U.S. Markets close in 4 hrs 22 mins

Edited Transcript of STRP earnings conference call or presentation 10-Mar-17 9:15pm GMT

Thomson Reuters StreetEvents

Q2 2017 Straight Path Communications Inc Earnings Call

Glen Allen Mar 10, 2017 (Thomson StreetEvents) -- Edited Transcript of Straight Path Communications Inc earnings conference call or presentation Friday, March 10, 2017 at 9:15:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Davidi Jonas

Straight Path Communications, Inc. - CEO

* Jonathan Rand

Straight Path Communications, Inc. - CFO

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good afternoon and welcome to the Straight Path Communications second quarter FY17 earnings call and webcast. (Operator Instructions.) Please note this event is being recorded.

As a reminder, some of the matters Straight Path management will discuss on this call are forward-looking statements. You should keep in mind that these forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements and that such statements are not a guarantee of future performance. In addition to the factors specifically noted in the forward-looking statements, such risks and uncertainties include, but are not limited to, general economic conditions and those factors discussed under the Risk Factors section of our annual report on Form 10-K and quarterly report on Form 10-Q and other SEC filings. The forward-looking statements are made of this date, and the Company assumes no obligation to update forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements.

Representing Straight Path today are Davidi Jonas, Chief Executive Officer, and Jonathan Rand, Chief Financial Officer. Let me quickly outline the agenda for today's call. Davidi will discuss Straight Path's achievements and overall strategy. Then Jonathan will outline the Company's financials and outlook. There will not be an opportunity to ask questions on today's call. And now allow me to turn the call over to Straight Path's CEO, Davidi Jonas. Davidi, the floor is yours.

--------------------------------------------------------------------------------

Davidi Jonas, Straight Path Communications, Inc. - CEO [2]

--------------------------------------------------------------------------------

Thank you, and thank you all for joining us on today's call. With the assistance of our advisors at Evercore, we are currently engaged in a process of considering strategic alternatives for the Company in order to maximize value for our stockholders. The process is ongoing, and there's not much more we can say at the present, but we'll keep the market apprised of any material news.

We were able to secure financing from a syndicate of investors, led by one of our long-term shareholders, to cover our $15 million incremental payment under our Consent Decree with the SEC and give us a bit more working capital. We entered into a binding Memorandum of Understanding to settle the putative class action that was filed against the Company. We will make an initial payment that will be covered by insurance, and the remaining amount is deferred until future events.

The push to 5G continues to expand rapidly across the wireless industry, and US mobile operators continue to include millimeter wave spectrum band, including 39- and 28-gigahertz in their announced development plan. Our work on 39-gigahertz hardware at the Gigabit Mobility Lab is continuing apace. We are also continuing to advocate, both at the FCC and in the standard-setting community, on the future standards for 5G.

Our IP group currently has cases proceeding through discovery, while the majority of our previously filed cases have been stayed pending the outcome of an appeal to the Federal Circuit of decisions in our favor at the patent trial and Appeals Board. We expect oral arguments to take place before the end of our fiscal year. We believe we have made important moves and are well positioned to continue our focus on exploring strategic alternatives and to maximize value for our shareholders.

With that, allow me to turn the call over to Jonathan Rand, our CFO, to go over the quarter's financials.

--------------------------------------------------------------------------------

Jonathan Rand, Straight Path Communications, Inc. - CFO [3]

--------------------------------------------------------------------------------

I am pleased to outline our financial results for the second quarter of our FY17, the three months ended January 31, 2017. Before I review specific results, I'd like to highlight three significant events that occurred in, or just subsequent to the quarter -- our Consent Decree with the FCC entered into on January 11; the $17.5 million financing we obtained in February; and our entry earlier this week into a Memorandum of Understanding to settle the putative class action litigation. These are important developments for the Company that put us on a more stable footing as we consider strategic alternatives.

