Q1 2021 Anterix Inc Earnings Call
Please hold the line and we'll be right back with you.
[music].
Good afternoon, ladies and gentlemen, and welcome to the entire <unk> Investor Conference call. At this time, all participants have been placed on a listen only mode and the floor will be opened for your questions and comments following the presentation.
Now my pleasure to turn the floor, but to your host Natasha Ceccarelli ma'am the floor is yours.
Thank you Catherine good afternoon, everyone and thank you for joining US with me today are Mark you know, Brian our executive Chairman, Rob Schwartz, our President and CEO, Brian Walker, our COO and Kim right our CFO before.
Before we begin please note that any statements we make during this call that are not based on historical facts constitute forward looking statements and our actual results could differ materially from those implied.
Information regarding to risk factors that could cause such differences can be found in our public filings.
Well report on form 10-K filed with the S. easy on May 18 to 2020, and I don't really report on form 10-Q quarter ended she's pretty Twentytwenty filed with the FCC August 620 20.
Oh, I'm 10-K, and form 10-Q can be found on our Investor Relations page.
I'll now turn the call Morgan Obrien.
Thanks to Sasha welcome back and good afternoon to our investors.
Today's my first opportunity to address this audience since the July into.
<unk> promoted Rob Schwartz the role of CEO and named me as the executive Chairman of the board.
In my new role all continue to pursue my highest priority building shareholder value, but will do.
I will do that by assisting Rob and his team to run the company.
At the outset, let me say that the transition has been seamless and I could not be happier with our progress and outlook.
I want to preserve the bulk of our time this afternoon for Robin for Roger Brown, Our Chief operating officer to report on the many areas of progress that they're managing.
[laughter] the opportunity after all these years share one last report on the FCC report and order.
As expected the FCC rule, making process, which included the issuance of that order [laughter] came to an AD on August 27.
Got any party asking the FCC to reconsider the rules should adopted degree it can I get a bigger its broadband opportunity.
For the Fccs changing its mind on its own motion.
So this date passing being finality for the rules.
Which are foundational to our business case.
And give us the unique position at 900 megahertz to bring nationwide broadband the critical infrastructure industries.
Our analysis of the new rules.
[noise] quite constructive further discussions with FCC staff correct.
Corroborate our view that this outcome could not have been better for our shareholders.
We believe your patience has been rewarded.
Family.
A quick introduction from my chair the deception into reports from Robert Brian and Tim.
These highlights.
Our message to the availability of new wireless broadband spectrum has been promulgated extensively by media of all time.
It would be hard to imagine a corner of our intended audience that has not become aware of what the FCC has done.
And what it means.
Of course awareness freesheet, the desired outcome of signing long term leases.
Hi, impressed I live in press, but but our team has been able to do in a few short months to get our message out.
Our new Advisory Council is up and running but the strong guidance of former FTC Commissioner and former California Public utility Commission or Michel Chong.
Former governor of Delaware, Jack Mohr cow.
At an impressive group of our employees and consult.
Just to get a flavor of what this council is achieving.
[noise] partner were smart power.
Non profit renewable energy marketer.
And with the American University's center for environmental policy.
Presumably to pursue a federal grant from among a 1.5 billion dollar pool of stimulus funding in the department of Commerce.
Our objective on this initiative is to work directly with utilities in Virginia.
To help them win stimulus funding.
Pay for private LT networks are good management.
And to leverage those facilities to assist in supporting rural broadband.
As many of you know funding of utility infrastructure is generally all been at state level.
This federal opportunity in our view is a harbinger of what may come at the end.
As the federal government begins to take a much larger role in infrastructure funding.
Second Council initiative, which I am very proud as resolution were supporting at the Southern States Energy Board and C. S. S E B.
[laughter] Interstate compact composed of governors and state legislatures from 16 Southern States.
To use territories in a presidential appointee.
The important function of the S. S E. B is to formulate policy so the region relating to energy.
The resolution of past would encourage the region's utilities to deploy private cyber secure wireless broadband networks to support grid modernization.
Were feasible for utilities to support consumer broadband to rural homes that making their infrastructure available.
This policy guidance from as important a group as the SSC be well.
He will help in terex penetrate to the leadership of utilities throughout the southeast.
As we seek to make our spectrum available and hopefully to make that availability regional.
Let me finish up my remarks today.
Convey my enthusiasm for where we are.
Well that them throughout our target markets is palpable.
Our team has been strengthened by new talents, who are broadening our reach every.
Everything I read convinces me that regardless of the outcome of the members election among.
The major federal left will be undertaken to supply huge financial resources for grid security and monetization.
The Terex is working to position its unique spectrum as a key.
As a key beneficiary of such funding.
The giant companies that make up our target market.
Or aware of the challenges and opportunities they face our job is to convince them individually and as an industry that are unique spectrum positions crucial as the foundation for broadband connectivity.
Just as our patience was rewarded with a win at the FCC.
So too are we determined that our patience will be rewarded by winning leases with its industry.
Finally on a personal note.
I want to stress my day to day role.
Continuing to make in terex everything it can be.
With Rob as CEO and me as Chairman I think our board has selected exactly the team to lead this amazing success.
Now I'll pass the microphone to Rob.
Thanks, Morgan and good afternoon, everyone.
As I'm sure. Many of you remember our last investor call in May more the tremendous milestone over FCC rulemaking. The issuance of the 900 megahertz important order, which just about two weeks ago formally reached the end of the process as we pass the four day period on the Federal Register publication.
As William said, we couldn't be much we're pleased with the outcome.
So with the closing of this FCC chapter. We then terrorists are now completely focused on the next important phase the execution of our business model monetizing our spectrum to enable private LTE networks for utilities and other critical infrastructure entities throughout the U.S.
And with the Tailwinds from this rulemaking, we've experienced considerable progress with the growth of our company with key developments in the utility industry and most importantly, with our prospective customers I'm going to touch on these three key items and then I'll happily pass to Ryan with his role will take you through more detail on our customer progress.
It's Morgan mentioned, we recently implemented a long planned succession and I'm honored and humbled to be addressing you today in my new capacity as CEO I think Morgan, Brian the recipe in Terex board for their confidence in my continued leadership.
