utilizing private broadband networks to better control and situational awareness and a recent NPR piece and titled the blackouts, our blackouts the future for California the COO.
Of San Diego gas and electric Carolyn wind is quoted as saying having these high speed devices that are intelligent and smart is the only way that I believe we can effectively manage the grid of future. It really does need high speed communication and therefore, we're installing our own private LT Communications network.
SDG any has developed the essential technology to D. power falling off electric lines before they reach the ground and prevent fires from starting.
It's been able to widespread deployment of this technology, a low latency communications network is essential.
900 megahertz spectrum because of its efficiency in covering white areas is well suited for the deployment of sensors in the broad footprint, what hi, wildfire risks exist recent estimates of outage costs as stated by Michael were of the Stanford Woods Institute for the environment totaled the cost of residential commercial and industrial losses from a 48 hour public.
Safety power shutdown at PGT, and two and half billion dollars an outage costs for just that single event, while the cost of acquiring spectrum and building a private LT system or formidable the cost of not putting prevention in place. We now have been shown to be far greater as we continue to build the organization to prepare for commercialization of broadband operations and based on all this.
Elective meant them I believe we're very well positioned for the further strong progress in the second half of our fiscal year and with that I'll turn it over to Tim. Thanks, Rob Good afternoon, everyone.
For more than halfway through our current fiscal year and as Morgan and Rob discussed we're pleased with all that we've accomplished.
As you know the second quarter of our fiscal year was highlighted by the equity raise we completed in July to provide us with the funding needed to move forward on our business plans as we advance every tuning efforts for the 900 megahertz spectrum block.
We're accelerating our market clearing activities and prioritizing those markets, where you believe we have near term customer opportunities, thereby shortening the time to revenue post an FCC you report in order.
Although our second quarter, returning spend was minimal we expect to ramp up in the current quarter and accelerate as we move forward with the process.
I had been asked several times about our planned accounting for returning as we move forward. So I wanted to address it.
Any acquisitions of spectrum will continue to be capitalized to our intangible asset.
Until the report in order is final retooling cost will be expensed in the general and administrative operating expense line item of our income statement.
Post to report in order for tuning cost, we capitalized software intangible asset.
Our balance sheet continues to be strong.
As of September 30, 2019, the company had $157.5 million and available cash and is debt free.
The increasing cash in the prior quarter was driven by the $94 million and net proceeds raised in July .
Our spend for the quarter was approximately $6 million and was within within our expectations before restructuring and spectrum related acquisitions.
This spend did include $200000 in returning related items and $500000 in restructuring related payments.
Looking at our results the second fiscal quarter ended September 32019, the company reported a net loss of $7.7 million or negative 46 cents per share.
Versus a net loss of $11.8 million or negative 81 cents per share for the same quarter in the previous year.
Last year's second quarter included $4.1 million for restructuring related charges due to the realignment of our business.
Adjusted EBITDA for the second quarter was negative $6.2 million compared with negative $7.6 million for the same period in the prior year.
The improved performance in fiscal 2020 resulted from lower restructuring related charges offset partially by lower revenue, resulting from the transfer of our team connect businesses.
Anticipating a decision by the FCC shortly we're going to be ramping up expenses and returning continuing to build our commercial team and enhancing our operational readiness.
These expense increases will be within our previously mentioned spend parameters and will be necessary to drive our longer term objectives.
That concludes our prepared remarks.
I'll now turn it back over to the operator for questions.
Thank you ladies and gentlemen, the floor is now open for questions.
You have any questions or comments. Please press star one on your phone at this time.
That will pose your question you. Please pick up your handset listened and speaker phone to provide optimum sound quality. Please hold the moment when we pull for questions.
Your first question is coming from Mike Crawford.
Hi.
Hi, Thanks, Mike Crawford from B. Riley FBR.
Given that you are your pipeline is seasoning as you get deeper and discussions or business cases of potential 900 megahertz licensees have you found any reason to a change.
Your expectations for what revenue model might look like for interacts with the spectrum leases you anticipate to be entering into.
Thanks, Mike This is Rob Schwartz.
No I don't see any any changes per se I mean, clearly what we're seeing as we talked about seasoning, we have a really great level of interest from from all kinds of parties, the predominance, which are.
Yes thrown utilities.
