Q2 2022 Anterix Inc Earnings Call

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Good afternoon, ladies and gentlemen, and welcome to the <unk> second quarter fiscal year 2022 Investor update.

At this time all participants are in a listen only mode and the floor will be opened for your questions and comments following the presentation.

It is now my pleasure to turn the floor over to your host Natasha Vecchiarelli director of Investor Relations and corporate Communications Ma'am.

The floor is yours.

Good afternoon, everyone and welcome to the <unk> second quarter fiscal year 2022 investor call.

Joining me today are Rob Schwartz, our president and CEO.

Ryan Gerbrandt our CLO.

Tim Gray our CFO.

And Chris got menu became our chief regulatory and Communications officer.

Before we begin please note that during today's presentation. We may make forward looking statements either in our prepared remarks or in the associated question and answer session.

These statements are based on current expectations or beliefs and are subject to certain risks and uncertainties that may cause actual results to differ materially.

Risk factors that May impact our performance are identified in our most recent SEC filings.

Following our prepared remarks, we will have an operator led question and answer session.

In addition at the conclusion of today's call a replay and transcript of our discussion will be posted to our investor Relations website.

With that I'll turn the call over to Ann charged as president and CEO, Rob Schwartz.

Thanks for Tushar, good afternoon, everyone and thanks for joining our Q2 investor call.

Today, Tim and I will provide you with an update of the key elements of our continued progress since our last quarterly call, including the signing of our third contract. Some additional market indications of our progress and the authorization of a share repurchase program.

Following our comments well open it up for Q&A.

As Youll see Theres, a great deal of activity across the industry, that's fueling market momentum and our continued confidence so let's dive into the details starting with <unk>.

As many of you read on September 20th we announced that we entered into our third 900 megahertz broadband spectrum contract ever G. Our Midwest electric utility serving customers in Kansas, and Missouri executed a 20 year spectrum lease agreement with two additional 10 year renewal options.

The lease spectrum spans averaged 28000 square mile service territory, covering over 80 counties, including approximately 4 million people.

The total prepaid lease payment of $32 million for the 20 year initial term was recently paid in full in October.

This once again demonstrates the beneficial cash flow trend of the prepayment of our spectrum leases by utilities.

<unk> plans to utilize the spectrum to deploy a private wireless network using LTE technology to provide critical broadband communications capabilities in support of their grid modernization initiatives.

As highlighted during the recent Investor day ever G intends to deploy smart devices across its service territory to improve system awareness and control enable a large scale expansion of secure interconnected devices and is also implementing an advanced distribution management system or a D. M S to automate outage.

<unk> and optimize grid performance.

So now in just the past nine months, we've secured three customer contracts for our spectrum with major investor owned utilities Ameren.

Lynn was first out of the gate with and leasing our 900 megahertz spectrum, and then San Diego gas and electric validated the value of our spectrum proposition.

And the severance transaction, we believe now demonstrates the trend line towards the industry wide adoption of 900 megahertz private LTE.

Beyond my excitement and welcoming <unk> to the growing list of utility partners embracing the transformative potential of private LTE.

Several attributes of the deal and their journey, but I want to point out.

First as we previously discussed broad adoption of private LTE networks will create incremental opportunity and benefits as individual utilities come together first locally and regionally and ultimately nationwide we call. This the network of networks.

Because <unk> service territory borders Amarin, and twenty-five Missouri counties working collectively with these two forward thinking utilities, we will be able to demonstrate a number of these networking benefits, including the value of interoperable communications as well as the potential for sharing infrastructure along these border areas.

It's also worth pointing out that <unk> has one of the complex systems as defined by the FCC and as we've said previously and now demonstrated twice we see these complex systems as part of our addressable market.

Also worth, noting just like with S. T. G D ever G did not conduct the 900 megahertz pilot in advance of securing spectrum from N Terex, which is notable in that it further illustrates the multitude of ways, we're seeing utilities explore these opportunities.

Theres, a tremendous collaborative discussion occurring across the industry.

Appropriately the visionary first movers are sharing their experiences and lessons learned and helping their peers at other utilities.

This industry collaboration is what we had in mind, we made an early commitment to be a facilitator, bringing together key parties to share learnings build scale and drive innovation.

I'll take you through three examples that further demonstrate this growing collaborative movement.

One clear example is our successful launch in support of the utility broadband Alliance where Alba.

In fact, I had the great opportunity to attend in person the alive and vibrant almost summit and plug first just two weeks ago in St. Louis hosted by our partner utility Ameren.

