<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 2000
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ______ to _____
Commission File Number 000-21091
ADVANCED RADIO TELECOM CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 52-1869023
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
500 108th Avenue NE, Suite 2600
Bellevue, Washington 98004
(Address of principal executive offices)
(425) 688-8700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes [X] No [_].
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date: 39,304,740 shares of common
stock, $.001 par value, at November 6, 2000.
<PAGE>
ADVANCED RADIO TELECOM CORP.
INDEX
PART I. FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
-2-
<PAGE>
Advanced Radio Telecom Corp. and Subsidiaries
Condensed Consolidated Balance Sheets
(unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................... $ 112,406 $ 108,161
Short-term investments.................................................. - 75,887
Pledged securities...................................................... - 9,407
Notes receivable........................................................ 13,328 -
Accounts receivable .................................................... 87 234
Prepaid expenses and other current assets............................... 473 227
--------- -----------
Total current assets................................................. 126,294 193,916
Property and equipment, net................................................ 34,490 14,747
FCC licenses, net.......................................................... 368,725 180,754
Deferred financing costs, net.............................................. 8,075 8,345
Other assets .............................................................. 1,850 374
--------- -----------
Total assets .................................................... $ 539,434 $ 398,136
========= ===========
Current liabilities:
Accounts payable ....................................................... $ 7,668 $ 5,780
Accrued compensation and benefits ...................................... 3,631 3,022
Accrued taxes other than income......................................... 5,612 5,034
Other accrued liabilities .............................................. 4,442 2,826
Accrued interest payable................................................ 2,369 7,120
Accrued FCC auction licenses payable.................................... 61,575 -
Current portion of long-term debt....................................... 148 380
--------- -----------
Total current liabilities............................................. 85,445 24,162
Vendor financing facility borrowings....................................... 7,834 -
Long-term debt, net of current portion..................................... 110,226 109,047
Deferred income tax liabilities............................................ 49,233 29,326
--------- -----------
Total liabilities..................................................... 252,738 162,535
--------- -----------
Commitments and contingencies
Convertible preferred stock:
Series A, 3,137,500 and 2,288,289 shares issued and outstanding ........ 243,536 195,796
Series B, 0 and 849,211 shares issued and outstanding.................. - 47,740
--------- -----------
Total convertible preferred stock ................................... 243,536 243,536
--------- -----------
Stockholders' equity (deficit):
Common stock and additional paid-in capital, 39,212,691
and 27,967,975 shares issued and outstanding............................ 330,950 231,513
Note receivable from stockholder........................................ - (887)
Accumulated other comprehensive income.................................. - 889
Accumulated deficit..................................................... (287,790) (239,450)
--------- -----------
Total stockholders' equity (deficit)................................. 43,160 (7,935)
--------- -----------
Total liabilities, convertible preferred stock and
stockholders' equity (deficit)................................... $ 539,434 $ 398,136
========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE>
Advanced Radio Telecom Corp. and Subsidiaries
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
--------------------------- --------------------------
2000 1999 2000 1999
------------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues........................................... $ 243 $ 359 $ 1,004 $ 924
-------- --------- ---------- ----------
Operating costs and expenses:
Technical and network operations............... 5,059 4,222 15,669 12,078
Sales and marketing............................ 1,672 1,402 4,627 4,320
General and administrative..................... 3,864 3,604 12,663 9,697
Provision for equipment impairment............. - - - 6,376
Depreciation and amortization.................. 3,847 3,949 10,346 10,733
-------- --------- ---------- ----------
Total operating costs and expenses.......... 14,442 13,177 43,305 43,204
-------- --------- ---------- ----------
Loss from operations............................... (14,199) (12,818) (42,301) (42,280)
-------- --------- ---------- ----------
Interest and other:
Interest expense............................... (5,443) (7,323) (16,024) (23,401)
Other.......................................... - 147 - 697
Interest income................................ 2,437 1,508 8,490 2,428
-------- --------- ---------- ----------
Total interest and other.................... (3,006) (5,668) (7,534) (20,276)
-------- --------- ---------- ----------
Loss before income taxes........................... (17,205) (18,486) (49,835) (62,556)
Deferred income tax benefit........................ 873 439 1,495 1,501
-------- --------- ---------- ----------
Net loss........................................... $(16,332) $ (18,047) $ (48,340) $ (61,055)
======== ========= ========== ==========
Net loss........................................... $(16,332) $ (18,047) $ (48,340) $ (61,055)