I'm also incredibly proud of the expanded leadership team that we've put in place to execute on our commercial mission and to steward and Terex into this nice next exciting chapter.
In addition to our COO Ryan Gerbrandt, we've made key senior hires including sales and HR leadership, they've also empowered our team across the organization with a renewed focus on the execution of our customer centric mission driving customer adoption of our 900 megahertz spectrum to enable valuable private LTE networks across the nation.
And with his conclusion of our FCC process, we've retooled our regulatory resources into an advisory Council as mentioned by Morgan that's focused explicitly on helping our future customers with ground support at the state and the federal levels.
Just councils objective includes supporting utility efforts to embrace private LTC spending in the rate base pursuing federal infrastructure funding supporting wildfire mitigation plans in California, even helping our customers to find their role in bringing broadband to rural America.
With the likelihood of bipartisan support in the U.S. Congress for substantial infrastructure funding.
We're focused on helping utility industry makes a compelling case for an investment in a secure private communications platform to add the needed resiliency to our nation's electric grid.
And recently in support of this the grid Wise Alliance and association, representing the forward looking interest of leading utilities has developed a draft framework for federal stimulus funding and.
And drew the analogy to previous successful federal aid or a smart grid grants in 2009.
We're looking forward to working with them on this important initiative.
And then our annual meeting a few weeks ago, we were very fortunate to have put in place a refreshed board of directors with both new and returning board members, who bring us incredible wealth of knowledge experience and relationships.
With a first first board meeting now behind Us I'm certain that they will individually and collectively have a significant impact on guiding our success.
Within the utility industry and Terex continues to be a catalyst for solving the growing need for private broadband networks and driving the increasing awareness of the necessity for reliable resilient and secure private broadband communications, including an expanded set of valuable use cases.
In these past few months, we've seen a growing list of senior leadership from you from the utility industry speaking out publicly in trade media at industry events and to public utility commissions about the critical importance of private LTV for the growing interest of their businesses and for supporting the needs of their own customers.
We've heard it from senior executives of leading utility companies, including Amarin, New York Power Authority Excel Southern company.
We've seen special editions of two of the leading industry publications public utilities fortnightly energy central focus specifically on private LT and 900 megahertz with multiple articles and each publication extolling the virtues benefits and necessity of a private LTE wireless broadband component for good.
Modernization.
And we've participated with industry leadership at conferences on this important topic, including it network rid wise alliance debt and Smart City Summit Utilities Broadband Alliance Edison Electric Institute, and our own industry insights round tables.
Well attended forums continue to educate and broaden the impact on decision makers and further reinforce the benefits of working together as an industry to seize this once in a generation opportunity for private broadband communications.
For example at network the nationwide form of state regulators, who often play a key role in a proven capital spending of utilities Morgan was joined on a panel by David Wells of the Department of energy shave format of committed and Ellen Swanson Katz of Tilson.
Central themes in their discussions were the expected substantial benefit to consumers of reducing operating costs through the consolidation of disparate networks into a single private LTC platform and.
And that's coupled with increasing technology that enables advanced monitoring control and new Green energy capabilities.
In addition, I recently recently participated in the leadership panel with executives from Southern company and Amarin at an event hosted by the Edison Electric Institute, where do you see the traders so.
The trade association for Investor owned utilities.
Attendees at this event heard these utilities, describing with clarity their business case for deploying private LTV. They address numerous specific use cases, explaining why it was critical for the industry to work together to share development resources to capture economies of scale with vendors and to attract innovative developers of applications.
Through these initiatives, we believe a collective industry vision is developing and utilities are now hearing it from their own leadership in their own words, which.
Which will in turn impact the strategic thinking in the war rooms, and the boardrooms of utilities and the regulators throughout the nation.
We also continue to see the confluence of macro forces that magnify the importance and value of the use cases that are enabled by private broadband LTV.
Increasing natural disasters like wildfires and storms continue to highlight the need for better situational awareness control and resilience for utility assets to enable enhance safety and foster recovery during these tragic events.
And the impact of coping 19 on utilities is putting a direct strain on utility workforces that remain in the field responsible for literally keeping the lights on for the rest of us during these unprecedented times.
The risks. These these field workers required to take on a daily basis makes it even clear case for increased network automation.
Supported by robust communications infrastructure to keep these workers out of harm's way whenever possible.
And experts predict an increasing likelihood of continued cyber security events targeting the U.S. electric grid.
The urgency to update legacy communication networks with secure arrogant private LTE networks becomes an even greater necessity.
Stan Connally Southern company's executive Vice President of operations spoke about it recently in public utilities fortnightly, noting that the security of utilities data is becoming even more important and specifically, stating quote having your own network to transmit over and to communicate through has just proved invaluable to serving our customer.
Others and serving our communities.
We've also seen more and more utility stepping forward to declare their bold de carbonization plans and net zero carbon emissions goals often response to state mandates.
Delivering on these important environmental commitments will require substantial upgrades to their infrastructure, including modernize communications networks that will allow real time low latency information to flow from the.
From the increasing number of integrated distributed energy resources and effectively manage the increasing complexity of this modernize power grid.
Several utilities identified in their de carbonization plans the need for tens of thousands of new connected network elements, such as electric vehicle charging stations renewable energy sources, even battery storage.
Our timely pilot with the deal we use national renewable energy lab, and seven leading utilities clearly demonstrated the ability of 900 megahertz private LTC to effectively handle the high volume and low latency communications required for this critical need.
All of this activity is also raising the awareness and interest in private LT marketplace, and a vendor ecosystem, including a growing list of suppliers and potential strategic partners that are keenly interested in leveraging the power of private LTV to deepen their own relationships and service offerings with.
Utility sector.
An increasing number of companies are developing innovative infrastructure solutions and endpoint devices.
With the global trends of mobile network virtualization and edge computing, we're seeing significant activity from leading cloud vendors looking to host mobile networks from ran to core as well as hosts key network applications.
We believe the solution solutions combined will simplify deployment and lower the barrier to entry for our target utility customers.
And now in my new role as CEO and with our expanded leadership team I'm committing a material portion of my time to advancing the strategic opportunities.
On the customer front.
We are experiencing strong momentum as a result of the FCC rulemaking and considerable interest based on the recently concluded CBS auctions.