As many of you know several years ago, we had in terex, along with some of the leading minds of these utility private LTE sector determined that there needed to be a forum to bring together the leaders of the utility industry complemented by technology companies to collectively solve the big challenges, they're facing regarding utility need for broadband.

We've had the privilege to collaborate with forward thinking utilities, such as Amarin Southern company night by National grid, as well as technology innovators, including Burns <unk> Mcdonnell Cisco Ericsson, Federated, GE, Motorola and Nokia and Sierra wireless to name a few.

Since then <unk> has experienced much growth and success now fully independent self funded and utility led.

And that was recent sold out event over 400 utility sector leaders, including approximately 20 utilities gathered to participate in a range of educational panels focused on private LTE.

Utility opportunities to support rural broadband utility use cases, and many more topics.

There was also a plug fests that demonstrated the interoperability of an expanding range an ecosystem of 900 megahertz devices and technologies.

The excitement in the room was really palpable.

I want to emphasize this important point as I know it can be difficult in this market to really understand the relevant signs of progress.

I'll just say this is one of them the trajectory of Bubba. The fact that there were 400 people safely participating in the middle of a pandemic all collectively driving for solutions for immediate challenges. This is a direct sign of the collaborative movement underway.

Another key side of the industry momentum in May of this year, we launched the enteric active ecosystem program to build and grow a collaborative thriving community of companies and innovators developing solutions equipment and services to help address utilities broadband communications needs.

This program launch with 37 companies participating and now has over 65, including telecommunications companies, such as Nokia Motorola solutions, and Ericsson, providing radio access network and infrastructure, leading metering players I Tron, Atlantis and gear chipset providers like Qualcomm and <unk>.

Once an industry Iot solution providers, such as Cisco and GE.

Importantly, also contributing value our innovative companies such as index, a R and cognitive spark breaking ground in emerging technologies of augmented reality or mixed reality.

And so many others not only supporting all aspects of private networks, but also bringing fresh perspectives and energy.

There is great interest in this collaborative approach to building the 900 megahertz private LTE marketplace.

In addition, as part of our active ecosystem effort, we've recognized that security, both cyber and physical.

Is key to our robust utility private LTE network. Accordingly, we have aligned our efforts to help coordinate the facilitator organize security solutions for utility consideration as part of their private LTE platform.

As a result.

You'll hear us soon announce the launch of the security initiative with interactive ecosystem program security remains one of the top reasons why utilities are turning to private LTE and our <unk> goal is to drive further development and integration of solutions in the 900 megahertz offering we look forward to sharing more with you on this.

Excellent.

I also recently had the privilege of participating in a discussion hosted by the leading industry Association for utilities Edison Electric Institute, where I E through their institute for electric innovation.

I was honored to join thought leaders, including Amarin, Chairman, President and CEO, Warner Baxter and their chief Digital information Officer, Bonnie I'm, you're selling them.

As well as Puget Sound Energy's, President and CEO Mary Kipp ARINC.

Our engaging discussion focused on the benefit of amarin deployment of a private wireless communications network, leveraging our 900 megahertz spectrum.

Perhaps most exciting was Warner Baxter echoing our call for collective movement and highlighting the strong partner they found in terex.

He has put together a valuable summary of the event and a link to that can be found on their website as well as ours.

We're also seeing continued significant positive momentum from policymakers, we've engaged with lawmakers and their staffs in coordination with some of the leading organizations in the industry, including grid was alliance and EI to support provisions that could facilitate utility's grid modernization efforts.

For 30 2021.

I'm also pleased to share that in October we received an additional $17 million payment previously contracted proceeds from amarin.

And $30 million for the poll prepayment of our initial 20 year lease term with everything.

Increasing our cash balance accordingly.

Further we expect receipt of an additional $55 million a contracted proceeds do from the S D Jeanie and amarin contracts through mid 2026.

For the average you lease agreement.

Which represents fair market value for their service territory.

Revenue will be recognized after spectrum as delivered based on straight line amortization over the initial 20 year term of beliefs and.

And we expect to begin.

New recognition this fiscal year.

In addition.

Now that we have delivered spectrum to ameren will begin to recognize revenue.

And our fiscal third quarter.

And our current fiscal year, ending March 31 2022.

On our current sales pipeline progress, we continue to forecast signing contracts with proceeds of over $200 million.

Our energy contracted proceeds are included in this project and figure.

From a cost perspective.

