BTAB on ARTT:
HIGHLIGHTS:
-- Advanced Radio Telecom (ART) reported 4Q 1998 results this
afternoon after the market's close (2-Mar) that were ahead of our
expectations.
-- HEADLINE RESULTS:
Metric 4Q98E 4Q98A 1998E 1998A
Revenue $0.2M $0.2M $0.8M $0.8M
EBITDA -$11.6M -$7.3M -$28.5M -$24.3M
EPS ($0.74) ($0.57) ($2.25) ($2.06)
Bldgs. On-Net 50 85 50 85
Source: Company documents, BT Alex. Brown Incorporated.
-- NEW SUBSCRIBER INFO: ART reported some interesting metrics for its
average subscriber. While it is clearly still too early to define any
trends, or even extrapolate for this data, we believe the company has
demonstrated the ability to deliver on its expectations. In terms of
bandwidth, the average subscriber is paying for 360kbps service
speeds, and paying just under $400 per month (including Internet
access and the broadband connection). ART is maintaining a fairly
linear relationship between price and throughput, i.e., providing
about 10x the capacity of a standard dial-up connection for about 10x
the cost of many dial-up connections (at $20/month for Internet access
and $15-20/month for local phone service).
-- NETWORK EXPANSION OUT WEST BY YEAR-END: Capital concerns aside,
ART plans to deploy services in its western service region in 3
phases, starting with southern California (San Diego, Los Angeles, and
Orange County), then moving up the coast to central California (San
Francisco, Silicon Valley, Sacramento) and finally adding other
western markets (Spokane, Boise, Salt Lake City, Las Vegas, Tucson).
ART has indicated it will scale back network deployment until
multipoint equipment is commercially available.
-- NEW NETWORKS TO BE BASED ON MULTIPOINT TECHNOLOGY: ART plans to
begin beta testing its first point-to-multipoint (PMP) equipment in 2Q
99, and expects to have commercial quantity and quality radios
available in 3Q 1999. This is consistent with our expectations. ART
indicated that it expects to be able to add new buildings to the
network for under $10,000 with PMP equipment, implying radio prices
well below that level (and the balance being capitalized installation
costs).
-- QUESTION REMAINS, WHEN/WHERE WILL FUNDING COME FROM? Management
indicated the company has sufficient funding in place to last into the
June/July time frame. However, the company still hopes to make an
announcement by the end of 1Q 1999 regarding its progress in finding
an outside investor. Management indicated it is looking for $300M of
financing to build out the western region as described above
(including $100M of external capital which would open up $200M of
credit facilities from Lucent for a total capital infusion of $300M).
-- VALUATION: Based on our 10-year DCF, using a 25% equity discount
rate to reflect the imminent need for capital and a 10x terminating
multiple, our 12-month price objective on ARTT is $14/share. We would
normally use a 20% discount rate, which would imply a $20/share
target. |