In fact, we're excited to share that in our expanding customer pipeline, we have potential customers at various stages, representing in total over three quarters of our nationwide spectrum value.
And as another indication of increasing demand may have seen that the seventh 900 megahertz broadband experimental license was recently granted by the FCC to Excel energy utility company based in Minneapolis, serving approximately 3.7 million electric customers in eight states.
And of the seven experimental licenses granted to date fiber directly with utilities, including Southern company NYPA Amarin excellent excel and in total these five cover about 20% of our national spectrum value.
Now, let me address a couple of key customer trends.
With this recent conclusion to the FCC CB rest spectrum auction, we are witnessing another very positive indicator for and terex of utility sectors focus on broadband spectrum and private LTV.
Results of the FCC auction showed several utilities significantly investing in broadband licenses.
In our ongoing discussions with most of these entities. They clearly understand the complimentary aspect of Crs and 900, and fact of shared with US that they believe 900 megahertz can be an important foundation for their private LT network strategy.
As we've discussed before the three and a half gigahertz mid band CPR spectrum is very useful and is more complementary than competitive with our low band 900 megahertz spectrum.
As wireless carriers around the globe have demonstrated low band spectrum serves as the foundational coverage layer for wider deployments like utility service territories as the laws of physics allow it to carry signals further and better penetrate walls and foliage.
These low band characteristics equate to considerably fewer cell sites to cover given area, which importantly translate to a material advantage in both economics and performance truly the best of both worlds, if you're designing a new network.
In a conversation with one of the utilities they shared with us that on average they found a four times differential between mid band versus low band spectrum build out costs.
Overall, the CBS auction seems to have further focused attention on 900 megahertz as the optimum foundational layer.
Mid band CBS is very effective in building and campus applications and also for adding a useful capacity layer on top of low band spectrum when needed.
And the LTE technology. The global standard is specifically designed to utilize multiple bands for different requirements and bands can be incrementally added, especially during deployment at low marginal cost.
It's worth noting that almost all major commercial LT networks were built this way starting with low band for coverage and penetration eventually, adding mid band spectrum and high band for needed incremental capacity.
Crs use an innovative spectrum sharing scheme with a spectrum access system or SAS that has three tiers of users today.
Top tier the federal government.
Then comes the recent priority access licenses or power auction winters with up to seven of those 10 megahertz licenses and last.
And last but not least there remains a significant amount of unlicensed spectrum available under general authorized access or gay.
We see this unlicensed spectrum is very useful for a low cost overlay on license 900 megahertz to provide this added capacity and functionality when needed.
We're also continuing to work closely with key OEM infrastructure providers to help customers find their best solutions for private LTV as many of you.
As many of you know Motorola recently announced their innovative approach to LTC with a high powered 900 megahertz solution that can cost efficiently be overlaid on the footprint of an existing two way radio alomar system.
With the growing confidence in mission critical push to talk over LTV. Thanks to all the development efforts around Firstnet, we see more interest in using LTE as an evolutionary path from alomar.
In this segment were Motorola Motorola has always been a powerhouse. We expect this solution will bring in new demand in fact, we're working with Motorola and a potential customer on a pilot showcasing this new technology.
And importantly to address a question I know it was on many investors' minds I wanted to provide an update on our amarin contract process.
As you know, we announced or letter of intent in April and I've been working actively to conclude our agreement and support Amarins network deployment planning.
At this time all material terms have been agreed upon including the long term lease of spectrum at fair market value and the contract is working its way through Amarins corporate execution process. The contract will be subject to customary closing conditions, including board approvals.
Well, there's always uncertainty these corporate processes. We are optimistic that we will see this contract executed over the coming weeks, we will then be able to share more details.
With that I will turn it over to Ryan.
Thank you Rob and good afternoon, everyone. It's my pleasure to be able to join you all for the first time on the on Terex Investor call and I look forward to the ongoing opportunity to share my perspectives with you based on your like 20 years of working with and providing technology solutions and services for critical infrastructure industries.
Namely utilities.
As Robin market as previously noted I had the privilege of joining the Antares team in March of this year and we've been extremely active since then preparing to unleash our capability to capture this growing market.
Organizationally, we have been expanding our sales and commercial support resources and are on track to more than double this capacity before the end of the calendar year to meet this growing demand.
Let me start by providing a high level view of how we see the market response, and our substantial progress in commercial readiness post report and order.
Overall by our last count and Terex plus the broader industry has facilitated no fewer than 50 panels publications Webinars and sessions that have been geared toward driving awareness of the FCC decision and how utilities with this new broadband spectrum tool could leverage its foundational mission critical qualities to.
Build into play private LT.
The words out 900 megahertz broadband spectrum deployed with the global standard of LTV is a unique opportunity for laying the foundation of the modernized grid.
As a result of these conversations and publicity or customer engagements it ecosystem opportunities continues to grow.
The pace is increasing customers are initiating contact and we've seen a growing number of customer engagements proceed toward the selection of private LTE networks for their operations.
With the breadth of this growing demand our primary focus remains on the larger investor owned utilities as they are at the forefront of tackling grid modernization and have the resources available to implement these plans.
We capture and measure the results of this customer interaction with Antero acts in the form of our customer pipeline.
Of those customers and our sales pipeline from those initial discussions so that was in negotiations we have more than 40 potential customers, who service territories combined represent over 75% of our nation wide spectrum value.
The estimated potential spectrum lease contract value for such customers is in excess of $5 billion based on fair market value over in assume 20 year term.
Well this is a large market opportunity for on Terex. It's also important to note that typically long multi year sales cycles for these types of entities.
To that end patients is an essential element in our pursuit of these valuable longstanding relationships.
It is impossible to ignore the impact that coated 19 has had across many aspects of our lives yes I can.
Yes, I can say positively, but the utility sector as well prepared for these types of crises and continues to demonstrate its robust ability to respond.
As the term is essential and critical we're redefines are encoded utilities were at the intersection of continued to work through it all accordingly, despite cold at the utility sector remains strong in fact.
In fact this crisis is further emphasizing the importance of our electric grid as the lifeblood of our nation's economy.
A positive side across the sector is the driving force of awareness and critical necessity and that is the U.S. electric power grid and its potential once again play a considerable role on the path towards economic recovery.
