Anterix Inc. (NASDAQ:ATEX) Q3 2023 Earnings Call Transcript

Anterix Inc. (NASDAQ:ATEX) Q3 2023 Earnings Call Transcript February 14, 2023

Operator: Good day, everyone, and welcome to the Anterix Third Quarter Investor Update. . It is now my pleasure to turn the floor over to your host, Natasha Vecchiarelli. Ma’am, the floor is yours.

Natasha Vecchiarelli: Thank you, and good morning, everyone. I’m Natasha Vecchiarelli, Vice President of Investor Relations and Corporate Communications, and I welcome you to the Anterix third quarter conference call. Joining me today are Rob Schwartz, President and CEO; Ryan Gerbrandt, COO; Tim Gray, CFO; and Chris Guttman-McCabe, Chief Regulatory and Communications Officer. Before we begin, I’d like to remind you that we will make forward-looking statements during this call regarding future events and our anticipated future performance, such as our commercial outlook and guidance. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Investors are cautioned not to place undue reliance on forward-looking statements.

Additionally, we do not undertake any duty to update any forward-looking statements. Important factors and risks that could cause actual results to differ materially from the company’s expectations are disclosed in our most recent SEC filings. These files can be accessed on our website or on the SEC’s website. After Rob and Ryan provide their prepared remarks, we’ll open the call for questions. With that, I’ll turn the call over to Rob.

Robert Schwartz: Thanks, Natasha. Good morning, everyone, and thank you for joining us today. As our first call of 2023, I want to take stock on where we are as a company. We fully understand that this was a difficult past year for investors, both in the markets overall and specifically for Anterix stockholders. Like any pioneering business defining a new market, when we embarked on this journey several years ago, we made some initial assumptions. Some that we got right and some that we got wrong. To be clear, the value of our pipeline remains strong with potential contract proceeds of well over $3 billion. As I’ve said in the past, I am confident we have the right product, driven by the right team and are pursuing the right sector at the right time.

Today, I’m going to talk you through a few of the lessons we’ve learned in this past year and describe how we’ve evolved our efforts to put that knowledge to use. We’re also going to give greater transparency on our current customer progress with a measure we call demonstrated intent. And we’ll discuss why we no longer intend to provide projections on contracts given the challenges of predicting contract timing. First, as we’ve elaborated upon previously, the process to get to contract with utility is incredibly more complex in many cases than we originally envisioned. Leasing spectrum is deeply into a growing list of disparate yet significant grid modernization issues facing utility leaders, including resiliency, cyber security and decarbonization.

While these act as a major force to implement change, they also dramatically expand the breadth of analysis, cost and decision-making process each utility undertakes. This decision-making process requires us to obtain broad support from executives throughout the utility, including leaders in holding companies, operating companies and functional areas. While this process continues to escalate and enhance the visibility of our value proposition, it has substantially increased the complexity of their decision-making and as a result, makes timing less predictable. Accordingly, to support this broad and complex decision-making process, we’ve realized that consistent and extensive education is critical. We support the utility decision-making by engaging and educating across the entire organization to get to yes, even including utility regulators and industry associations.

These efforts do help ensure that we’re on the right path towards completion, but they don’t necessarily give us greater clarity on timing. We also continue to see that solutions are key to utility adoption. We’ve accordingly initiated several well-received programs. Many of our utility discussions have pivoted from spectrum to use cases that demonstrate the strategic and economic benefits of 900 megahertz private broadband and become a necessary element of business case justifications on the path to contracting. We continue to widen the lens to share a range of these valuable outcomes with our potential utility customers through numerous forms, including the utility Strategic Advisory Board, the Anterix active ecosystem, Utility Broadband Alliance, EEI, EPRI and other major industry groups.

And while there is some similarity of process and procedure between utilities, each has their own distinct way of approaching a private wireless broadband opportunity, and we need to clearly identify and adapt to each of utilities processes. So while we are not seeing necessarily a shortening of the cycle time and getting the contract, we do see a strong influence from existing customers to their peers that impacts the desire and intent to move forward. We set out believing that we could have some greater influence on the timing of getting a utility to contract and, therefore, an ability to predict within a range of certainty. But the reality is we can’t do that with any real precision. The complexity of the unique nature of each opportunity directly impacts the timing of the process.

That said, we can see with greater clarity and measure is the total scale of the market opportunity. We are creating a market that previously did not exist. We are taking utilities through a broadband adoption process that they’ve not been through before. We’ve experienced and learned to manage through unforeseen issues causing delays like CEO successions, procurement process changes, competitive actions and more. While this pioneering role can mean a slower pace of adoption, for us, it confirms that we know we have a unique product with a unique value proposition at a unique time for the utility industry. All of these learnings do challenge us on how to give appropriate guidance to investors on a business in a market in which we have a high level of confidence, but not a high level of control of timing.

