Hello, everyone, and thank you all for joining us during the Lytham Partners 2024 Investor Select Conference. My name is Joe Diaz, Managing Partner of Lytham Partners. For this fireside chat, we welcome Anterix Incorporated, which trades on the NASDAQ under the ticker symbol ATEX. Joining us from the company is Tim Gray, Chief Financial Officer. Before we jump into the discussion, I want to remind everyone that management is available for one-on-one meetings throughout the conference. If you have not already signed up and would like to schedule a one-on-one meeting, please visit lythampartners.com/select2024. From there, you can click on the Investor Registration button to make your one-on-one selections. Tim, thank you for joining us today. We greatly appreciate your time.
Thank you very much, Joe. It's great to be here with you, and I appreciate Lytham Partners having us here to kick off 2024.
Fantastic! Let's start from the beginning. What does Anterix do for your customers?
Great. Good, good question. So we are a holder of 6 MHz nationally of 900 MHz wireless spectrum. With that spectrum, we're currently monetizing it by doing long-term leases with utilities, particularly investor-owned utilities across the United States. The utility community is rapidly changing, and there's a significant amount of grid modernization work going on across the country, where Private Wireless Broadband Networks that we provide with our spectrum fit right into everything that utilities are doing as we move forward in that grid modernization process.
Why do utilities have a need for Private Networks? What's the use case here?
Great. Good question again. So the utilities are in the midst of a massive amount of change, as we all know about, with old networks, you know, everyone hears about grid modernization, new equipment, new technologies coming into play, particularly when you think about things that are rapidly changing. Many of these companies have made commitments that they've got to be carbon neutral by 2040 or 2050 or somewhere in there. And that's gonna require a significant amount of different, you know, technologies being brought to bear across their networks. In addition to being carbon neutral, there are other things going on, like cybersecurity, that those challenges get faced and are tougher and tougher every day.
And so with these types of things happening, Private Networks enable utilities who are not new to having Private Wireless Networks. They've had them for years and years and years, but now we bring the power of broadband, so that they can do things like San Diego Gas & Electric is doing in their utility, where their focus is fire mitigation. They've got devices on the end of lines that can help turn off a power line before it hits the ground if there's been a you know, a tree falling across it or wind causes it to snap, and they're doing that with 900 MHz spectrum in their service territory. But there's a wide variety of use cases that utilities are using, and that's what makes this so exciting.
It's not a one-size-fits-all thing that people are being asked to do. But it's important for these utilities. Couple of other things that are important for them is to be able to control and command their own network, not be beholden to someone else. So, they're the ones who are putting up cell sites and determining where those are gonna be, how hardened those cell sites are gonna be. They're the ones who can identify when an event happes, what prioritization is gonna take place to make sure their network stays up, or when sites are down, how th n ey get put back up and how quickly they get put back up, and not being in line to a, you know, a carrier who's gonna put up, you know, sites for, you know, consumers.
So those are all important things from their perspective that are significantly important, and being able to capitalize costs. Capitalization of costs is a big thing for utilities. You know, CapEx dollars are much more important than OpEx dollars. They're able to get a rate of return on those dollars, so they build out these Private Wireless Broadband Networks, spend the capital to do that, and they can run that through their regulatory process.
Okay, so a bit of a complex question here: What is it that you actually sell these utilities?
We do leases, we do leases of air. Actually it's, it's wireless spectrum. Joe, so, so that's, you know... And again, as I said, we've got a position that's got 6 MHz of 900 MHz spectrum. The FCC allowed us in May of 2020 to be able to take this spectrum, retool it so that it could be used for broadband. Previous incarnation really could only be used for two-way voice. With broadband, you bring in the power of a lot of things you could do on your cell phone today, that they can't do on their current networks or with the technologies as they existed, prior to our FCC getting our approval. So, you know, we take that spectrum, we do long-term leases.
We've done six transactions with different utilities, across the country, totaling a little over $270 million in total proceeds. Four of those have been long-term, 20-year, 30-year leases with renewals built on the end of them. Two have been actual sale transactions. Our most recent transaction was a long-term 20-year lease with TECO, Tampa Electric in Florida, which covers multiple counties in central Florida. And that was roughly a $30 million deal, again, on a 20-year lease.