One example is the Minnesota public Utilities Commission and the department of Commerce, encouraging acceleration, but nearly 3 billion dollar energy investment project Excel energy is responding to that request with a shovel ready ready project.
If approved it will be a great project to stimulate recovery and a beneficial outcome for the power grid in Minnesota.
The U.S. electric power grid will benefit on many levels as utilities embrace new technology underpinned by private Ltd broadband networks used cases, and the value derived from them remain at the core of our engagement strategy and while they will differ from utility to utility they could offer the tangible benefits that each utility.
He seeks to deliver upon.
Supporting their broader ambitions describe as grid modernization there was.
There is a common thread amongst these use cases that being secure reliable standards based connectivity.
While this list is not comprehensive these use cases can include.
The insertion of renewables, such as solar and wind and the role when integrated into the grid to reduce carbon emissions to net zero.
The incorporation of micro grids, and new advanced technologies, such as falling line conductor, which can provide a proactive wildfire mitigation capability to support what is again turning out to be a record setting fire season in the west.
The distribution of sensors that can support countless other fault and outage scenarios caused as a result of hurricanes tornadoes and snow and ice as well.
We're also working with other utilities, who are validating the benefits they expect to achieve related to enhancements in sensor baseline inspections incorporation of electric vehicles, and the associated charging infrastructure and mobility applications, such as voice data devices, and a lardons in grid and topology information all of which empower the modern.
Utility work for us.
Private broadband LT networks uniquely fit these needs.
One final note on LTV is the advantage of leveraging a global standard and the level of support afforded by a broad ecosystem.
Facilitate bringing the full value of this to utilities, we have lots of technology and ecosystem program for entities, such as Qualcomm Sierra Wireless Telit, Motorola Nokia Schweitzer Engineering laboratories, and GE just to name a few of the key participants in utility solution value chain.
More broadly than just devices and infrastructure vendors or other large enterprise partners are working with us to leverage not only our low band spectrum assets as a foundational layer, but also recognizing our penetration in this space as telecom experts in the utility sector. We.
We also find a unique synergies from some of the potential partners that ties together innovative fiveg architectures and solution components that consider advancements in public private cloud virtualization and distributed software and services participation with these industry leaders will remain an important strategy strategic aspect of accelerate.
Turning the adoption cycle and driving innovation and on behalf of the entire industry.
I have been selling into this industry for nearly 20 years here is what I have learned about the buying cycle, which is quite systematic and predictably linear.
First there is education.
Initially than these engagements, we start with broadening the understanding and educating utility team about the transformative value a private brought to that LT.
Utility executives and the public regulators have become increasingly aware of the close link between optimizing asset operations and communications as.
As deployment of intelligent devices has expanded on the grid the connectivity for these devices, both and back to the central office as well as between devices deployed in the field has become critical to achieving the awareness visibility and control that is required to realize the enhanced grid stability reliability and flexibility this and that.
Customer benefits. They can support is at the heart of grid modernization.
While executives clearly acknowledge the need to invest to invest and enhance communications and in most cases the need for integrated broadband implementations. They are shifting their way through options, establishing what a multi tiered enterprise network architecture might look like and where 900 megahertz fits into the overall solution.
Expanded education on this front as aggressively underway, both from an terex directly as well as via the ever increasing echo chamber across industry.
These education efforts are producing real results. So much so that we see these principles, making their way into the technical and commercial planning documents of many U.S. utilities, even at this early stage.
Only after education becomes the selection process utility technology and vendor selection is extremely diligent, particularly pertaining to large capital investments for which utility seek approval for a return on investment from regulators to it.
To address this regulatory environment, we work closely with utilities, but also with consultants partners and trade and industry organizations to inform and support the development of our fees business cases cost models and supporting stakeholder education that spans well beyond just the utility.
Pilots and demonstrations have been part of the utility industries traditional evaluation and business case development process utilities use pilots as a method to deepen their understanding of available solutions their partners and to confirm business case assumptions. It's important to note that not all utilities will go down this path and we.
Further anticipate as the industry gathers and shares its learnings the dependency on independent pilots will diminish but for now it proves to be a valuable engagements for our teams to capture the customer at a level beyond spectrum.
We have been building a top class utility expertise to enhance our deep bench of telecom spectrum and transaction experts when applied at the intersection of traditional telecommunications and utility applications. This creates an even more positive experience for utilities working with us on this journey.
I'm very encouraged that in addition to those who already have experimental license granted we're working with a number others who are planning pilots.
As these enterprise architectures are clarified and the overall investments are considered utilities need to complete diligence justification exercise to ensure prudent investments.
Spectrum leasing and LTV, often represents a new technology and a new business approach. There is not a lot of precedent to support assumptions and building a rate case.
We are working with our consulting partners to help on this issue and have developed a strong total cost of ownership model to assist this process and show the economic benefits that utilities will achieve.
And last but certainly not least is the utility corporate review in contracting step in many.
In many cases utilities under leadership are establishing new levels of operations and seeking to integrate disparate silos on a new technology vision RF.
Our engagement and support especially in this space goes much broader than our direct consulate of support for the customer. This is what we describe as our bottoms up approach.
In addition, our top down approach while applied to many aspects of the customer journey is especially important and can be very impactful. During this time as coordinated through our advisory Council.
This approach seasons the market starting at the state regulatory levels C suite executives and other influencers.
The capabilities of tremendous support to customers, who are facing a plus the revenue challenges and making final decisions across broad topical areas related to technology regulation accounting personnel and ecosystem.
To that end, we believe on Keryxs offering an unmatched depth and capability, which may be at this stage as valuable to our customers at the underlying 900 megahertz spectrum itself.
While the journey in its entirety can be lengthy it's in fact quite systematic and well tested through the years of technology procurement, which in its own right is not new to this industry. Many.
Many utilities are well down the path of grid modernization supportive in several cases with commission filings already.
We're seeing developing with our work with amarin and others opportunity to forge a lasting trusted partnership that can create long term value for them as well as for us.
And just to wrap up I'd like.
I'd like to reflect on how important the early adopters are to this industry and two on terex.
It goes without saying in any industry. The first mover tends to carry an inordinate burden that mostly benefits to fall or.