Now, on to the quarter's results, and then I'll share some thoughts on our outlook for the balance of our 2017 fiscal year. Next, starting the impact these significant events will have on our cash position. We closed this quarter with $7.8 million of cash and cash equivalents. We received the full proceeds of the $17.5 million loan in early February and reported this position of $25.3 million in our pro forma balance sheet, prepared assuming the loan proceeds were received on January 31. The provided $2.5 million, of which $15.0 million is restricted to pay the FCC's $15 million fine, and the net balance of $10.3 million on hand as go-forward operating cash as of January 31, 2017, pro forma. We closed the previous quarter, Q1 of FY2017, with $9.6 million on hand and $15.4 million on hand at the close of Q2 of FY16.

For Q2, we recognized revenue of $165,000. This revenue was generated solely by our Spectrum subsidiary and represents a modest increase over Spectrum lease revenue from the sequential quarter. As discussed below, the terms of the Consent Decree restrict the use of Spectrum leasing activity.

Total costs and expenses for the quarter were $3.8 million, consisting of SG&A of $3.6 million, direct cost of revenue of $26,000, and research and development expense of $129,000. This compares to $4.4 million last quarter and $2.7 million one year ago. We continue to support critical research and development efforts this quarter in our Gigabit Mobility Lab and our Straight Path Ventures segments.

This quarter's SG&A of $3.6 million includes non-cash compensation of approximately $2 million due to the vesting of restricted shares and stock options granted in earlier periods. This compares to last quarter's SG&A total of $4.2 million, including non-cash compensation at $2.5 million. SG&A one year ago was $2.3 million, including $1 million in non-cash compensation.

Under GAAP, both the FCC Consent Decree payments totaling $15 million and $7.2 million of a settlement of the putative class action are being reported fully in this quarter. For the class action settlement, the initial $2.25 million is being covered by insurance, netting $7.2 million to be paid as specified in our March 8, 2017, 8-K disclosure. When netting the $165,000 of revenue less the $3.8 million in costs and expenses, and also recording the two settlements' combined net GAAP amount of $22.2 million, we therefore are reporting an operating loss of $25.8 million for Q2. This compares to a $4.3 million operating loss last quarter and a $2.6 million operating loss in the year-ago quarter.

Now I'd like to share our view of the go-forward outlook, including our cash position and what is happening with our Spectrum and Ventures segments. With the recent receipt of the $17.5 million loan and our pro forma cash balance of $25.3 million in early February, 2017, we'll use $15 million of incremental payments to the FCC under the Consent Decree through October 11, 2017, netting us $10.3 million for all our other general operating needs. We expect this amount to be sufficient for operations for at least the next four quarters. We expect a slight increase in our basic spending plan for FY17, which includes cash spending of approximately $1 million to $1.3 million per quarter for general operations and overhead and $1 million for the full year of support for our Gigabit Mobility Lab.

Two areas beyond this basic spending include funding matters related to the shareholder litigation and FCC investigation, which we expect to be approximately $600,000 for past services rendered, and then drop down significantly going forward, and hardware, for which we expect to spend approximately $500,000, mainly toward the shipment of CBNL 39-gigahertz point-to-multipoint radios that we have ordered and disclosed previously.

Regarding our go-forward revenue, we expect our Spectrum lease revenue to remain approximately flat for the current fiscal quarter, Q3, and likely Q4 as well. The Consent Decree does impact the sales ramp we might have achieved if the CDNL 39-gigahertz point-multipoint radios did achieve wider adoption. We have not received the finished radios at this time, but we expect to curtail a large sales effort and will keep that equipment in inventory.

We do not anticipate any revenue coming from our IP group in this current quarter, and likely Q4 as well. The patent enforcement litigation is ongoing. All in all, we have sufficient capital to meet our anticipated needs for the next several quarters and beyond.

I hope this provides you with some insight into our fiscal status and forward-looking vision for Straight Path. Since we expect many questions would relate to topics that we are unable to discuss in detail at this time, we will not be holding a Q&A session on today's call. We do appreciate your interest in Straight Path, and Davidi and I thank you very much for joining Straight Path Communications' second quarter FY2017 conference call.

--------------------------------------------------------------------------------

Operator [4]

--------------------------------------------------------------------------------

This concludes today's conference call. You may disconnect your lines. Thank you for participating. Have a pleasant day.