Anterix Inc. (ATEX) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to today's Anterix investor conference call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Natasha Vecchiarelli. Ma'am, the floor is yours.

Hello, everyone. I'm Natasha Vecchiarelli, Vice President, Investor Relations and Corporate Communications at Anterix. Joining me on the call today are Rob Schwartz, our President and CEO; Ryan Gerbrandt, our COO; Tim Gray, our CFO; and Chris Guttman-McCabe, our Chief Regulatory and Communications Officer. Before we begin, please note that during today's presentation, we may make forward-looking statements either in our prepared remarks or any 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. Our SEC filings can be found on our website or on the SEC's website. Investors are cautioned not to place undue reliance on forward-looking statements. We disclaim any obligation to update or revise these forward-looking statements after the date of this presentation. Following the prepared remarks, we will have an operator-led question-and-answer session. In addition, at the conclusion of today's call, a replay and transcript of our discussion will be posted to our Investor Relations website. With that, I'll turn the call over to Anterix' President and CEO, Rob Schwartz.

Thanks, Natasha, and hello, everyone, and thank you for your flexibility to join this call on short notice and for a very good reason. We are excited to talk to you today about our just announced 20-year $80 million spectrum agreement with Xcel Energy. We believe this breakthrough transaction, when combined with the recent Utility Broadband Alliance or UBBA Summit in California with record participation of utilities and the vendor ecosystem represents a key inflection point in our mission of positioning Anterix as the de facto provider of private wireless broadband to utilities. I'm going to first pass it over to Ryan to provide more details on the Xcel deal, and then I'll wrap it up with some concluding remarks before we turn to Q&A.

Thanks, Rob, and hello, everyone. I'm excited to with you today just how meaningful our recent contract with Xcel is, not only for our shareholders but for the entire industry. Let me start with just who is Xcel Energy. They are a Fortune 500 investor-owned utility, headquartered in Minneapolis, with operating companies spanning the 8 states of Minnesota, Colorado, Michigan, New Mexico, North Dakota, South Dakota, Texas and Wisconsin. Within the industry, they are considered a true thought leader, recognized as the first U.S. energy provider to set aggressive clean energy goals across all the ways their customers use energy. Xcel plans to deploy a wireless broadband network to support the grid modernization initiatives for the benefit of its 3.7 million electricity customers and 2.1 million natural gas customers. They now join industry leaders, Southern Company, Amarin, San Diego Gas & Electric and Evergy in pursuing wireless broadband adoption. Xcel, however, represents something new and transformational. We believe that both their scale in terms of the number of operating companies, customers serve the numbers of states where they have a footprint as well as their industry leadership will have a strong influence on the rest of the sector, particularly their larger peers. A new industry reference point has been set for utilities of scale that is reflective of the robust evaluation and diligence process that this large utility went through. Now for some details on the agreement. Please note that we've also provided a fact sheet with key agreement details that's available on the Investor Relations page of our website. Xcel's agreement allows for the exclusive use of our 900 megahertz spectrum for up to 40 years, consisting of an initial term of 20 years with an option to extend the agreement for 2 10-year terms for additional payments. Recall, as we have highlighted in the past that our projected median contract value is $60 million, anticipating half our future contracts to be above $60 million and have to be below. At $80 million for the initial 20-year term, this Xcel agreement is the first across that median, and I believe validates our ability to bring 900 megahertz private broadband to utilities of all sizes and complexity with some significantly larger deals to come. And consistent with all of our contracts to date, the $80 million value represents fair market value for broadband spectrum in the unique Xcel service territory. We anticipate receiving approximately 80% of the proceeds by the second quarter of 2024, with the contract fully paid by mid-2028 based upon the spectrum delivery schedule. Additionally, we're excited that Xcel has committed to collaborate with Anterix to accelerate the industry momentum for private networks, including joint collaborations with respect to the development utilization, marketing and commercialization of 900 megahertz spectrum as well as in supporting technology trials of our newly launched Anterix active ecosystem platform. Further, we're pleased to have Xcel Energy's senior executives as part of our Utility Strategic Advisory Board. While they will join existing executive members from Dominion Energy, Exelon, Amarin, Evergy, Southern Company and UBBA. We look forward to this expanded group, helping to shape the nationwide network of network landscape. Through these initiatives and more, it's evident that Xcel is dedicated to aiding broad industry adoption and acceleration of private broadband in support of our nation's utility grid modernization efforts. During our call in August, we provided more granularity regarding 4 important pending deals intended to give a perspective of the different types of customer journeys and complexity we are seeing across the 60-plus utilities in our pipeline, including with very large holding and operating company entities who have been making great progress in aligning wireless broadband to their unique business and stakeholder needs. Finalizing the Xcel agreement brought one of those 4 complex deals to conclusion. In a segment known for its risk aversion, having a reference transaction for our other large utility executives is invaluable, and I anticipate seeing the discussions start to invert from the risk of making a decision regarding the investment in and deployment of private broadband to the risk of indecision and not taking action to secure the risk-reducing grid modernization benefits of having a private wireless broadband network. And while the complexity of the remaining deals still exists, we've been continuing to make solid progress across the pipeline. As Rob will discuss, the incredible UBBA Summit that just concluded, including the laser focus of private wireless broadband as well as the significant C-level participation, again, demonstrating the noncompetitive collective behavior of this industry. These utilities engaging in this collaboration at UBBA are the very utilities we are supporting through our pipeline. What remains unpredictable, as we have seen, is knowing the exact timing of these contracts due to the multiple layers of organizational and operating company approvals to get to signature. But from my vantage point and having direct interaction with these utilities, we have in the expanding later stages of our sales process, I continue to believe it's not a matter of if, but rather when we close these contracts. Let me wrap up by saying that from the perspective of the pipeline and overall market, the announcement today of Xcel Energy and what we're already realizing from the momentum flowing from the event with UBBA are all very positive signs, only enhancing our confidence in meeting our targets and achieving our mission of being the de facto provider of private wireless broadband to utility. I'll now turn it back over to you, Rob.