Amarin and southern link for four of them are blazing that trail and our advocates of industry. These highly respected companies or a crystal ball to the future and an industry of partnership shared learning and cooperation that could provide a tremendous opportunity for other utilities to share in the learning and accelerate their plans across the nation.
We believe they will continue to provide the innovative courage for the rest of the industry to follow.
Our mission is clear.
However, these indicators of demand and interest into long term revenues.
And with that I'll turn it over to Tim.
Thanks. Thanks.
Thanks, Ryan and good afternoon, everyone.
How does our current pipeline relate to our previously stated revenue projections.
Even without the assumption of additional customers coming into the pipeline.
Based on our current pipeline, we believe that we will meet in fiscal year 2024 revenue goals that we had previously laid out.
Note that our focus on fiscal 2024 factors in spectrum clearing and the fact that we have always understood that the decision, making and approval processes that utilities as Ryan just explained are time consuming and we've built these into our model.
Turning to our cash position, we ended June 2020, with approximately $125 million of cash and our debt free as it.
As a reminder, during our last update call in May I stated that we expect to spend a total of $50 million to $60 million. During our current fiscal year, which is inclusive of $20 million to $30 million and spectrum clearing investments and approximately $30 million of operating expenses.
We remain on track to spend within this forecasted range and as I've discussed previously we do expect our expenses to continue to continue to gradually rise over this fiscal year as we add resources to enhance our organizational capabilities.
The funding of our business plan would be assisted by the missile demand that we're seeing for prepaid leases based.
Based on our current discussions with our potential investor owned utility customers. We now believe some of these customers want to prepay their spectrum lease either upfront over the first two years of the lease.
Prepayments of bio use spectrum leases appear to be an easier path forward for them, providing them the ability to capitalize their spectrum investment.
It is still too early to tell if this will be a trend for a majority of our utility customers going forward and as we've discussed utilities have a strong preference to capitalize these leases.
To be clear.
I have used decision to prepay their leases is not intended to reduce the cost of their spectrum lease. Therefore, we expect that the discount rate for these because these prepayments will be based closer to the I O U.S cost of capital into ours.
No matter, how the customer chooses to pay their lease even if we receive upfront payments representing the entire terminal lease we will use the GAAP straight line method of accounting to recognize revenues over the full term of the lease.
Again, I'll repeat that it's too early to tell if this early indication will continue for ever utility customer.
It does potentially need that we could get to free cash flow faster and provide us with additional strategic options having.
Having a significant cash balance would provide us with the ability to invest in the growth of our business without tapping the financial markets and could even give us an opportunity to return cash to shareholders, including share buybacks earlier than anticipated.
We will provide more updates on the emergence of this trend as we sign customer contracts.
I'd also like to provide a detailed update on our 900 megahertz spectrum clearing process and the investments we made both in the past quarter and in the current quarter to be to bring broadband to the market.
In our fiscal first quarter that ended on June Thirtyth, we spent $6 million with the spending representative of admission deposits and final payments the channel acquisitions and spectrum swaps to relocate.
What we refer to as we tune incumbents out at the broadband allocation.
In addition in our current fiscal quarter through August 31, we spent $1.4 million an incumbent transactions.
We have an additional $2.2 million committed to complete these transactions through.
Through August we have agreements with approximately 20% of the nationwide 900 megahertz incumbents.
While much of our spectrum clearing work is focused on targeted territories with potential near term customer opportunities, we continue to clear incumbents opportunistically around the country.
Clearing costs to date continue to run in line with those of our total clearing cost estimates of 130 $260 million, which will mostly be spent over the next five years.
As mentioned in the past following the Fccs issuance of the reporting quarter, you're now capitalizing all spectrum clearing investments, which increased the value of our intangible asset overtime.
Finally, I want to know.
I want to mention at the Fccs final rules allow us to get a credit for license exchanges with the American Association of railroads or they are.
In June we began that transaction, resulting in a 4.7 million dollar loss, we recorded in the quarter ending June 32020.
I was reporting water, we look forward with canceling the channel licenses necessary for the relocation of a our existing operations. So that the I A.R. is now able to move their operations outside of the 900 megahertz broadband segment.
Due to this cancellation, we recorded the loss.
However, going forward, we do expect to record gains as we turned in our narrow band channels to the FCC.
To receive a broadband license.
Gains will vary in size based on several factors, including the value of the licenses. We are turning in the value of the respective county, and the amount of any anti windfall payments associated with the license.
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.
Do you have any questions or comments. Please press star one on your phone now we asked that will pose. Your question you. Please pick up your handset if a stay on speaker phone to provide optimum sound quality. Please hold them only poll for questions.
Your first question is coming from George Sutton.
Your line is live.
Thank you there was more discussion on rate cases, and infrastructure funding in sort of the help that I think he'll provide the utilities and moving forward and I'm. Just curious was that an expected part of the process or is that been added as you're finding that to be.
Part of the friction towards getting deals done.
Hey, George its Morgan Oh, let me give a brief answer and then turn it perhaps to Rob.
I would say we knew from the outset.
What a complex environment being investor owned utilities to operate within.
So on the one hand you have.
They are great advantage that they can invest.
Invest huge amounts of capital if they prove that it's a prudent investment they can actually earned a return on it so that puts.
Put them.
Finally in our sites from the beginning so we knew the complexity of the press but of course, we're getting.
More and more savvy as we bring on all these experts Rob how do you want to amplify that.
I think.
Spot on Georgia, No I would not say, it's anything new at just the opposite we've been talking about our top down and bottom up strategy approach to the segment from from really we started in that we always saw that having.
GAAP down is or is there a regulatory team, which was spread between the FCC in the industry now with the completion of the FCC process, we're really laser focused on the industry regulatory you on this advisory Council I talked about we have former commissioners from.
California's we mentioned, but also Texas, and Illinois and experts from different areas of the utility industry that really helping.
I think consider grease, the skids prepare the the the elements that the rate cases get approved quicker so that regulators understand this and the last piece you asked about sort of the federal funding. Obviously you are reading as everyone else is about all of the potential for stimulus funding that's going to come through on a bipartisan basis potentially and we definitely see just.