Deemed preferred dividend.......................... (40,804) (108,862) (47,740) (108,862)
-------- --------- ---------- ----------
Net loss applicable to common stockholders......... $(57,136) $(126,909) $ (96,080) $ (169,917)
======== ========= ========== ==========
Basic and diluted net loss per common share,
including $1.22 and $1.57 loss per share relating
to deemed preferred dividends in 2000 and $3.99
and $4.00 in 1999................................. $ (1.71) $ (4.65) $ (3.17) $ (6.25)
======== ========= ========== ==========
Weighted average common shares..................... 33,437 27,307 30,355 27,185
======== ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
Advanced Radio Telecom Corp. and Subsidiaries
Condensed Consolidated Statement of Stockholders' Equity (Deficit)
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Note Accumulated
Common Stock and Receivable Other
Additional paid in capital from Comprehensive Accumulated
Shares Amount Stockholder Income Deficit Total
------- ------ ----------- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1999 27,968 $231,513 $ (887) $ 889 $(239,450) $(7,935)
Repayment of note receivable 887 887
Stock options exercised 1,192 8,117 8,117
Warrants exercised 344 3 3
Stock issued pursuant to
employee benefit plan 11 90 90
Stock compensation expense (242) (242)
Common stock issued in connection with
acquisition of FCC licenses 9,698 91,469 91,469
Value ascribed to beneficial conversion feature
of Series A Preferred Stock 47,740 47,740
Deemed dividend of beneficial conversion
feature of Series A Preferred Stock (47,740) (47,740)
Comprehensive loss:
Net loss (48,340) (48,340)
Decrease in unrealized appreciation on
investments available for sale (889) (889)
-------
Comprehensive loss (49,229)
-------- --------- ------ ------ ----------- -------
Balances at September 30, 2000 39,213 $ 330,950 $ - $ - $ (287,790) $43,160
======== ========= ====== ====== =========== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
Advanced Radio Telecom Corp. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss...................................................................... $ (48,340) $ (61,055)
Adjustments to reconcile net loss to net cash used by operating activities:
Non-cash provision for equipment impairment................................. - 6,376
Depreciation and amortization............................................... 10,346 10,733
Non-cash interest and financing commitment expense.......................... 1,674 5,140
Non-cash stock-based compensation expense................................... (242) 774
Gain on sale of FCC licenses................................................ - (744)
Deferred income tax benefit................................................. (1,495) (1,501)
Changes in operating assets and liabilities:
Accrued interest payable................................................ (4,751) (4,804)
Accounts payable and accrued liabilities................................ 4,691 4,395
Other....................................................................... (548) (357)
---------- -----------
Net cash used by operating activities................................... (38,665) (41,043)
---------- -----------
Cash flows from investing activities:
Purchases of property and equipment......................................... (18,990) (8,148)
Proceeds from disposition of property and equipment......................... 120 1,148
Additions to FCC licenses .................................................. (2,817) (4,311)
Proceeds from sale of FCC licenses.......................................... - 6,872
Deposit for FCC license auction............................................. (15,394) -
Loans to BroadStream........................................................ (13,006) -
Proceeds from sale of short-term investments................................ 74,998 -
Proceeds from maturities of pledged securities.............................. 9,450 18,900
Proceeds from repayment of notes receivable................................. 887 -
---------- -----------
Net cash provided by investing activities............................... 35,248 14,461
---------- -----------
Cash flows from financing activities:
Proceeds from issuance of preferred stock, net of issue costs............... - 243,686
Repayment of working capital facility borrowings............................ - (17,500)
Repayment of purchase money facility borrowings............................. - (10,000)
Proceeds from issuance of common stock...................................... 8,120 743
Principal payments of long-term debt........................................ (309) (407)
Additions to deferred financing costs....................................... (149) (4,489)
---------- -----------
Net cash provided by financing activities............................... 7,662 212,033
---------- -----------
Net increase in cash and cash equivalents....................................... 4,245 185,451
Cash and cash equivalents, beginning of period.................................. 108,161 11,864
---------- -----------
Cash and cash equivalents, end of period........................................ $ 112,406 $ 197,315
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-6-
<PAGE>
Advanced Radio Telecom Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 1 - The Company and Significant Accounting Policies
Advanced Radio Telecom Corp. (collectively with its subsidiaries, "ART" or the
"Company") is a provider of broadband wireless internet protocol access services
to businesses. ART has a nationwide footprint of 39 GHz spectrum licenses in the
United States, and owns 26GHz and/or 39GHz spectrum licenses in the United
Kingdom and several Scandinavian countries. During the nine months ended
September 30, 2000, the Company has deployed its high-speed broadband
metropolitan area networks in nine United States markets, and plans to initiate
service in additional U.S. markets.