Thanks, Ryan. Clearly, there's a lot here to be excited about. I want to put our Xcel announcement in context with what we saw at the recent UBBA Summit and how these 2 great achievements put us in mind for the future. As many of you know, Anterix created funded and actively managed UBBA, starting with the initial launch in 2019. Utility leaders, Amarin, NYPA and Southern Company were UBBA pioneers and others soon followed. It's now become a trusted environment, energized by utility peer-to-peer collaboration. From the beginning, UBBA has held an annual summit where leading utilities and the industry ecosystem come together with a specific and valuable focus of sharing experiences, use cases and plans to build private wireless broadband networks. This year, it was a seminal event hosted by Southern California Edison with over 500 utility thought leaders registered, including representatives from more than 20 utilities. Those numbers dwarf attendance from the event just a few years ago. But it's not just the size and scale of the event that was unique. One palpable change at this year's event and the reason that we think it was transformational was the growing participation of C-level leadership, bringing discussion topics to a much more strategic level. Industry leaders publicly discuss the urgency to adopt private broadband and also express the complexity that comes with deploying a network. On open panels and in robust private discussions, executive share their learnings and their plans regarding private LTE evolving into 5G, including how we could address key issues. Topics included enhanced resiliency against increasing weather events, achieving decarbonization targets with the power of connectivity and control of distributed energy resources, and building stronger cybersecurity in an ever-increasing threat landscape. The senior level acknowledgment that wireless broadband is a strategic asset, underpinning most, if not all, of their primary utility objectives, strongly aligns with and enhances our effort to move the entire sector forward. And to bring it full circle and has a strong demonstration of Xcel's full commitment to driving nationwide collaboration with utility private broadband. At the event, it was announced that Xcel will be the host of the UBBA Summit in Minneapolis next year. There's another thing I wanted to address that highlights our position within the private LTE landscape for utilities. Just last month, 2 industry-leading organizations, EPRI and the National Renewable Energy Lab each partner with Anterix in response to a Department of Energy funding opportunity regarding cybersecurity. Both of the applications focused on demonstrating the cybersecurity benefits that can flow from the deployment of private secure wireless broadband networks using 900 megahertz spectrum. We're excited to be in a position where we're being asked to partner with these industry leaders. And with the recent conclusion of another big wireless industry event, Mobile World Congress, there's a continued increasing focus in the marketplace on utilizing private broadband networks for enterprise solutions. And as I said on our last call, we and Anterix aren't just talking about it. Anterix, with contracts now in 12 states, is leading the private wireless revolution with what we estimate to be more contracted private wireless broadband networks in the U.S. than likely everyone else combined. Let me wrap up by saying that we believe all of this collective industry activity from UBBA and its recent summit to join applications with leading industry organizations as well as today's announcement regarding our new contract with Xcel support the continued industry adoption of 900 megahertz private broadband networks. It all enhances our confidence in meeting our targets and delivering on our mission to become the de facto provider of private wireless broadband solutions to utility and critical infrastructure sectors. That concludes our prepared remarks. I'll now turn it back over to the operator for questions.