As a result, we’ve determined that we should evolve the way we communicate to investors about our future customer opportunities. We’ve concluded that starting today and going forward, Anterix will not provide timing projections, but instead, we’ll provide what we believe is a transparent and fact-based scorecard that we’ve defined as demonstrated intent. What we know is that we see significant signs of customer intent before we get to contract, it’s why we say that it’s not a matter of if, but when. This intent is tangible. At times publicly visible and is measurable. I’ll now turn it over to Ryan to take you through this in further detail, and then I’ll wrap it up with some concluding remarks.

Ryan Gerbrandt: Thanks, Rob, and good morning, everyone. Previously, I have taken this time during the call to give you details on the status of the 3 phases of our pipeline. And in addition to the pipeline on each call, we’ve shared many other examples of the momentum we are experiencing, whether it be in the form of experimental licenses, LOIs, participation in key industry events or additional details on specific contracts, our goal has and continues to be to provide investors with a level of transparency that demonstrates the progress we are making in moving each utility and the entire sector to execute on our goal of being the de facto private wireless broadband provider to utilities. One of the things we have learned and have concluded is that the phases of the pipeline alone do not reflect the full picture of customer progress and confidence we see.

And quite frankly, the movement through the phases doesn’t align well with these quarterly updates and our goal of providing investors with a transparent, consistent and measurable way to see the combined impact and development of this important market opportunity. Today, we’re going to share an additional way of quantifying and tracking our momentum. In doing so, we’re not discarding the phases of our pipeline. They continue as they were designed to guide and measure our sales process. Just to be clear, we’ve not lost opportunities from the pipeline. The Utilities within all 3 phases still represent more than 90% of our total addressable market, totaling well over $3 billion of potential contracted proceeds with more than $500 million now in Phase III and more than $1.2 billion in Phase II.

Adding just these bottom 2 phases and their total of $1.7 billion in potential proceeds to our signed deals worth over $200 million in contracted proceeds, demonstrates why we remain wildly excited about the overall value of this opportunity. Now already with the vast majority of the addressable market captured in the pipeline, we believe it’s complementary to bring focus to how we measure a customer’s demonstrated intent and how will we report this to you going forward. For this analysis, we track many individual metrics for every customer in our pipeline and proportionately score each based on our assessment of its importance and come up with a combined demonstrated intent score. If the sum of the analysis places a utility over a certain threshold, we conclude that we have a high confidence that a customer has demonstrated intent to move forward with Anterix on a 900-megahertz contract.

Today, we’re sharing several of these key metrics with you. A number of these are based on publicly available information, while others are based on the information utilities have shared with us under NDA. For the data and information that is publicly available, these metrics include things like regulatory or rate case filings or public statements of intent made through participation on panels or in interviews and articles, Membership in our Utility Strategic Advisory Board, active participation in the Utility Broadband Alliance or filing for a 900 megahertz experimental license and more. For the metrics supported by private data, many are very definitive and measurable such as has the utility requested and received 900 megahertz pricing or has the utility issued an RFP where 900 megahertz is defined as the primary spectrum band.

Is there a verbal agreement on deal terms? Or has the utility pursued BIL funding to support a private LTE project or one of the top indicators are we engaged in contract negotiations? While the significance of the metrics does vary, several are highly validating all on their own. However, many of these metrics in isolation don’t confirm a contract with Anterix is highly likely. It is the totality of the analysis that confirms our confidence that the utility is demonstrating considerable intent to proceed with deploying 900 megahertz spectrum. This scorecard enables us to quantify the signs that we regularly see and that you hear us referencing when we say that we see momentum is increasing. At the moment, 15 utilities cross our threshold for the highest level of customer demonstrated intent, representing more than $800 million in potential contracted value.

You won’t be surprised to learn that these are the same set of customers we’ve been describing as our near-term opportunities and our projections. And that these utilities are part of the approximately $1.7 billion combined value we currently see in Phase III and II. The remainder of our pipeline customers outside of these 15 are also being tracked for their demonstrated intent. Several fall just outside the threshold with the remainder of our pipeline on a graduated set of scores. Each quarter going forward, we plan to report on the progress of our demonstrated intent scorecard against our pipeline so that you can measure our progress. To give you some more color on the 15 across the threshold, 13 in this category have specifically named and made accountable, a senior executive sponsor with the capability to progress a deal through their process.

Nine have made public statements on industry panels or interviews about their development of private LTE for their utility, including recently as reported on panels at DistribuTECH. Nine, whom we’ve had and continue to have discussions on 900 megahertz spectrum deal terms and 6 that have already established regulatory filings or rate cases to fund their pending private LTE program. Five of the group have already released their completed network infrastructure RFPs, either identifying 900 megahertz as the sole source spectrum option or as the exclusive low-band option in a hybrid network model and 5 have 900 megahertz experimental licenses, notably highlighting the different journeys utilities continue to take in their pursuit of private LTE.