And the level of demanded conversations it's been it's been great. This specific conversations around you know how they want to engage to be able to contract for the spectrum.
Hey, good as we've talked about the past our core offering is long term spectrum lease is still there absolutely our folks who would as you've seen on the record would rather own the spectrum, if they could but clearly our core model is focused on how we can achieve the same kind of long term revenue that we talked about it back to Investor day.
Okay. Thanks, Rob and then also pursuant to your request the FCC did grant a lifting of the freeze to enable clearing of and commence so can you.
Quantify.
How many parties you might already be I'm working with to do that voluntarily.
Well, Mike Morgan there there were certainly enough to make it worthwhile going in and asking and as I said, we were super pleased that.
The Bureau took the.
Constructive step of going ahead and saying.
I don't.
Don't use the waiver approach because it's too cumbersome, we'll just we'll just permit these things so.
And not enough to be it.
Very much worthwhile.
We can.
As I said, we have we now have a lot of players in place to do this re tuning and so they're they're not they're talking to people.
Okay. Thank you Morgan and then would you expect that the report Norwood Com I'm just via circulation or.
And an official a FCC meeting and agenda and meeting.
Mike I think it's always the question of what the chairman.
Has going in the course of that particular.
Period of time, he he may want to bundle a number of spectrum related issues and do it all in the meeting that's pretty common or.
Just take the position that hey, Something's ready ready to go there is an urgency we've certainly tried to communicate that let's let's let's put it out so I think.
Every time in the past we've tried to predict we haven't been very good about predicting which it is.
I think its we'll just have to wait and see but to emphasize the point I was trying to make earlier.
It certainly feels like we're approaching.
While we have been.
Seeking for so long.
Okay. Thank you and then final question is are we.
<unk> less likely know to see any kind of emo you with someone before a final report in order and so that we would look for that first before we would.
See any what any potential when you start agreement might look like.
Yes, Mike it's Rob So I think clearly you know as it we've talked about these are parallel efforts right. So we've got the FCC process as we talked about being we think close to the end zone at the same time. We were also moving forward with a number of customers. Clearly there are those customers were going to wait to see reporting order before they transact for spectrum.
But we're still optimistic that both are moving in parallel.
Alright, Thank you Rob.
Your next question is coming from George Sutton.
Your line is lives.
Thank you nice to see the continued progress so Rob you talked a little bit about PGT and I just want to use the hypothetical example.
If they had youre a broad band in place and and were.
Sort of fully functional.
How might they be operating differently today, just to give us a perspective of some of the use case examples that would take place.
Sure I'll stick with your hypothetical versus specific to them, but the functionality that a broadband network and specifically a low band broadband network like or not or makers candidate able for utility, new especially out in California, and trying to to combat the wildfires. There's got to two sides of at one is you know what's done today.
Hey at some level and clearly not enough because the detection of of events occurring right. So a lot of what you hear about from a technology and under surveillance standpoint is finding fires as fast as possible to put them out and so sensors and things that theres he'd sensors cameras, yeah, they're using everything from satellite I'm too.
Building helicopters sensing that stuff. So if you had a network available with greater level of sensors that can be deployed way more broadly and there is there's good maps that show exactly where it's needed the high fire risk zones.
In those places, they're absolutely should be more sensors, and you can be quicker to respond, but but more importantly is really the technology that sending your gas and electric has.
Developed and put forward and their wildfire mitigation plan as I cited earlier.
That that really is focused on preventing fires from starting the first place and so thats from if you can deploy this on on polls that you can really deep power aligned in the time it takes to follow the ground before it falls to the ground then you preventing a fire from starting and so that deployed widely also will add a much greater ability to prevent.
Fires from starting the first place.
The other thing is we have talked to books about you know these psps the power shut off that are occurring some of those happen because there's there's no physical control of white areas of territory and literally there's trucks rolling out to turn off power and turned back on power any greater command of control, which has to be it remotely done but communication.
Does that work is going to hand in hand to that as well and so those are going to three areas, where I think there's there's strong capability to enhance the prevention of fires is it going to be perfect in that difficult environment. I don't think anything is going to be perfect, but clearly anytime you can reduce any of the fire incidences, it's going to be highly valued.
Just keeping on the southern California theme. Just today are there was an application narrative statement from Southern California Edison.