At September 30, 2000, the Company had cash and cash equivalents of
approximately $112.4 million. In October 2000, the Company made the remaining
payment of $61.6 million for auction licenses as discussed in Note 3. Giving
effect to the October auction license payment, cash and cash equivalents at
September 30, 2000, would have been $50.8 million. The Company has incurred
losses from operations since inception and expects to continue to incur losses
from operations for at least the next few years.
The Company is in the process of evaluating its strategy and business plan.
Changes to the business plan will affect the Company's capital requirements. The
Company will need to raise substantial additional capital to fund its operations
and its business plan. The Company has engaged investment bankers to assist it
in obtaining financing. However, there can be no assurance that the Company will
be able to obtain additional financing, or, if available, that it will be able
to obtain such additional financing on acceptable terms. The Company believes
that raising capital for emerging telecommunications companies has become
difficult due to changes in the capital markets. The Company is focused on
driving revenue through customer traffic on the Company's networks in its
existing markets rather than through rapid geographic expansion. In addition,
the Company has reduced expenditures to conserve cash and, if additional
financing is not obtained soon, will make further reductions in expenditures.
Inability to obtain financing promptly and changes in the business plan could
affect the ability of the Company to comply with its covenants under the Cisco
credit facility. There is no assurance that the Company could obtain amendments
or waivers from Cisco.
Interim financial statements - Certain information and footnote disclosures
normally included in financial statements have been condensed or omitted
pursuant to rules and regulations of the Securities and Exchange Commission. The
accompanying interim condensed consolidated financial statements are unaudited.
In the opinion of Company management, these financial statements include all
adjustments, consisting of normal recurring adjustments, necessary for a fair
statement of the Company's financial position and results of operation for the
interim periods presented. The unaudited condensed consolidated financial
statements should be read in conjunction with the Company's 1999 audited
consolidated financial statements and notes thereto contained in the Company's
1999 Annual Report on Form 10-K.
Use of Estimates - Preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect amounts reported in the financial statements. Actual
results could differ from these estimates. Among the more significant estimates
made by management include estimated useful lives of licenses and network
equipment and the recoverability of recorded values of long-lived assets.
Impairment of Long-Lived Assets - The Company evaluates its long-lived assets
for financial impairment and continues to evaluate them as events or changes in
circumstances indicate that the carrying amount of such assets may not be fully
recoverable. In cases where undiscounted expected cash flows associated with
such assets are less than their carrying value, an impairment provision is
recognized in an amount by which the carrying value exceeds the estimated fair
value of such assets. Recoverability of property and equipment and capitalized
FCC licenses is dependent on, among other things, the successful deployment of
networks in each of the respective markets, or sale of such assets. Management
estimates that the Company will recover the carrying amount of those costs from
undiscounted cash flows generated by the networks once deployed. However, it is
reasonably possible that such estimates may change in the near term as a result
of technological, regulatory or other changes.
-7-
<PAGE>
Advanced Radio Telecom Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 1 - The Company and Significant Accounting Policies (continued)
Net Loss Per Share - Calculations of loss per share exclude the effect of
convertible preferred stock, options and warrants since inclusion in such
calculations would have been antidilutive. The net loss per common share gives
effect to deemed preferred stock dividends, representing the beneficial
conversion feature of Series A preferred stock of approximately $40.8 million
and $47.7 million for the three and nine months ended September 30, 2000 and of
$108.9 million for the three and nine months ended September 30, 1999.