[Operator Instructions] And the first question this morning is coming from Philip Cusick from JPMorgan.

A couple of simple ones. First, can you give us a household or population number underneath these -- underneath the new contract? I apologize if I missed it. And then second of all, just give us an update on where we are in the pipeline at the different stages. Any movement among other potential customers over the last few months?

Tim, why don't you take the first question and then we'll go to Ryan for the second.

Sure. Phil, for strategic purposes, we're no longer providing megahertz per pop or population data or the comps. It really confuses the conversation with customers who are really more focused on customers that utilities have, the meters at the geographic area. It really comes down to a real estate value per counting conversation. That being said, this deal is consistent with our other deals and that pricing is comfortably between the equivalent 600 megahertz in AWS-3 legacy auction outcomes. I also want to note that our pricing model does take into account current market conditions, including information from those recent low-band transactions, our previous transactions and the current impacts of inflation, but it's not to our benefit for ongoing negotiations to go into too much more detail on pops.

So Ryan, the second part of the question was on pipeline, if you want to take that.

Yes, happy to. I mean overall, we've been continuing to see good momentum just in general across the pipeline. Let me come back to a couple of examples we just referenced, though. Obviously, we're notably anticipating what the shot in the arm effect is going to be just from a communication today. They're probably more apparent already given we're about 2 weeks separated from the event with just the relationship to the conversation that grew out of the UBBA event in Southern California. It's been a positive momentum builder just in terms of continuing to drive mass scale and evolution of the conversation. In fact, one point of reference I wanted to put out just so folks can understand the relationship between how much the growth is in the participation of UBBA and how it relates to our pipeline. As I said in the prepared remarks, those are the same folks, obviously, that we're talking to across all 3 phases that they're continuing to grow. But notably, just in the attendance of UBBA when the utilities are participate in it, we calculate about 50% of our potential spectrum value contract proceeds are represented in that audience. And it's been a significant opportunity to speak to all of them collectively and see them starting to share their lessons learned and experiences that really help the next in line as you continue to make movement through all the various 3 phases.

The next question is coming from Winston Len from Equator Venture.

So this is great news. I was talking at the UBBA Summit and [indiscernible] site for the utility to a private LTE. And frankly, it's impressive to hear the utilities discuss the network of network opportunities. So that kind of brings me to my question, which is that with these multi-decade deals, it seems to me that Anterix is well positioned to access an adviser to the utilities asset invent journey to upgrade the network. So how should investors think about the long-term commercial opportunity here?

Thanks, Winston. And also thanks for attending that UBBA event and share your thoughts. As we talk about bring it specifically because it's worth in the Xcel deal, as Ryan went through beyond representing the long term, you'd up to 40 years, a 20-year deal within 2 10-year renewals. There's also a component of really what I think is collaboration with Anterix on our active ecosystem program and platform. And as you know, we're early in that development. We've talked about some of the key elements or some of the pieces of the components in there, which we think are going to be very valuable. But what's worth noting 2 things. One is I think the majority of those, as we push them out today really are focused on driving adoption by utilities. We're trying to make the adoption, the usage, the management of these broadband platforms easier with the integration of key products we think are valuable. And for example, our catalysts product that we've talked about in the past and Ryan talked about, really helps utilities more easily manage their SIM management, which is putting on new devices and being able to drive them forward as they continue to grow their networks. Other ecosystem elements we have within Anterix Active Ecosystem Program, there are cybersecurity elements as an example. We've got over half a dozen companies, several of whom who were at the UBBA event driving greater sophistication that you can get from commercial networks of having layers of cybersecurity bespoke to those individual utilities networks. These are all services that we are with partners and with our ecosystem partners, creating new products to be able to drive adoption, but absolutely, we see value creation over the long term. Remember, we're going into 20-, 30-year relationships with these utilities. And so we're in this for the long game. We do see value creation for shareholders. I think it's too early to put any kind of predictions on the kind of value. For now, we're really primarily focused on adoption, getting to our usage of our nationwide spectrum. But clearly more to follow, especially as we have partners like Anterix -- I'm sorry, partners like Amarin and Evergy and Xcel and SDG&E that now are helping us drive these particular products to market, pilot test and obviously commercialize as a goal.