Interesting. So, what - talk to me about the, the interest that you're seeing from the utility industry. You said you've got six, six full-time clients now. What's the interest that you're seeing? What, what's this going to look like, let's say, two, three, four, five years down the road?
Yeah. So we've got a pipeline today that's got roughly 60 different utilities in it, with spectrum valuation, the way we look at it, well over $3 billion. And they're in a variety of different stages of the sales process. You know, when you're dealing with utilities, it's a long sales cycle... it's multi-year. And it doesn't go nearly as fast as you'd like it to.
Keep in mind, these wireless broadband networks that they're putting together are very big projects that have to go through the utility approval process, you know, across holding companies, operating companies, regulatory folks, all of those things that need to happen to make this process take place so they can get to approval of the network that they want to build, and as a part of that, the lease that they want to do with us.
I like to tell people, when you look at the project that these utilities are often getting approved internally, and then working with regulators on, it's a multi-hundred billion dollar, or excuse me, several billion dollar project, for example, of which a spectrum lease could be $50 million or $75 million of that, a rather small piece of that entire project, but they've got to get that big, you know, $1 billion or $2 billion project moved through the machinations of their approval process, and that just takes time. But yeah, so it's these long-term leases that, you know, enable them then to go and build out these networks and move forward with the things that they want to do and the use cases that they want to be able to provide, eventually to their customers.
So, in terms of working with these utility companies and their vendors and regulators, what's your role in terms of interfacing with those various groups of providers?
Yeah, I mean, we work directly with the utility. As a part of the process, we support them in, you know. I talked about the approval working its way through the internal systems at the utility. But as a part of that, there are other things that we do. We have built what we call the Anterix Active Ecosystem, which basically is 100+ vendors that are, would be a part of a wireless network that gets built by a utility. So when they come to us as a part of the process and say, "Hey, we're interested in, you know, a cybersecurity solution to do X, Y, and Z," we can point to them to multiple vendors within our Anterix Active Ecosystem that can help provide the specific solutions that they're looking for.
And those vendors have already done a lot of work at 900 MHz, so it's kind of like your laptop, it's got that Intel Inside sticker on it. That's the same thing that's happening here with the group that's involved in the Anterix Active Ecosystem. And that group involves everyone from the big, huge infrastructure players, your Nokias and Ericssons, all the way down to very small, you know, single device makers. And so there's kind of a bringing everyone together is what we're trying to do as we figure out what a specific utility is going to be doing. You asked about the regulators. From a regulatory standpoint, it's the utility that deals directly with the regulator.
However, we provide the utility with support on being able to think about how other utilities have answered specific questions that they've gotten before, because we've now dealt with multiple utilities in multiple states. We also do a lot of work at NARUC, which is the national organization of utility regulators. And so, you know, teaching regulators about what these systems can do, what the wireless spectrum itself provides, but what the eventual use cases are going to do are going to end up enabling a lot of the things that the regulators today are asking the utilities to do moving forward.
Let's talk about the cadence of deals that you're seeing. What is your expectation over the next few years in terms of how many new customers you can actually get?
Yeah, Joe, so one of the things that we've done over the last year is kind of hold our forward-looking guidance as to specifically how many customers we're going to sign and how many dollars those are going to be worth. These processes, again, are multi-year, and pinpointing exactly when someone's going to sign, as they go through these long, arduous processes, has proven to be a pretty difficult process from our perspective, you know, in being in the public markets. What we've done in the last year is started to talk a little bit more about the customers that are nearing the end of our pipeline and have shown a significant intent, what we call demonstrated strong demonstrator, a high level of demonstrated intent, to move forward with us eventually.
That's basically taking everyone that's in our pipeline, we score them across a bunch of different metrics, you know, that show that they want to, that they want to move forward. A couple of those include things like speaking on public forums about 900 MHz specifically, or Private Wireless Broadband, putting out RFPs. You know, and there's a multitude of others that they get weighted, and we say, "Okay, once they reach a certain threshold, they're, they're pretty certain that they're going to be moving forward." So now we've got over 15 of those utilities in that, that last level of demonstrated intent, with value roughly of $900 million.