Like history I talked about it in 2009, the way money came through and flowed to lot of the smart grid deployment, the smart meters that got deployed throughout the industry, we see another opportunity to be able to capitalize on this import.
Important need with the with the potential for more funding and so we're also helping and focusing those resources on on driving to make sure. They get their fair share of that for put be went put up broadband private networks.
Yeah, and I would I would say that part.
Partly we're now in response mode, because we're getting more and more awareness as a result of the education coming from the Pcs there there now.
Asking us we.
We we used to we used to feel like fish out of water.
Hi, Derik meetings now we're you know right in the thick of things with a with a high quality advisors, we brought on but it's a it say.
Complex process.
To bring in a whole new category of capital investment into this.
Into this space and demonstrate that it's prudent.
And then in a.
Industry in which following is a lot more prevalent at leading.
So.
Nothing new but we're now this.
This is part of the sign of momentum we're now in it where is that big dimension of of getting these things to a real term contracts.
Gotcha.
I'm curious on the timing of the Crs auction and the decisions.
Do you think that that had some complicating factor a wallet simply complimentary to what you're doing it it may have held.
Held up some moves forward by some of the utilities until they knew what their position would be.
Oh, I think absolutely, yes, what do you think growth.
Yeah, I think you know as we mentioned the ones that were working with which is most of those who have received who cut winning bids through the auction processes everyone's seen have had really multiband approaches and really when you look at the broader telecom landscape and utilities. They are using fiber they are using leased lines. They are using commercial.
Systems, as well and so private LTC is going to be critical important element, but they're going to continue to use other bands other technologies in filling out the full the full gamut of what they require Crs is a piece of that and so absolutely I think there were there were utilities, who were watching to see what happened in an auction again our view that.
It was real capital put down in that auction by utilities that shows for the first time publicly about the beyond southern company that Theres lots of other utilities that are interested in building private LTV and CBS has a very specific use case that I talked about but if you really want to do service territory wide coverage you have to have low band and really nine.
Third as the as the ultimate solution right now in the marketplace. We think were it puts us in a really great position and again the CBS auction has not just increase awareness with the utility sector, which it has the ecosystem that's growing vendors and solution providers continues to expand and those are those are providers of LT technologies.
That typically are working across multiple bands and so we're going to begin to see real benefit from that as well.
But lets take let's take another last perspective on this I think.
I think it's extremely high.
Positive history.
Historically, the utility industry took the position they took it at the FCC repeatedly we can't participate in auctions were not able to to raise the capital to invest in spectrum and we just saw a number of them, obviously, having overcome that.
Participate in this auction they'll participate in additional auctions I am sure.
We.
Looking at the utility industry or something where we seek to be a long term partner.
We're fine with this.
This movement, we think it's absolutely positive as the industry steps up finally, you might say steps up to begin making considerable investments in spectrum and since ours is foundational.
We think it all bodes well for us.
[music].
One more question if I could this is directed Ryan you mentioned.
You mentioned that there are a number of others planning pilots and.
I would love to have number of quantified as possible and also any sense on the pilot cycle. What is the timeframe of contemplating a pilot to just simply getting a pilot in the works and announced.
Yeah excellent let me tackle the second half I'm, just give an expectation of kind of how utilities contemplate their cycles and what theyre doing would be would be with pilots.
They typically if you think about just the pilot cycle two after obviously they've gone through some extra size as I mentioned in educational process you on kind of the pre work of getting to the point of the pilot you know it's pretty common that you know what we're going to see is that that testing time might take between three to six months and.
So you have kind of a total duration in there of that plus whatever that incremental time as upfront than on the back.
What you generally see with time and it kind of made this point you know is that the way that utilities pilot and test I mean, it will be something that generally comes down with time, you know they do tend to share information on test up test outcomes and.
And the process associated with those conclusions and so its been helpful. In general I'll say in terms of with with experience and with the level of sharing across the utilities. We're generally going to see you know the industry collaboration shorten that time now back to your first.
Your first the first part of your question.
You know unfortunately, I can't get into the specific number of it but safe to say you know, it's a handful of additional ones.
Through the Tibet utilities that we already have with the experimental licenses.
Certainly hope to see more and be able to talk about them as experimental license comes out here in the future.
Thanks, guys appreciate it.
Thank you George I, just let me just make one last point keep in mind that for a lot of these super Conservative utilities.
We've had rules authorizing us to go forward for exactly we can have.
For two weeks so.
This is.
New to them.
Your next question is coming from Phil Cusick.
Your line is live.
Hey, guys a couple of thanks.
So first as you think about the the market.
Reasonable market price for Amarin, how can you comp that to Crs and does that have any impact on on how you talk to customers about potential spectrum pricing.
Hey, Rob do you want to do that.
Sorry, my phone actually cut off for a second so if you can you repeat the question.
Oh, maybe Tim did you Tim did you hear the question.
Yeah, Rob.
I'll just repeat it real quick and then we can between the two of his time on how how is Crs impacted when we.
When we look at regional pricing and is.
And is there any real impact there so.
And as Rob mentioned, how does that compare to the the price on the hammer on contract.
Yeah, I don't think theres any significant impact on pricing or really any real impact on pricing as it relates to under one gigahertz.
Wide area coverage spectrum, so Rob you want to add to that.
Yes, sure. So as you know well fill and we've read your research about the difference of valuation on spectrum in low band mid band high band.
I don't think there were any surprises from CBS on on the aggregate. There clearly are some counties, where there were anomalies, but overall I think we saw what we expected and we really look at the when we talk about fair market value spectrum as we've talked about for the previous auctions.
600, megahertz cws to come up with and other private market transactions from a what we think is fair market value and as I mean.
And as I mentioned in my comments, the Amarin agreement as we see it coming to completion.
It's going to be within what we think of is a very fair range of fair market value. So I think it's supportive so no surprises for us from CBS.
And its notes that keeps us in line with what we think for the value of low band spectrum separately from CBS.
Amarin specifically.
Okay.
Okay.
And then second.
There was a comment I'm sorry, the Guy who is who is new on the call.
Brian about principles, making it into Bryan planning documents.
And and is that sort of principles used you've been espousing that are making it into our piece and maybe you can give us some examples of things like that.
Yes, that's my question Yeah.