Note 2 - Property and Equipment
Capital expenditures for property and equipment during the nine months ended
September 30, 2000, included approximately $7.8 million funded by vendor
financing.
During the nine months ended September 30, 1999, the Company recorded a
provision for equipment impairment of approximately $6.4 million to write down
the carrying value of certain equipment not expected to be an integral part of
the Company's expanded broadband data network.
Note 3 - FCC Licenses
In August 2000, the Company acquired the 39 GHz licenses of Bachow
Communications Incorporated ("Bachow") in exchange for 2,122,268 shares of
Company common stock and payment of certain seller transaction costs of
approximately $2.0 million. The total acquisition cost recorded for these
licenses was approximately $26.5 million, comprised of the fair value of Company
common stock issued of approximately $19.5 million, direct costs of $2.1 million
and related deferred tax liabilities of approximately $4.9 million. The Company
also has the right to acquire additional 39GHz licenses acquired by Bachow in
the recent FCC auction in exchange for Company common stock, which could result
in the issuance of up to approximately 460,000 additional shares.
On August 25, 2000, the Company acquired 39 GHz licenses of BroadStream
Communications Corporation and its affiliates ("BroadStream") in exchange for
7,575,898 shares of ART common stock. The Company is required to issue an
additional 416,667 shares of its common stock on November 23, 2000 if the
sellers are not in material breach of any of their obligations. The total
acquisition cost recorded for these licenses was approximately $89.2 million,
comprised of the fair value of Company common stock issued of approximately
$72.0 million, direct costs of approximately $800,000 and related deferred tax
liabilities of approximately $16.4 million. The remaining licenses owned by
BroadStream are scheduled for license renewal in February 2001 and, if renewed
by the FCC, the Company would have a right to acquire and BroadStream would have
a right to require the Company to acquire such additional licenses. The number
of shares of common stock which would be issued as consideration for the
additional licenses would be determined by a formula based on 1.25 times the
population covered by the licenses (as defined) divided by 36. The maximum
number of shares to be issued if all remaining licenses are acquired
approximates 2.6 million. The Company also entered into an agreement to make
available to BroadStream, bridge loans of up to $30 million, pursuant to which
the Company had loaned approximately $13.0 million as of September 30, 2000. No
additional amounts may be borrowed by BroadStream. Amounts borrowed are
collateralized by a pledge of a portion of the shares of Company common stock
acquired by the sellers in the transaction, bear interest at 10% per annum, and
are due November 22, 2000.
The Company was the high bidder for licenses having a total purchase price of
approximately $77 million in an auction for 39 GHz licenses conducted by the
FCC, and in connection therewith made an up front payment of $15.4 million. The
remaining $61.6 million payment was paid in October 2000 and has been included
as accrued FCC auction licenses payable in the accompanying September 30, 2000.
-8-
<PAGE>
Advanced Radio Telecom Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 3 - FCC Licenses (continued)
In May 1999, the Company sold 11 licenses for approximately $6.9 million,
resulting in a gain included in other income of approximately $700,000.
Note 4 - Long-term Debt and Other Financings
Financing Agreement with Cisco Systems - During 2000, the Company entered into a
credit agreement with Cisco Systems Capital Corporation, an affiliate of Cisco
Systems, Inc. ("Cisco"), for multi-year vendor financing to be used to fund the
Company's purchases of Cisco networking hardware and other costs associated with
the network installation and integration of such hardware. Funding under the
facility is available in tranches, $14 million being immediately available, $36
million available upon build-out of certain markets and the remaining $125
million becoming available upon completion of additional market build-outs or
upon closing of additional financing facilities, as defined. Terms of the credit
agreement, among other things, include requirements for the Company to meet
certain operational and financial targets, maintain certain levels of financial
ratios, to limit distributions, dividends, redemptions or other acquisitions of
the Company's capital stock, to limit the amount of additional indebtedness and
provides for mandatory principal prepayments under certain circumstances.