And so when exactly those are going to sign, I don't know the answer to that, but I do know that, that some of those that are at the end of that process, that are moving forward include multiple utilities, a variety of different sizes, including larger than any of the deals that we've done to date. Which we see as just a great sign for the momentum that we've continued to build, to build kind of a standard of where utilities should be building out these Private Networks at 900 MHz.
So, is it reasonable to assume that these companies that are near the end of the agreements, they're probably pretty sticky. There are a lot of them that are just gonna roll over, and you're gonna renegotiate, and you'll have them for a period of time. It just seems that once you get in, it would be kind of a arduous task to get out and bring somebody else in. Am I looking at that the right way?
No, I really think you are, Joe. I mean, it is, but it just takes time. You know, and unfortunately or fortunately, that's just part of the utility industry and how they move. But again, it's these big projects they're moving through. It's not just one small, you know, $50 million spectrum lease or a $100 million, whatever that number is going to be. It's a very large build-out that's crossing a big, diverse set of functions within a utility. And so, you know, all of that's got to happen, and we continue to fully support those processes. But we do feel like there is a stickiness there once they're kind of at the end of that, you know, that timeline.
D o they need to go through the regulatory process again to, to keep the, the agreement going forward?
Yeah, I mean, it, it depends utility by utility and state by state, when exactly their rate case set is actually gonna happen. You know, some may occur before they've contracted with us, some may occur after they've contracted with us. It just depends. You know, so we're more than willing to support, as I've said earlier, utilities in that process, even if they've already contracted with us.
We're very happy to, you know, come and sit with them and make sure that they can answer whatever questions that they may get posed by regulators as a part of that process. Because look, at the end of the day, our best sales force is the current customers that we've already got. These utilities, they all talk to each other. They all go to the same conferences, the same forums, have multiple calls with each other on issues that they're all facing.
And so when we get a utility that's a current customer up talking about, you know, "Anterix has enabled us to do this, this, and this, and Anterix is a great partner for us, even after we've signed a deal with them," you know, that's the best sign to the next utility that we're there to support them and move them forward and give them what they need, you know, to enable what they want to do.
Again, just kind of touching back a little bit on the regulatory thing here. How has the company evolved since you got the approval for the 900 MHz platform? That was what, in 2020? Is that the case?
Yes, 2020.
So what's happened in this period of time?
Yeah, you know, it is an interesting story. So we're now, you know, almost at the 4-year anniversary of having a product that we could actually sell. So, you know, in the grand scheme of things, this is still relatively a new product for utilities that we're working with. And so the company, you know, we've grown a little bit. It's still not a very large entity. We've got about 80 people. You know, we're highly focused on, you know, having a sales organization that supports utilities. You know, you're not making cold calls every day. You're in talking to the partnership that you've developed within the utility as a salesperson at Anterix, you know, helping them work through whatever their process is gonna be.
That may be building a business case, maybe bringing other, you know, Anterix employees or consultants that we work with to answer difficult questions around... You know, we've talked about regulatory, or we talked, you know, there are technical things that they may not understand because they've not had or built out a broadband network before, but we'll have a sales engineer come in and talk to them specifically about what they, what they could do. And that's really been where we've seen, you know, most of the change within the organization over the last several years, is bringing in that set of resources, in-house or, you know, contracted as consultants to come in and support us when we need them. And that's really been the evolution of the company. So...
Okay, lots going on there. The fundamentals of the business appear to be outstanding. Can you give us a brief overview of your cap structure, cash, debt, that sort of thing?
Yeah. So one of the, you know, interesting aspects and one of the sweet spots for us, from going forward and using or having utilities as customers, is the fact that, if they want to capitalize costs, and as a part of that process in capitalizing costs, one of the things is they want to prepay the lease that we've got with them. And by that, I mean they want to pay for it as we deliver spectrum over the first several years of the lease. So, it creates some anomalies when you think about us as, from a financial statement perspective, and let me talk about those.