Yep got it yes, they make their way into a broad set of documents, but you know definitely as we see not just the language you know in the principles that as on Terex is defining but the broader understanding some of the points I mentioned around this this intersection between the importance of.
Connectivity you know in the us.
And the other kind of great programs that are tend to be aligned to to the outcomes that are associated with those use cases, and you know we'll see those come out you know sometimes or in the form of technical documents.
You see in terms of a description of how those pieces come together.
We can also see them in other areas as you suggest you know more formal proceedings, but preempt some of the regulatory process that just describes utility programs and how they envision the pieces coming together and that's usually at a stage that before obviously, they're doing the formal.
For the formal regulatory.
Recovery programs in general and cover is like I said, the general at the general principles around kind of how the avenues of spectrum and private LTC might fit in.
Okay. Okay.
Okay. Thanks, guys.
Okay. Thanks, Phil.
Your next question is coming from Simon Flannery.
The line is live.
Hey, good afternoon, Hello, how are you so on the Cameron deal.
Where are we on clearing in that.
Geography, and how should we be thinking about revenue recognition, assuming you do close that one that site.
In the in the kind of before year end.
Would that mean you'd start recognizing revenues in the December quarter, or what's the right way to think about that.
If you've got any color on whether they might be one who might consider the upfront payments and then I think in the spring you'd said that you hope to sign another one to two deals beyond Cameron by March of 21.
Given what you've been saying about the the kind of the timeline here is that still your expectation or is that got pushed a bit.
Hey, Rob you want right.
Sure so on Amarins clearing.
So I'd say, we're on track we're.
It's happens to be a very.
Very good marketing that you know, we always talked about the spectrum being underutilized, that's a market where there are less incumbents and we've been making great progress in so I think we're we're on the right path go to deliver.
Based on what is the build schedule that we know of amarin.
So I don't think there's any surprises there on the revenue recognition, Tim maybe you want to talk about that a bit.
No we can't yet so that's how we would recognize at least.
Yeah, So Simon I would expect in our.
First quarter of our next fiscal year, we would start to be able to recognize revenue assuming they sign in relatively short order. It goes out to June quarter isn't.
Yeah exactly.
Okay.
And then anything on the upfront payment system, something they're talking about.
Yes, it's fortunately, saying, we cant reveal the details of that because we are still going to be but again as I said I'm, hoping we will be able to do that.
Soon when we come to a conclusion and then at that point, we'll we'll give a lot more details about.
About the terms and Henri tuning I think we mentioned this before but if we did.
Sort of one dominant player in Saint Louis and so it was important to get to a deal but that player, which we did and so now it's working through the process of moving around the various operations to get them off the broadband and it's never been.
So that's all very positive.
So one of the technical fix I know you'd appreciate also as we do clear.
You know our three by three is that because of the LTE standard configuration of starting with a one dot for is the smallest increment and going up to a three by three.
I actually have the opportunity to utilize that part of the band in advance of clearing the full band that we've we've looked with number of utilities at the way in which that can be used because you can imagine when they first put in service. They don't need the full three by three and so we actually have a glide path.
In our clearing very often that allows us to deliver the one dot for first and then get two or three by three.
Okay and I'm on subsequent basis.
So I would say that were you know you heard ryans comments about the pipeline and Brian feel free to jump in you want any more comments you know were.
You know we're on course as you know give you all the right qualifications that these are difficult.
Beasts to predict in the process of getting from getting to yes, but based on the robustness of our engagement with a lot of utilities at the bottom end of the of our of our pipeline. We're optimistic we'll go to reach those targets.
Right and then you talked a lot about LTV, obviously fiveg is ramping here how is fiveg sort of played into your conversations.
Yeah, So well my my my answer is that.
Our our conversations always assume that theres going to be a migration from fourg to fiveg in some way or another.
Rob how do you want to amplify.
You know what sticks in my mind.
We've mentioned previously, but southern Companys, Alabama power host or the utility broadband alliance.
And the keynote speaker was Temi banner in the CEO of their telecom business Southern link.
And I really addressing a question right up front you had talked about it you know they have a fourg system in place built by Ericsson and that you know its software upgradable from their view to Fiveg and they said currently every every use case they have is being well solve by it but when it makes economic sense for them to upgrade they will and so we kind of take the same approach that.
That's why we're using LTV, that's why we go with the global standard and especially those utilities that are now looking at that at new technology and equipment for fun for Fourg systems.
That most of the vendors are talking about the the the software upgrade ability of those systems and so we believe that there is a natural glide path when they need it if they need it and when they need it so.
We definitely see five to you on the radar as as you know as the technology gets optimized for the use of private networks.
Great. Thank you.
Your next question is coming from Mike Crawford.
Your line is live.
Thanks, My clock for somebody that was securities. So I understand you're reticent to talk about exactly what you consider to be fair market value and the more quantifiable aspect, but maybe if we get back to a 10 when you are.
Reiterating a youre continued a guidance of 125 to 150 million revenues by 2024.
But you didn't say whether that was still through contracts with six to 11 of the top 20.
20, I O U.S or or or some different.
Different mix given.
Given the other discussions you've had about yeah. The disclose you had about now being in discussions with a three quarters of the nationwide value.
Yeah. So so when we talked about the 125 to 150, Mike It was using six to 11 of the top 20.
Use.
That mix may be slightly different to still get to the 125 to one for either way the pipeline looks right now but from a revenue perspective, we're still on track to be there.
Mhm, maybe on a.
Up or down level of Directionally, what your consideration of the fair market value of the spectrum has that changed.
Yeah, I can jump in there Mike I think I think as I said earlier it hasn't changed.
Our pricing model that we develop or at least leases on and really get supported by numerous third parties often in our conversations with utilities, it's valuable to have.
Other entities that come in and really.
Really I think Brian talked about the education of these customers is a key part of the first stages. These utilities have not been through all the work that all of us have understanding value of spectrum following spectrum auction and so just the education of historical pricing and what is fair market value. So.
Our view is that there is still strong support for the.
For the rationale for the pricing we have which is based on is it my talked about all the all the elements of fair market value just going back to the six to 11 that we talked about while back that was really an illustrative example that you could take six to 11 of the top 20 customers to say that's the range of mixed the top 20, obviously as we talk about a much bigger pipeline now beyond those top.