On track with our forecast of spending approximately $30 million for clearing efforts per year for the next three years as customer acquisitions ramp up.

Through September 32021, we've spent about $12 million on clearing related efforts this fiscal year.

As noted previously clearing costs can be accelerated or decelerated based on customer demand.

In addition are projected operating expense related spend is estimated to run between 37 and $40 million per year through fiscal 24.

We have spent roughly $17 million in the first six months of our fiscal year through September 30th 2021.

Finally.

Following the momentum of our business and related cashflows and the confidence in our continued performance and recently announced that our board approved a share repurchase program pursuant to which we are authorized to repurchase up to $50 million of our common stock over a two year period.

We are following through on our plans to return value to shareholders as discussed at our Investor Day in June.

Even earlier than anticipated.

I look forward to reporting on our progress for this program and future quarters.

That concludes our prepared remarks.

We'll now turn it back over to the operator for questions.

Ladies and gentlemen, the floor is now open for questions.

If you have any questions or comments. Please press star one on your phone now we ask that will posing your question you. Please pick up your handset if a fan speakerphone to provide optimum sound quality.

Please hold them on my ipod for questions.

Your first question is coming from Chase White.

Your line is vital.

Thanks [laughter].

Good afternoon, guys Uhm. So a couple of questions here first of all is the contract pricing that we saw on average you deal, which was that a pretty good premium to the com something that we can expect going forward and then a second question would be now that you've done deals with too complex system.

M as operators.

One that was effectively a sale on one that was effectively a leaf any color on what are the other utilities that are also complex system operators generally are more interested in a sale or at least.

[noise] thanks, she's good afternoon.

Let me start and then the team feel free to jump in I think on the the question about the ever G deal and its pricing you know, we always say our goal is to get to a fair market value. In these in these discussions cause you know prices one of the many terms and these agreements and obviously, we're we're happy with the pricing I think we'll stick with the idea that.

We'll continue to see prices at fair market value as we move forward is important to note that you know a fair market value was really a reference to to market conditions and comparables and as we continue to see your your growth of valleys of spectrum. You know marked by historic comparable as we've talked about a 600 megahertz ox.

Database auctions date. It was three am but also now is we're seeing more and more a demand for spectrum right. What went on with C band, what we're seeing now an auction 110 of of really strong continue demand for all bands and obviously low band being the the scarce. This scarcity of spectrum, we can expect to continue to see.

Growth of values overall of of our of our particular spectrum banned.

[noise] on the the the the second question about.

Comparable about a complex facilities and and you know the kinds of transactions, we've been consistent in saying on those systems, we were gonna be incredibly flexible to get accretive deals done you know deals that bring value to our shareholders. As you noted S. T genius with a sale wherever Jesus was a was a long.

[noise] term lease you know, we're gonna continue to be.

Within those bounds of flexibility and whatever it takes to get good value accretive deals done on a complex systems you know the important message and as I think we had these conversations early there was questions of whether those complex systems would be would be part of our addressable market I think the key message here is that they clearly are as we've gotten two of those deals done and continue.

To focus on all the complex systems as being opportunities for us and our pipeline.

[noise] got it helpful. Thanks Guy.

Your next question is coming from my Crawford would be Riley.

Airline is life.

Hi. This is Catherine came upon from my Crawford do you believe that the current auction 110 will have any effect on pricing discussions that perspective customers.

Thanks.

Thanks, Catherine I think as this is Rob as they just said you know the prior comments auction 110, and it makes me feel old hero here 110, because you know I've worked on auction one I believe but auction 110 is to me just another demonstrable.

Example of the the continued growing demand and need for for for for spectrum right. There's just.

Can see over the history and there's always blips in between but the trend line is clear that that year over year. You know spectrum strong continued demand for for for license spectrum. We've seen other auctions, where there's other models of shared spectrum unlicensed spectrum, but as with our 900 megahertz having.

Licensed private spectrum, we think at the end of the day is gonna be what a lot of critical business models rely upon and that's why we think 900 or so valuable.

Mmk.

Your next question is coming from Walter with White Shad.

Your line of fire.

[noise], Rob right on.

Sherry purchase I guess, you're a NASA thing 930, 21 can you tell us whether you're Barney stock back after the quarter ended.

[noise], Hey, Walter Tim I'm Gonna, let you take that question.

Yeah, well, we're gonna report on that after each quarter. So we're not gonna comment on when we're at when we're in the market place I don't think that would be best for us or our shareholders. So we'll do the reporting on that on a quarterly basis, but we expect to be active throughout the two year period, you know starting with this quarter through the end of the two years that we talked about the program.