Working Capital and Purchase Money Facility - During 1999, the Company borrowed
funds available on a vendor working capital facility, which facility was repaid
in September 1999 and terminated. Also in September 1999 the Company repaid
borrowings under a purchase money facility with the same vendor and the facility
terminated.
Note 5 - Capital Stock
Series A convertible preferred stock ("Series A") shares may convert at any time
into ten shares of common stock and vote on an as-converted basis. Pursuant to
terms of Series B convertible preferred stock ("Series B"), shares of Series B
automatically convert into Series A shares whenever the total voting shares of
the Series A investors would otherwise be less than 45% (as defined) of the
Company's outstanding voting stock.
As a result of the issuance of approximately 9.7 million shares of Company
common stock in August 2000, all remaining Series B shares were converted into
shares of Series A. The estimated fair value of the Series B shares over the
amount assigned to the Series B shares (the amount of "Beneficial Conversion
Feature") approximated $50.8 million at issuance in September 1999. The Series B
Beneficial Conversion Feature is recognized as a deemed dividend as Series B
shares convert into Series A shares. The remaining previously unrecognized
deemed dividend was recognized upon conversion of the remaining Series B shares.
Accordingly, no additional deemed dividends relating to such stock will be
recorded in future periods. During the three and nine months ended September 30,
2000, as a result of the automatic conversion of approximately 726,000 shares
and 849,000 shares, respectively, of Series B shares into Series A shares, the
Company recognized a deemed dividend of approximately $40.8 million and $47.7
million, respectively.
As a result of declines in the market value of the Company's common stock,
general and administrative expenses for the three and nine months ended
September 30, 2000 include a credit to expense of $104,000 and $242,000,
respectively, relating to stock-based compensation for stock options accounted
for utilizing the variable method of accounting, which requires remeasurement at
each reporting period. Stock-based compensation expense was $318,000 and
$774,000 for the three and nine months ended September 30, 1999, respectively.
-9-
<PAGE>
Advanced Radio Telecom Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 6 - Commitments and Contingencies
The Company is party to certain claims and makes routine filings with the FCC
and state regulatory authorities. Management believes that resolution of any
such claims or matters arising from such filings, if any, will not have a
material adverse impact on the Company's consolidated financial position,
results of operations or cash flows. In the normal course of business, the
Company has various legal claims and other contingent matters outstanding.
Management believes that any ultimate liability arising from these actions would
not have a material adverse effect on the Company's financial condition,
liquidity or operating results.
Note 7 - Supplemental Cash Flow Information:
Supplemental disclosure of non-cash financing and investing activities and other
cash flow information for the nine months ended September 30 is summarized as
follows (in thousands):
2000 1999
---- ----
Non-cash financing and investing activities:
Issuance of shares for FCC licenses $91,469 $ 848
Value ascribed to warrants - 1,242
Additions to property and equipment 7,834 -
Accrued FCC auction licenses payable 64,525
Interest paid 19,101 20,570
-10-
<PAGE>
Advanced Radio Telecom Corp.
Management's Discussion and Analysis
Of Financial Condition and Results of Operations
Cautionary Statement - This report includes "forward-looking" information, as
that term is defined in the Private Securities Litigation Reform Act of 1995 or
by the Securities and Exchange Commission in its rules, regulations and
releases, regarding the Company's financial and business prospects, the
deployment of its network, capital requirements and financing prospects. The
Company cautions investors that any such statements are not guarantees of future
performance and that known and unknown risks, uncertainties and other factors
may cause actual results to differ materially from those in the forward-looking
statements. Those risks include, without limitation, ability to raise additional
capital, capital requirements and other financial risks, customer demand,
technological risks, management of growth, competition and government
regulation, as described in Exhibit 99 to the Company's Report on Form 10-K for
the year ended December 31, 1999, and other factors discussed in this report.
The Company does not undertake to update or revise its forward-looking
statements publicly even if experience or future changes make it clear that any
projected results expressed or implied herein will not be realized.
Overview
In September 1999, ART refocused its strategy to providing broadband internet
protocol access services to businesses. Revenues for the 2000 and comparative
1999 interim periods primarily represent sales to customers and for businesses
that are not part of the current strategy. Revenues and results for those
periods are not indicative of the Company's business plan now being deployed.