I always like to tell new investors, "You kind of got to think about GAAP a little bit differently with this company," because we're then gonna take that revenue, or those contract proceeds when we sign a contract, we're gonna recognize that pro ratly, pro rata, over the term of the lease. So you've got a 20-year term, you're gonna split that up over 20 years and recognize it that way. However, there's a bit of a disconnect because the cash flow all comes in upfront. So in year 15, I'm still recognizing revenue when I've already got the cash. So you got to think about from a GAAP revenue perspective and the actual cash flow a little bit differently. It's really a cash flow story at the end of the day.
And so we, you know, we get those proceeds pretty quickly upfront. You know, this year alone, we're gonna be cash flow positive through our September 30 quarter. We're reporting on December 31 here in a couple of weeks. We had collected roughly $60 million worth of cash, with another $60 million to be collected, and so for in the remainder of our fiscal year, which ends at the end of March. So, you know, a positive story from a cash flow, you know, set of drivers for us at Anterix. Now, what's that enable us to do? So in September, we just announced a new stock buyback program, where we're gonna repurchase up to $250 million of stock over the next three years.
More stock, more cash than we have on our balance sheet, that, you know, goes without saying if you take a look, but what it does is talks about the confidence that our team has in the pipeline, being able to bring that to fruition and drive these cash flows. You know, 'cause the other thing that's important to note is once we sign that lease, you know, it, it doesn't cost us very much moving forward because the utility is going, they're the ones who are building out the network. We're not doing that. We, of course, are, are having the resources to support them, but we're not spending a significant amount of capital to build out a network. So that enables us to do things like return cash to shareholders through that share repurchase program.
In terms of your customer base, size-wise, large utilities, smaller utilities, electric, gas, water, can you give us a sense of what that customer base looks like?
Yeah, I mean, the key focus for us is investor-owned utilities. That doesn't rule out other types of utilities, and I'll talk about that in a second, but the highest driver of value and the biggest need is really in the large investor-owned utilities across the United States, and the vast majority of our pipeline is made up of those entities. But, you know, we've also got different types of customers already, like LCRA, the Lower Colorado River Authority in Texas, is a quasi-state entity that does, in addition to distributing power, they also manage the Lower Colorado River in Texas.
And so a lot of their use cases are gonna be driven specifically by, you know, water, the devices that measure water movement and, you know, flooding and those types of things that are going on along their waterways. Which is very different than a lot of the investor-owned electric utilities that we talk about being the main part of our pipeline. But there are other opportunities, including gas, as I said, water, you know, and some of those things. But again, it's the big IOU electrics that are the main driver of what's in our pipeline today.
Do you have anything new in the way of new technologies or adding to your 900 MHz platform? Anything in the offing there here in the next couple of years?
Well, let me talk a little bit about the opportunities there. And there are a couple of areas. One is, you know, this company. One, I want to go first by saying, any of these opportunities, we want to make sure are 100% accretive for our shareholders. You know, is leasing spectrum going to be it? It could be if we can't find the right set of opportunities that are accretive moving forward. But however, we think we've got a great platform by developing this standard for these utilities to be able to provide additional solutions. That could mean additional spectrum, that could mean expanding the spectrum position that we've got today, within the band that we're in, to make it larger.
Or it could be additional products and services. Today we offer a solution called CatalyX, which helps utilities specifically when they're in their transition from their narrowband technologies to broadband technologies. And so we're offering that today to help support utilities as they move through that process, and that's been an important discussion that we've got going now with several utilities as they think about how they're going to get from A to Z when you go from what they currently have to an up-and-running broadband network. So we've got that out there. And there are multiple other opportunities, because, look, you're signing a 20- or 30-year lease. So you've got now this great partnership. You've gone from being a, you know, "Do we trust these guys? Can they be the right vendor for us?
Can they do what they need to do?" Signed a deal, now you're under the covers with them, and now you can have some detailed conversations about other things that Anterix could do to help them. And that can provide some additional revenue stream. Don't got anything other than CatalyX that I can talk about today, but there's plenty of opportunity for us to expand the platform that we're developing every day with every new customer that we get.
You've mentioned on a few occasions here that your sales cycle is very long. I mean, what are the biggest challenges that your salespeople encounter while they're trying to work out an agreement with a potential client?