While these are just part of the indicators we see in track, the intentions are obvious. For an industry that is generally risk-averse and very deliberate, the full range of data we are tracking and the indications of intent we are seeing is very meaningful, and I hope gives you a level of confidence in our momentum and future contracts. And lastly, before I pass it back to Rob, I’d be remiss not to mention last week’s seminal Utility Technology Event DistribuTECH. With over 12,000 attendees and having communication networks as a main track topic with at least a dozen specific sessions, it once again has proven the elevated role a broadband network has taken across the utility landscape. The fact that more than 30 of our technology partners were present and collaborating with customers and our booth is amazing.

It is a testament to the importance of the Anterix Active ecosystem that we have built in a sign of the power of and demand for our solution. I’m proud of all of the accomplishments of our team at Anterix and the combined contributions of our entire ecosystem, who remain steadfast focused on ensuring private broadband networks, unlock the most significant outcomes possible to ensure we are able to address the generational challenges faced with today’s electric grid. I’ll now turn it back over to Rob.

Robert Schwartz: Thanks, Ryan. We hope that by presenting you with the transparent details on how we measure demonstrated intent, we provided a clear picture about how we measure movement with the individual utilities and throughout the sector and how we define our confidence. While we are moving away from just updating the pipeline and for making any timing projections, we will continue to share with you details regarding how we are progressing with this new framework. In this last year, we’ve made great headway in that effort. We closed our largest customer to date Xcel. Our active ecosystem grew to over 100 members with a robust collection of leading vendors that all have a stake in making 900 megahertz private broadband solutions more valuable to the utility sector and beyond.

We put in place several groundbreaking initiatives designed to enhance the value of 900 megahertz to utilities, including the launch of our platform, the creation of the Utility Strategic Advisory Board and the introduction of our first product catalysts. We saw an incredible increase in engagement and demand across the whole sector reflected in the largest participation in the Utility Broadband Alliance Conference and an extremely successful DistribuTECH event just this last week, but I know some of our investors actually had the opportunity to experience firsthand. And before we move to Q&A, I want to share some additional good news. This morning, we announced that Jeff Altman, a long-time Anterix investor and Founder of Owl Creek has been appointed to our Board of Directors.

We’ve had a long and constructive relationship with Jeff and the Owl Creek team since our first equity offering. I’ve gotten to know Jeff over the years and through our regular conversations, the Owl Creek team’s direct investor input has been very helpful to us. I’m looking forward to incorporating Jeff’s insight directly into our Board’s discussions as we continue to grow and expand in this important year. That concludes our prepared remarks. I’ll now turn it back over to the operator for questions.

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Q&A Session

Operator: . Your first question is coming from James Ratcliffe from Evercore ISI.

James Ratcliffe: Just sort of in a big picture sense. I remember a couple of years ago, when the company was first going public and the like. The story was very heavily essentially sell the spectrum or release it on a long-term basis and go home effectively, that long-term business was just catching the checks. It sounds like it’s much become notably more involved and more of a service provider. So can you give us an idea of just sort of long term what this business looks like and how involved do you expect to be in the operations of your customers?

Robert Schwartz: I think about what you said with regards to the so are we getting that side . From our state crystal clear, the key parts of our business are .

James Ratcliffe: I can hear you, but they’re static.

Robert Schwartz: Okay. But I’m going to answer your question — look, we’ve always talked about very valuable spectrum action — the first one, absolutely spectrum in a valuable with a facility sector to identify and develop that . At the same time is the strong of that marketplace, growing by on just the spectrum value as we’ve talked about together overall different companies into an active system program that are focused on evaluable and pro . So that could be a quick structure, service plication data at all of those bringing us the opportunity beyond spectrum — but none of it is from our primary business currently, which is signing contracts that spectrum. But to be clear, we do see beyond that. And then we talk historically, our networking .

Operator: Ladies and gentlemen, we will reconnect our speaker . Once again, ladies and gentlemen, please you may stay on the line while I reconnect the speaker to the . Now we are back and we apologize…

James Ratcliffe: Yes, I can hear you.

Robert Schwartz: Okay. Sorry about that. So we still come background noise. I can recommend the conference back to you for future calls. So I think I answered your — initial part of you question, are you able to hear that (technical difficulty)

Operator: Your next question is coming from Simon Flannery from Morgan Stanley.

Simon Flannery: Great. All right. Well, hopefully, we can get through this. One, the demonstrated interest is helpful. The first thing is, did anything change in the last 3 months to move to this? Because A lot of the issues that you’ve talked about, Rob, have been something that we’ve heard from you for a few months now. So was there something or is it just a turn of the calendar and saying, we’ll have a different approach? And maybe to that point, maybe, Ryan, just if we were to look at demonstrated interest 3 months ago, I don’t know if you have a historical kind of reference point for that, but would we still be at the $800 million, give or take? Or has there been any change in that? And I know you talked about a handful of demonstrated targets that were very close to the finish line. Any updates on that would be great.