In March 2000, the Company deployed its high-speed broadband metropolitan area
network in San Jose and followed with additional networks in Washington D.C.,
Houston, Los Angeles, Seattle and Phoenix near the end of June 2000, and in San
Diego, Dallas/Ft. Worth and Portland during August and September 2000. Revenues
from these recently opened markets have not been material through September 30,
2000.
Results of Operations
Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30,
1999
Revenues for the nine months ended September 30, 2000, increased 8.7% to $1.0
million compared to $924,000 for the comparative prior year period as increases
in new business revenues exceeded decreases in revenues from the prior business
model.
Technical and network operations expenses increased 30% to $15.7 million during
the nine months ended September 30, 2000 from approximately $12.1 million for
the comparative prior year period. The increase resulted primarily from
operation of legacy networks in four markets during the first three quarters of
2000 as compared to three markets during the prior year period and from
increases relating to the ongoing network build-out.
Sales and marketing expenses of approximately $4.6 million for the nine months
ended September 30, 2000 increased 7% from approximately $4.3 million for the
comparative prior year period as a result of increased marketing activities
relating to the roll-out of the Company's business plan.
-11-
<PAGE>
Advanced Radio Telecom Corp.
Management's Discussion and Analysis
Of Financial Condition and Results of Operations
Results of Operations (continued)
General and administrative expenses of approximately $12.7 million for the nine
months ended September 30, 2000 increased $3.0 million, or 31%, over the
comparative prior year period. The increase was due to expanded operations and
infrastructure build-up in connection with network deployment, market
development and business expansion. As a result of declines in the market value
of the Company's common stock, general and administrative expenses for the nine
months ended September 30, 2000, includes a credit to expense of $242,000 as
compared to expense of $774,000 for the nine months ended September 30, 1999,
relating to stock options accounted for utilizing the variable method of
accounting, which requires remeasurement at each reporting period. During the
nine months ended September 30, 1999, in connection with agreements with
employees, the Company recorded approximately $750,000 of severance expense,
which is included in general and administrative expense. Exclusive of severance
expense and non-cash charges and credits relating to stock-based compensation,
general and administrative expenses approximated $12.8 million and $8.9 million
for the nine months ended September 30, 2000 and 1999, respectively.
During the nine months ended September 30, 1999, the Company recorded a
provision for equipment impairment of approximately $6.4 million related to the
write-down of certain equipment not expected to be an integral part of the
Company's broadband metropolitan data network.
Depreciation and amortization expense of approximately $10.4 million during the
nine months ended September 30, 2000 decreased $387,000 as compared to the prior
year period due to recording provisions for equipment impairment in 1999. As
networks are deployed, depreciation expense will increase as compared to prior
periods.
Net interest and other expenses decreased during the nine months ended September
30, 2000 to $7.5 million from $20.3 million during the comparative prior year
period due to a decrease in interest expense of $7.4 million and an increase in
interest income of $6.1 million. The higher interest expense in the 1999 period
was primarily due to amortization of the value ascribed to warrants issued in
equipment financings and borrowings under these facilities, which were repaid in
September 1999. The increase in interest income resulted from earnings on
increased balances of cash and short-term investments.
Three Months Ended September 30, 2000 Compared to Three Months Ended
September 30, 1999
Revenues for the three months ended September 30, 2000, decreased to $243,000
compared to $359,000 for the comparative prior year period. The decrease
resulted primarily because the loss of revenues from the prior business model
exceeded increases in revenues from new customers.
Technical and network operations expenses increased 20% to $5.1 million during
the three months ended September 30, 2000 from approximately $4.2 million for
the comparative prior year period. The increase resulted primarily from the
network build-out.
Sales and marketing expenses of approximately $1.7 million for the three months
ended September 30, 2000 increased 19% from approximately $1.4 million for the
comparative prior year period as a result of increased marketing activities
relating to the roll-out of the Company's business plan.
-12-
<PAGE>
Advanced Radio Telecom Corp.