Yeah, I mean, it really, at the end of the day, is, you know, there's only so much we can control. It's really driven by, you know, the process, the calendar that the customer has. You know, so it really is providing that support on a day in, and day out basis about what they need, staying in touch. You know, so getting to know the team, really starting to develop, you know, even for us at the executive level, executive-level relationships with those customers at their, you know, C-suite level. So that we're very involved in what's happening and understanding, you know, the champions who are helping to move a project and making sure that they have the resources that they need.
And so that is, for us, you know, really, and, you know. The whole company gets involved in the sales process, not just one sales guy. And so we're very heavily involved in trying to push, you know, things along. But again, you know, when a utility capital committee meets, you know, once a quarter or once every six months, it is what it is, and we've got to work around that. We've got to understand that, and we've got to build that into the timeline and the processes that we've got. And we want to make sure that we do that.
In terms of deal structure, when you work this out with your clients, what are you really going after? Are you going after a sale? Are you going after a lease? What's the best situation for the company in that regard?
Yeah, I mean, we're going to mainly see leases coming out of the deals that we've got in the pipeline. There will be some sales. We've done a couple of sales to what are called complex system holders at 900 MHz. This was identified in the FCC process, where those that held a significant amount of sites and systems at 900 that they're already up and using would not have to voluntarily retune out of the way so that we could provide broadband in that area. And so we'd have to work with those entities. But both LCRA and San Diego, we've done the sales transactions with, fit into that criteria. The others, you know, did not for other reasons. And so we've done the leases with them.
We expect more and more of our transactions to be leases, but there'll be some sales sprinkled in, with some creativity around what I call these complex systems. You know, look, I mean, we control it. When we do a lease, we control the asset at the end of the day. You know, we get the benefit of the renewal at the end of the contract. So there is definitely residual value with that as well.
What is the simplest way to articulate what your company does? I mean, if you had a 30-second elevator pitch, what's that elevator pitch?
Yeah, I mean, we are developing a de facto standard for Private Wireless Networks and for the utility space. We are doing that providing not only a spectrum, but we're bringing to bear multiple vendors who can help the utility do what they need to do across a variety of different use cases to support them as they go through the transition to being carbon neutral, the grid modernization work that's got to get done, as we move forward into the you know, into this century.
So as you think about the future of the company, what do you envision for Anterix over the next maybe five-10 years? What, what is it that you think that investors are missing about the story today that will eventually come through in the numbers and, and makes, makes the stock worth owning? What, what do they need to see or understand?
Yeah, I mean, I think, you know, we've got to continue to execute and deliver on the monetization side of the spectrum. We've got to figure to deliver these leases, these transactions. We're gonna do that. We've got a strong pipeline. We've got a significant amount of customers who are at that high demonstrated intent standpoint. And we're gonna continue to bring those across the finish line, just like we recently did with TECO. And keeping in mind, grid modernization is a must. It's gonna happen. It's happening, so, you know, people have to have the u tilities have to have solutions, and we're gonna be able to help provide solutions to make that happen.
So, you know, look, and we've also, you know, put out a share repurchase program to show additional confidence in the fact that we're gonna be able to drive those cash flows, get those leases done, get those near-term, you know, early payments coming in because of the prepay aspect of things, you know, and continue to return cash to our shareholders. You know, our $250 million program is almost half of our market cap, which means we're, you know, if, if we stay where we are right now, I believe we're, we're currently undervalued, but, and we should see some movement there as we, as we continue to bring in deals. But we're gonna be able to buy back a lot of shares, on the, on the current market capitalization.
We've got to remember, it just takes time for utilities to move forward, but we're here. We've really developed a market, that, you know, that kind of didn't exist before, and we're gonna start to see that bear more and more fruit as we move forward.
Well, Tim, we're gonna have to leave it there. Thank you for your time today. That was a great overview of Anterix, your markets, and what you do. We greatly appreciate it. Before we wrap it up, a quick reminder to our audience. To anyone that has not already signed up for a one-on-one meeting with Anterix, please visit lythampartners.com, select 2024, click the investor registration button to make your one-on-one selections. We hope you all enjoy the conference. Have a great day, and, Tim, again, thank you so much.
Thanks again, Joe.