20, the mix could be different, but but but our objective of hitting those targets is still the same.
Okay and then.
Rob you also you know talked about this a one dot fort glide path that we talked about in the past as well, but given that a that is the way that many of these potential agreements might roll out does that also mean.
Even in the case, where you're getting the upside well how is that going to affect potential cash flows coming in from leases.
Yes, you know it it unfortunately, it depends and there is some of the due to sales, which I can't really put out there yet because we're in different discussions and different mechanisms to be able to do that I don't need to be too vague, but absolutely.
Absolutely we could have a pro rata pricing based on the spectrum that we deliver in some cases. So you may see a ramp up in payments to get the full payment at a three by three others, where that we've talked about where there might be prepayments, it's going to be less consequential and others are looking for more spectrum upfront you know it can be in markets, where there's there's more spectrum available. So I think you're going to see.
See a range of outcomes relative to that issue.
Okay, great well, thank you very much.
Thank you Mike.
Your next question is coming from James Ratcliffe.
Your line is.
Thanks, two quick ones, if I could just on the I 20.
Slide 24 revenue goal is.
Reaching affected at all about whether.
Whether leases our prepaid pay go or is the revenue recognition essentially the same and SEC.
And second just to follow up on the CBRN spectrum or anything else.
Anything in this option.
Has caused you change your view not just about absolute spectrum value, but about the relative value of spectrum in various markets. When you look at the mix. Thanks.
[noise] profit [noise].
I think I'm going to I'll take the second one first the CBS ones I think I addressed that earlier in two minutes past the revenue recognition to you.
No as I said previously.
The the CBS auction I think and obviously I'm reading all of your research. So it's great to be answering the question due to the analysts about it but I think we all saw what we would say at least fair market value or full value for that mid band spectrum at three to five spectrum and to us. It just fuller so solidifies the kinda.
Values that we're talking about for our spectrum based on some historical auctions, we didn't see many anomalies front as I said there is a couple of counties that were sort of a bit out of whack for particular reasons.
But otherwise I think it's continues to be supportive of both the aggregate value, but also the variation in pricing market by market might there's places worked for spectrum is below average cost standpoint, a place where its above average but on the whole we think it was pretty supportive.
Yeah and on the on the Rex.
Recognition James so from a revenue perspective, it's still going to see even if its prepaid it's sort of the straight line over the life of lease so the dollars related to a theoretical prepayment would be built into how we've looked at a 125 to one.
Got it thank you.
Your last question is coming from K, Rob Rob before we before you want for once I get how many you also made the point that when you look at fair market value of Crs payments versus Uh huh.
On valuation you have to add the significant fees that assess the coordination process impose sales.
That is a good point I think one that isn't really captured.
Much by by the research but.
But as you all know right I've talked earlier about the the SaaS right the role of the spectrum.
Our nation and the fees per end point as you deploy a significant network actually can add up pretty significantly as an operating expense to versus the capital expense, which is the purchase of the spectrum.
Some of them all as we've looked at we've seen almost the equivalent cost if you take the spectrums almost 50% increase.
Of the cost.
When you add on those the SAS cost as well depending on its based on the number of both base stations and endpoints that are higher power. So it is it is an important point more than glad you brought it up and I think the other point is that.
Well, if you're down in the weeds.
And you guys realize it but others may not realize that the you know the.
The Pal licenses secondary in many places to as a practical matter to the Navy's use of it and it's a complicating factor and encumbrance and if you're going to places like San Diego or that a lot of the west coast. It's a factor.
Impinging on value.
Your last question is coming from Chase White.
Chase your line is live.
Thanks, Hi, guys Hi, Jed.
On just that just a couple if I may so the first question I had is that any updates or feedback on on from U.P.S. on their testing of the 900 megahertz spectrum with their experimental license and that any meaningful interest from other non utility critical infrastructure introduced.
Outside of yeah.
You don't have to mentioning names, but just curious I think that falls into I think thats also to your bucket riots.
[noise], Rob maybe you want to start with the UK I can hit the other the other segments, particularly if you have so no.
Not a lot of continued progress I think what we've seen with with Covance and I think everyone sees us with the delivery of the U.P. aspect is yes has been pretty busy.
Working on some other critical efforts and so I don't think there is a lot more report on that today, hopefully we will be more in the future, but we are seeing absolutely and I think this ties into the comments on the CBS auction into.
Interest from a lot of other sectors you saw a lot of the other private.
Entities that jumped into the CBS auction round unusually given given the results of previous auctions I think as a result of that we're starting to see segment interests continued with but increasing from sectors like oil and gas and transportation and others and Brian maybe you want to have that and also the way you built the team now to focus on developing some of.
Those opportunities.
That's really knowing you're right I'm there definitely has been interest even some of it in the form of imbalance in terms of seeking for participation and you know how to be other segments take advantage of the 900 megahertz license.
We've been as Rob said, you know we've been we've been building the team obviously as I talked about our core focus you know in the Prime company.
On the prime component of the sales force that we're putting in place with the target.
Larger I'll use that are in the middle of the crosshairs of what we're going after but we're starting to build out the competency for how to capture some of these adjacent spaces you as they continue to emerge clearly they are a little bit earlier in the pipeline process, but we will be.
We will become interesting opportunities in terms of complementary or maybe the geographical coverage and or picking up other prime spots depending on how the pipeline plays out with the with the values.
That's right and we're expecting we're expecting and I think our utility customers are expecting in some cases that they can make the initial investment in the infrastructure and then.
Find other users to fill in some of the capacity so.
So that they got a way to offset some of their cost.
Yeah agreed Morgan one other point that I'll just add is you know as we as we expand our partner ecosystem. You know has been a very positive avid deal in terms of getting integrated into other into other direct segments, where they may be more direct participants historically than we are but as we talk.
But as we talked about a lot of that activity is is continuing to accelerate in addition to the customer contact.
Yeah, and you May think you may think it as we do when you think of utility it could lead to first of all of electricity, but a lot of these guys have gas also and so there are pipeline another type of potential uses.
Oh.
[noise], we have no further questions from the line at this time.
Okay. Thank you everybody. We appreciate all the key.
All the questions all your time continuing support thank you so much until next time.
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.