Management's Discussion and Analysis
Of Financial Condition and Results of Operations
Results of Operations (continued)
General and administrative expenses of approximately $3.9 million for the three
months ended September 30, 2000 increased approximately $260,000, or 7%, over
the comparative prior year period. The increase was due to expanded operations
and infrastructure build-up in connection with network deployment, market
development and business expansion. As a result of declines in the market value
of the Company's common stock, general and administrative expenses for the three
months ended September 30, 2000 includes a credit to expense of $104,000 as
compared to expense of $318,000 for the three months ended September 30, 1999.
During the three months ended September 30, 1999, the Company recorded
approximately $750,000 of severance expense, which is included in general and
administrative expense. Exclusive of severance expense and non-cash charges and
credits relating to stock-based compensation, general and administrative
expenses approximated $4.0 million and $2.5 million for the three months ended
September 30, 2000 and 1999, respectively.
Net interest and other expenses decreased during the three months ended
September 30, 2000 to $3.0 million from $5.7 million during the comparative
prior year period due to a decrease in interest expense of $1.9 million and an
increase in interest income of $929,000. The higher interest expense in the 1999
quarter was primarily due to amortization of the value ascribed to warrants
issued in equipment financings and borrowings under these facilities, which were
repaid in September 1999. The increase in interest income resulted from earnings
on increased balances of cash and short-term investments.
Liquidity and Capital Resources
During the nine months ended September 30, 2000, operating activities used cash
of approximately $38.7 million as compared to $41.0 million used by operating
activities during the comparative prior year period. Cash used by operating
activities resulted primarily from the Company's net loss reduced by
depreciation and amortization and other non-cash charges and offset by increases
in accounts payable and accrued liabilities. The level of accounts payable and
accrued liabilities activity will increase or decrease cash used by operating
activities and may fluctuate on a quarter to quarter basis.
Investing activities provided cash of approximately $35.2 million and $14.5
million during the nine months ended September 30, 2000 and 1999, respectively.
Investing activities provided cash primarily from maturities of short-term
investments during the nine months ended September 30, 2000 of approximately $75
million and from maturities of pledged securities of approximately $9.5 million
during 2000 and $18.9 million in 1999. The February 15, 2000 Senior Notes
interest payment was made utilizing the last tranche of pledged securities;
accordingly future interest payments will no longer be funded by pledged
securities. As the Company does not expect to generate cash flow from operations
for the next few years, the Company will need to raise additional funds to
continue to meet interest payments in future periods. During the nine months
ended September 30, 2000, investing activities used cash of approximately $15.4
million for a deposit relating to the FCC license auction and $13.0 million for
loans to BroadStream made in connection with the Company's acquisition of
licenses. Investing activities also used cash of $19.0 million and $8.1 million
for capital expenditures, and approximately $2.8 million and $4.3 million for
acquisitions of certain FCC licenses during the nine months ended September 30,
2000 and 1999, respectively.
Financing activities provided cash of approximately $7.7 million during the nine
months ended September 30, 2000, primarily as a result of receipt of proceeds
from exercise of outstanding stock options and warrants to purchase Company
common stock.
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<PAGE>
Advanced Radio Telecom Corp.
Management's Discussion and Analysis
Of Financial Condition and Results of Operations
Liquidity and Capital Resources (continued)
In August 2000, the Company acquired the 39 GHz licenses of Bachow
Communications Incorporated ("Bachow") in exchange for 2,122,268 shares of
Company common stock and payment of certain seller transaction costs of
approximately $2.0 million. The total acquisition cost recorded for these
licenses was approximately $26.5 million, comprised of the fair value of Company
common stock issued of approximately $19.5 million, direct costs of $2.1 million
and related deferred tax liabilities of approximately $4.9 million. The Company
also has the right to acquire additional 39GHz licenses acquired by Bachow in
the recent FCC auction in exchange for Company common stock, which could result
in the issuance of up to approximately 460,000 additional shares.