Great. And maybe just one follow-up. How impactful is the bipartisan infrastructure law for the adoption of private LTE for the utilities here? Because I noticed you have some marketing collateral on the website around that. And what is the potential role and benefit to Anterix towards helping the utilities get some of this funding?

Absolutely. Maybe I'll start there, and then we'll pass it over to Chris Guttman-McCabe. We've always talked about them as being a catalyst for adoption. It's not an essential, as you can see the customers who have signed on so far didn't require any incremental funding to be able to drive forward. That being said, we are seeing considerable interest and we're helping both shaping some of the legislative process. We are involved in a lot of the language and making sure that the use of these proceeds can be used for private broadband networks. But also we see opportunities both helping utility customers and even some programs for ourselves to go directly into the Department of Energy and try and seek funding for some of those things. It's a strong tailwind for us overall because it really enhances the conversation. Chris, do you want to add to that?

Yes, Rob, thank you. Spot on. I mean, Winston, we worked hard over the last couple of years to really set the table for the utilities, if they choose to participate and worked with folks on Capitol Hill and at the Department of Energy to get language into the bipartisan legislation in a range of areas that would support private LTE. We have had many, many questions -- conversations with utilities about their desire to potentially take advantage of those funds. And as Rob referenced, we are also investigating, potentially partnering with some organizations to pursue funding. Again, all of it, just like the work we do with our Active Ecosystem, all of it is designed to spur facilitate, accelerate private LTE deployment at 900 megahertz. But stay tuned. It looks like the programs are going to open up in this fall, potentially in the next month or so, and with money being deployed thereafter. So we're excited for the tailwinds that this could provide.

The next question is coming from Simon Flannery from Morgan Stanley.

Great. And have my congratulations. Nice to see. Just coming back to Phil's question, was this customer 1 where you'd said you reach commercial contract terms with 1 of the customers?

Simon, thank you. This was 1 of the 4 customers we talked about. Our desire to always maintain the confidentiality of the pending deals. We really can't talk about specifically which one. But Ryan, maybe you want to talk a little bit about kind of the update in the context of our last call, I think as Simon is referring to.

Yes, happy to. Yes, absolutely. But yes, as we noted in the last call, we were bringing attention to 4 deals to be able to show some of the complexities in the area of movement that we've been seeing across them, as Rob said, certainly Xcel is one. It's been going through it. The other 2 really -- the other 3 really highlighted different scenarios around the role that our conversations played as utilities either as a larger series of operating companies that are much larger holding companies and fundamentally how we had to approach these. The second was really looking at private broadband as part of a transformational grid modernization programs, which we see type typically. And then the last scenario was really focusing on the opposite where we had an individual operating company under the footprint of a much larger holding company. All those are still great examples of the types of different deal flows that we've seen. Xcel by nature, obviously, highlights the capability to move forward with, again, a large multi-operating company environment. I had a complex set of use cases, ultimately that they were trying to see I'll reference it back to UBBA though, just for one perspective, Simon, kind of one of the things we've talked about for a while is how important it was to see the C-suite engaged themselves in this conversation. We've been seeing it and feeling it firsthand. We've been engaging with them it was on full display at UBBA. And seeing the CIOs, the COOs and these kind of folks engage directly on mainstage, not just speaking of what they've been realizing in terms of the important role of broadband. But using that as a forum to educate the others in both our pipeline and just across the industry. That's fundamental to many of these types of deals. And the elevation of PLT and communications in general to fit the strategic urgent needs of the utilities or strong motivators for them to start seeing the urgency and being able to move some of these opportunities forward. So that's consistent across all of these. I anticipate we're going to see more of that now with the announcement of Xcel and getting their engagement in both the advisory board and the other activities out across the market. they're now on our side in terms of wanting to see continued growth of the space and development of the ecosystem that actually helps their needs as well as kind of others next in line.

Great. Great. And then my follow-up was on the cash flows here. I think you said 80% by Q2 of '24. I'm presuming that's a calendar year, not a fiscal year, if you can just clarify that. How confident do you feel about the clearing process? Any kind of challenges on this specific spectrum? And then use of cash, I know you've sort of council the earnings call at this point. I don't know if you can give us the cash balance, buybacks, where that stands today and in light of this deal?