It will sound of companies, so some companies like iridium or cogent, they they seem to Wanna be stock pickers, and they talk about intrinsic value of their stock and that type of thing. Other companies. You know just say, we're gonna buy a certain amount every day, we're gonna buy a certain percentage of the volume.

Every day I think American mobile at one point when they were doing that have that type of game play on my dogs for him at Troy hold on [laughter] [laughter]. So how did you guys conceptually think about this is it or when you're talking about knowing that it's gonna be over two years is it going to be more of a steady program or are you going to be opportunistic are you letting some random banker.

Make this decision can you just give us a little thought process here.

Absolutely go ahead with him.

Have to say that you have a clue.

We have a program authorized and we did so earlier than than we originally expected, we're going to deploy capital strategically to drive value to shareholders.

And it's gonna be opportunistic so for US we can absolutely early in our in our evolution and we're gonna continue to hopefully see as we projected no more contracted proceeds which will give us more capital to be even more aggressive we choose to do so but for now I think sticking to what Tim said as you know we're gonna we're gonna be revealing more about our strategy in arrears after.

We actually start executing we think it's the the prudent way to do it for the value to agree to shareholders, but basically it's management someone in management, that's going to make that decision on yeah.

Okay. Yeah, we're we're absolutely driving it and it's not as you said gudea rando banker a drinker that's gonna be driving we're doing it.

Got it okay, sorry, if you had a squeaky in the back.

So six O C. B R. I said my next question I mean, there seems to be a ton of momentum.

In terms of many applications for C. B R. S. We all know that you have one of your lease customers.

That's gonna utilize that in the network, what what role as this stuff is kind of progressed and the month and you talk to more utility companies.

What role do you expect to play and the integration of C. B R. S into these networks or is it just your look kind of view it Rob is like one of these things like look it just shows there's if people need different application that there's some midband stuff that they can layer on top of the low man stuff that's necessary in a layer cake type of deployment just walk us through your thought.

Your current thoughts on that thanks [noise].

Sure I think you you've probably seen a number of areas where we're working.

On the integration of C. B S. As a complementary band at 900 really started with her as you pointed out our initial customer work with S. D. G N E and some of the others that are licensed spectrum holders, but we're also working with other customers that are there and tend to use unlicense seabra spectrum. So that's the.

Beauty that band is it's really available to everybody, whether they whether they bought a license or where they're gonna use the unlicensed and we see that the compliment of 900 really adds a lot of value of you know reliability to the unlicensed band. So if you have the resiliency of being able to fall back on on a 900, you can take you know greater.

By using unlicensed in C. B R. S. We're working actively also through our entire executive ecosystem program. We've got partners in there that are working on some of the integration capabilities. You know what does it do both on equipment side, but also want an application so I'd be able to have both those bands and what are the what are the Ah Ah the ways in.

It can be used.

And then I think.

Lastly is the the way in which we're approaching it with with the C. B S operators Saas's, you saw announced with Federated Wireless you know one of the leaders in the space I would say the leader in the space and we're working with them on helping bring utilities to federated as as a as a fast but they do a lot more than that it's all.

So about the integration of those services in the in the platform the the management and spectrum management. So I think really the the goal here is to you know the the spectrum like the technology is not what this is about for utilities. This is about solving the considerable number of growing use cases and C. B S is really.

Just another tool in our toolbox to be able to do that so as we're looking at saying how do you get to you distributed energy resources Microgrid solar battery storage, there would be places where complementary either for more capacity or different kinds of coverage in building or otherwise we can complimentary use C. B R. S as part of their toolkit.

So that's why we think it's really valuable it. It's Ah you know as you know the physics of it are very different than than 900, it's really good for in building close proximity campuses and then when you need to get you know building penetration and long distance is 900 to the natural for forgetting these big coverage areas.

Got it thanks.

Once again, ladies and gentlemen, if you have any questions or comments. Please press star one on your phone now.

Your next question is coming from Georgia, Southern with Craig Hallum.

Your line.

Thank you Ryan has been painfully quiet during this whole call. So I'm going to try to address my question to him at the analysts day, you talked about phase one phase two phase three deals I wondered if you could give us a sense of movement across the phases and then also.

Can you update us on the number of life pilots relative to when we talk to an analyst day.

Excellent George Yeah, So big Big picture on the pipeline.