Can you just give us a sense of what that document means.
I'm not certain of the document or frankly today George.
Maybe you can give me a little more detail on the latter half right.
Yeah.
Hi, it's a complicated one which is why ask are they want to convert to a nod common carrier SM, our and add emissions.
And they want to also at an area of mobile operations.
Yeah, well, what we haven't seen as we aren't I can look at all but we'll have to take a look at it and get back to George and give you the perspective.
Okay. Morgan you mentioned in your prepared comments that there are other potential uses of the spectrum. We've seen on the record some things related to oil and gas companies and chemical operators can it.
You just give us a sense of what you're referring to in terms of the other potential users.
[noise] without without going into specific discussions that we're having.
In the category of.
Water and gas you did see you PS.
Uh huh.
Exploration issues like that perhaps perhaps something along the lines of railroads because of the visit the kind of critical infrastructure players that are that are.
Where.
Newly aware I would say of whats coming down the road.
As I say its feet, it's the positive.
The negative amount of time, it's taking through this thing to work through the FCC is that there has been.
An awakening as to what broadband than a point I want to make really stress is the.
Latency, because I think a lot of people here the expresses latency and they're really not sure. I know you are a lot of them or not sure what it means and it just means the the ability of.
A technology to carry a round trip message and in milliseconds, and that's what's brand new to these folks not just the ability to to transmit a lot of data, but to do with that kind of latency.
George to add on to the another I mentioned soubirous.
With the.
Considerable amount of.
Recognition, it's getting this is progressing to the FCC and the industry support that's occurring.
As more and more industries are becoming aware of it and the LTE technology that's utilizing.
But it's really like campus solution and so if people look at it and say Wow. This is really anything but I need a wider coverage like a lot of the the industry's at Morgan mentioned.
As you start looking for what other bands are available to do so again, it's a natural complement to say, we'll nine hundreds is a potential solution for that so it's been a good path for us to also get other folks where an interested in what we're doing.
But but I don't want to.
This kind of answer I don't want to suggest that up.
We still have a.
From conviction.
That the electric utility industry.
Particularly as it is deployed nationally.
There's all sorts of economies of scale and other reasons why that industry aren't too.
Really riveted on this opportunity certainly done everything we could derivate their attention I mean that we haven't.
We haven't.
Engineered these crises that they have we just see a technology in a spectrum position that can really address.
These needs that are better so obvious in places like California.
Great I'd like to make a potential prediction when we speak next quarter on an earnings call, we'll be talking about business models and potential deals we won't be talking about FCC processes.
Thanks, guys, well, let let's just let's just say that.
We're tireless and trying to make that prediction come through.
Thanks, guys.
Thanks, Thank you.
Your next question is coming from James Ratcliffe.
Your line is lives.
Thanks for taking the question on the mentioned the relatively limited number of tough areas, where you don't have all the M.T.A. blocks.
How much of the country is does that represent 10, particularly how much of impediment is it for <unk>.
Most attractive or most time far they prefer this advanced customer relationships. Thanks.
I'm glad you gave me an opportunity to clarify this because I want to make that the distinction between having all 20 in any particular county, when you go in and apply for broadband and how many of those 20 per county, we don't have so it's it's basically only 11, but having said that and going right to your question.
We have a long term very respectful relationship with a with a major SFR who had.
Positions in.
Miami and in Boston and.
Those are those are.
Obviously major markets of which we have a lot of.
Interest but.
Other than that I would say that I feel like we have that situation.
Pretty well in hand, we we know we know the players.
We are.
Flexible on what weekend, where we can do and I don't really see any long term obstacle to getting to that rule 20, with a one big exception being the railroads if the FCC except.
The proposal to move the railroads to block K that wherever it says 20 people really mean 19, because the railroads will be sitting on the on the first blocking and.
We've been solidly supportive of the railroads.
And you can see if you look at the record that they've been in talking to the FCC about just how important this is to their industry and we're solidly behind them and we're hopeful that they will end up with.
Those 10 channels that they can deploy wideband technologies.
Great. Thank you.
There are no further questions from the lines at this time.
All right. Thank you so much.
We're with George on hoping to have plenty of opportunity in the future.
To talk about a good news and Uh huh.
Thank you ladies and gentlemen, this does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.