On August 25, 2000, the Company acquired 39 GHz licenses of BroadStream
Communications Corporation and its affiliates ("BroadStream") in exchange for
7,575,898 shares of ART common stock. The Company is required to issue an
additional 416,667 shares of its common stock on November 23, 2000 if the
sellers are not in material breach of any of their obligations. The total
acquisition cost recorded for these licenses was approximately $89.2 million,
comprised of the fair value of Company common stock issued of approximately
$72.0 million, direct costs of approximately $800,000 and related deferred tax
liabilities of approximately $16.4 million. The remaining licenses owned by
BroadStream are scheduled for license renewal in February 2001 and, if renewed
by the FCC, the Company would have a right to acquire and BroadStream would have
a right to require the Company to acquire such additional licenses. The number
of shares of common stock which would be issued as consideration for the
additional licenses would be determined by a formula based on 1.25 times the
population covered by the licenses (as defined) divided by 36. The maximum
number of shares to be issued if all remaining licenses are acquired
approximates 2.6 million. The Company also entered into an agreement to make
available to BroadStream, bridge loans of up to $30 million, pursuant to which
the Company had loaned approximately $13.0 million as of September 30, 2000. No
additional amounts may be borrowed by BroadStream. Amounts borrowed are
collateralized by a pledge of a portion of the shares of Company common stock
acquired by the sellers in the transaction, bear interest at 10% per annum, and
are due November 22, 2000.
Since inception, the Company has financed its operations, capital expenditures
and acquisitions from issuances of debt and equity securities and vendor
financing. In September 1999, the Company raised $251 million from the private
placement of convertible preferred stock, and in 2000, the Company entered into
a credit agreement with Cisco for up to $175 million of financing to be used to
fund the Company's purchases of Cisco networking hardware and other costs
associated with the network installation and integration of such hardware.
Funding under the facility is available in tranches, approximately $14 million
being immediately available, $36 million available upon build-out of certain
markets and the remaining $125 million becoming available upon completion of
additional market build-outs or upon closing of additional financing facilities,
as defined. As of September 30, 2000, the Company had borrowed approximately
$7.8 million under this facility.
At September 30, 2000, the Company had cash and cash equivalents of
approximately $112.4 million. In October 2000, the Company made the remaining
payment of $61.6 million for auction licenses as discussed in Note 3. Giving
effect to the October auction license payment, cash and cash equivalents at
September 30, 2000, would have been $50.8 million. The Company has incurred
losses from operations since inception and expects to continue to incur losses
from operations for at least the next few years.
The Company is in the process of evaluating its strategy and business plan.
Changes to the business plan will affect the Company's capital requirements. The
Company will need to raise substantial additional capital to fund its operations
and its business plan. The Company has engaged investment bankers to assist it
in obtaining financing. However, there can be no assurance that the Company will
be able to obtain additional financing, or, if available, that it will be able
to obtain such additional financing on acceptable terms. The Company believes
that raising capital for emerging telecommunications companies has become
difficult due to changes in the capital markets. The Company is focused on
driving revenue through customer traffic on the Company's networks in its
existing markets rather than through rapid geographic expansion. In addition,
the Company has reduced expenditures to conserve cash and, if additional
financing is not obtained soon, will make further reductions in expenditures.
Inability to obtain financing promptly and changes in the business plan could
affect the ability of the Company to comply with its covenants under the Cisco
credit facility. There is no assurance that the Company could obtain amendments
or waivers from Cisco.
-14-
<PAGE>
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 Amendment No. 2 to the Rights Agreement of Advanced
Radio Telecom.
10.2 Amendment to Registration Rights Agreement.
27. Financial Data Schedule.
(b) Reports on Form 8-K:
The Company did not file a Form 8-K during the quarter ended September 30, 2000.
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<PAGE>
Advanced Radio Telecom Corp.
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on this 14th day of
November, 2000.
ADVANCED RADIO TELECOM CORP.
By: /s/ R. S. McCambridge
--------------------------
R. S. McCambridge
President and
Chief Operating Officer
By: /s/ Darla V. Norris
--------------------------
Darla V. Norris
Senior Vice President, Finance
(Duly Authorized Officer and
Principal Financial and Accounting Officer)
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<PAGE>
Advanced Radio Telecom Corp.
EXHIBIT INDEX
Exhibit
Number Title
------ -----
10.1 Amendment No.2 to the Rights Agreement of Advanced Radio Telecom.
10.2 Amendment to Registration Rights Agreement.
27. Financial Data Schedule.
-17-