Laid out on the Investor Day, you know just to characterize kind of what we saw in the pipeline. What we're continuing to see you know I think it's important to reflect on just kind of what we had in there from an opportunity funnel.

You know see what we were looking at still in the pipeline is approximately $3 billion never market opportunity, which represents about 85% of our addressable market and it's important in the perspective of where we're putting our focus and effort really in terms of trying to move the customer is ultimately through it let's we're seeing the evolution of them down and.

Through and being able to hopefully find ways to accelerate.

What we've also got in there you know getting down into the details of the phases it'll focus specifically on faith to you know because that's where the the momentum is that we're seeing as they start migrating their way through as a function of all this activity that Rob talked about in terms of market education, you know and what is now becoming the pervasiveness of.

The ecosystem, which creates you know other arms of marketing and sales friends that are all consistently driving to to a common outline and so isn't that isn't that face to you know about one third of our pipeline value lives in there. It's about $1 billion. You know in total you know and then that in combination with what we still what we're working on an <unk>.

Faith Street is where we were looking at in terms of our our our forward indications of both how we and why we have confidence still towards the end of this year and then ultimately as as we map them all out still driving the momentum to you know to our fiscal year 24 year and targets, but what's important about the pipeline in terms of what we're seeing is really just the the man.

Mass that we've got in it which is important as we're looking at how we ought to Opportunistically movies. One of these through as you can imagine George kind of each utility has has a different dynamic in terms of you know, what's driving their priorities, you know and and potential issues and or opportunities that come up.

Ultimately help them you know some accelerating some decelerate, but it's in it's in the mass and the aggregation you know that ultimately they're really trying to drive you know our our our sales teams capabilities in terms of pushing them forward. It's overall you know just positive momentum you know, we're seeing maturation and and all of the phases. You know is there ultimately working their way through.

From a from a pilot perspective, I believe that we're at right now we have 14 experimental licenses better out there you know we've seen progression you know on several of the existing you know in some new you know a reference to them I think earlier in the year, you know engaging with with have been great for an example, you know.

Starting to move forward and so we're we're continuing to see that that prospect one thing I'll note and I think everybody was an example of this George you know it just kind of the the continued dynamic around utilities and the journey that they're taking in these explorations you know some clearly need pilots you know when we're seeing others that are no longer going down that path.

Which I think is a is a general good trend line of you know for the space. You know, we would certainly been faulted as an industry before you know in terms of being over piloting in terms of some of the technology evolution, but it's organizations I'll come back to us for a minute you know in the function that it serves to help drive the maths education and not just really coming from us an ecosystem.

It's an opportunity for utilities to hear from pure utilities, you know that are validating really some of their experiences and what they've done already you in terms of the piloting in the testing that they can leverage and use as they go forward with their plans and because L. T technology as we know you know early is standard.

Based it's proven by deployed L T networking and California's can operate the same as in L. T. A network in New York and you know that helps them in terms of the adoption cycle and so while I'm anticipating where it can continue to see some you know we're also continuing to see utilities progressing their way through without it.

Alright, that's great I've got you up to your word limit for the call. So Rob I I did want to ask you. One other question relative to what you seem to be suggesting relative to the test case of ever G and amarin on a network of networks can can you just be a little more clear at what you're suggesting.

There could that be a test case for the network of networks.

[noise], Yeah like Georgia every customer that we've signed on we're really intimately involved in and you know once they acquire the spectrum in their design development deployment and we've got a a vested interest in seeing them succeed.

And so where we've been very involved with amarin, obviously know whichever G being bordering in those twenty-five Missouri counties. There for the first time, we're seeing those are budding territories and that brings up the opportunity for us to.

Create more value for each of them right in in that simple things like mutual aid right when utilities rolled trucks into each other's territories to help restore after after thing bad things happened. That's a simple idea, but also then you get into the the the the network of of the actual network right to the core of the way the L. T.

At work works the the service layers on top of that and the the ability to integrate those and start to demonstrate that the the value of that first to help our initial customers, but obviously that creates what's scalable model from our standpoint, being able to spend that regionally and and and eventually nationally. So that is the seed.

Of what our vision of a network of networks is and it absolutely would be it would be a an opportunity for us to start demonstrating that capability through those relationships.

Gotcha Super Thanks, guys appreciate it.

Thank you George.

We have no further questions from the lines at this time I'd now like to turn to fly back to Ya I'll bet Schwartz for closing remarks.

[noise], Thank you Catherine and and thank you all for joining US today, and we look forward to our continued discussions and always feel free to reach out to us with any additional questions have a great day.