Starry Group Holdings Inc

NYSE:STRY

Earnings Call Transcript 2022-Q3

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome to Starry Group Holdings Third Quarter 2022 Earnings Call. As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host Ben Barrett, Vice President, Investor Relations. Please go ahead.

[Ben Barrett, Vice President, Investor Relations]

Thank you, and good morning, everyone. Welcome to our third quarter call. I'm Ben Barrett, Head of Investor Relations for Starry. Joining me on the call today are Chet Kanojia, our CEO. By now you should have received a copy of Starry earnings release for the third quarter '22 results. If you have not, copies are available on our Investor Relations website.

Before we begin, I would note that some of our comments today may be forward-looking statements. As such, they're subject to risks and uncertainties described in Starry's earnings press release and SEC filings and results may differ materially. Additionally, during our call today, we will reference certain non-GAAP financial measures that we believe provide useful information for our investors. Reconciliations of non-GAAP financial measures were appropriate to the corresponding GAAP measures can be found in the Company's earnings release and other filings with the SEC.

And one final note, given that we’re currently engaged in the PJT process, we think it’s best if we hold off on question for now. We’ll keep you informed with updates as we hit milestone.

With that, I'll turn the call over to Chet.

[Chet Kanojia, Chief Executive Officer]

Thank you, Ben. Good morning, everyone, and thank you for joining. It's a busy time. And I appreciate opportunity to share my thoughts on the Company and its future. I want to leave with some highlights. First, operationally, we had another solid quarter with more than 10,000 net new customer additions. We continue to grow our serviceable footprint and activate new buildings to meet customer demand. Our network is performing well and we are delivering on the Internet service app or about advertised speeds.

Second, financially, we have taken steps to reduce our cash burn to maximize our future runway, most notably with a series of cost cutting moves implemented in October. These are very difficult decisions to make, but we believe that they provide us the necessary time and flexibility to find a potential transaction. And third, we announced this week that we have hired PJT partners to advise the Company and the Board of Directors on M&A and capital raising and other balance sheet solutions. There is interest from strategic and financial parties and we hope to conclude the process in as timely a manner as possible.

Some operational highlights. This was another great quarter from us from an op standpoint. We grew our serviceable footprint by 18% year-over-year and our customers by 66% including adding more than 10,000 net new ads for the first time this quarter. We continue to see strong demand from the customers. We also continue to strategically grow the network. We activated approximately 50,000 units this quarter that is apartment units, bringing the total to over 450,000 activated units. We are currently about 20% penetrated in those activated units, but the focus going forward is on driving that number materially higher. Fixed wireless of the category continues to take share from legacy broadband players, which we think will continue.

Within this segment, Starry is focused on the multifamily in large cities where its cost and time to construct a network is a competitive advantage. We think the market understands these advantages and we have seen interest in the starting model from both strategic and financial players. Some financial updates. On the third quarter financials, we maintained our investments in customer growth and the financials reflect this investment. We've built a very powerful sales engine, sales and growth engine that continues to remain undiminished while we solve our financing challenges.

Our realized ARPU continues to be depressed by our subscriber growth. The timing during the quarter that subscribers were added and the impact of promotions such as the free trial month. I want to impress upon investors that this is an artifact of growth in our liberal use of a 4 to 6 week promotional period, which restricts us from recognizing any revenue from a significant portion of the customers added in the quarter due to timing. There has been no change in our rack rate pricing and the demand for our service is strong.

Despite our continued performance, the macro environment has presented challenges to our financing and pushed out the timeline, forcing us to take immediate steps to rein in cash burn to the cost cutting measures announced in October. We also made a tough decision to withdraw from the FCC's RDOF program. While the participation in this program -- is in this important program fit within our strategic vision in 2020, changing capital needs, changing capital environments, continued success in the urban multi-tenant market forced the decision to step back and focus our energies and capital on executing on our core business plan.

We also took the difficult steps to right size our expenses by eliminating approximately 50% of the workforce and pausing our Las Vegas expansion. We expect these moves collectively will help extend our runway, providing us with sufficient time and flexibility to get strategic and balance sheet alternatives over the line in the short term. With that, I'll give a quick update on where our financing efforts stand.

Financing updates. As you know, we went public in March 29, 2022 raising net proceeds of approximately $155 million from the Pipe and [COG] Finance. Given the market conditions when we went public, we raised less than half of what we had originally expected to raise in the offering. Since then, we've been open about the reality that we require more capital get to breakeven.

On Monday, we announced we've hired PJT partners to advise Starry's Board of Directors and the Company on M&A capital raising and balance sheet solutions, including full or partial sale of the Company. The PJT process is now in full swing and we're looking to provide them sufficient time to assess the value maximizing alternatives to start.

As of September 30, we had 29.4 million in cash down from 99.7 million at the end of the second quarter. However, we have taken steps to materially decrease our cash flow to workforce reductions withdrawing from the RDOF program, which freed up an additional $17 million in cash that was restricted cover, which was restricted to cover these required letters of credit and a pause in the expansion into Las Vegas amongst other moves.

We believe these moves will help increase our runway enabling a deal to occur. In combination, we've taken the steps to give us -- in combination, we've taken the steps necessary to give us the best path to securing the best outcome for the Company and its shareholders. I'm confident that the right solution will emerge. Our problems are funding related, not operational or technical or demand.

We have built a machine that is ready for growth. Our technologies optimized. Our unit economics work. We've shown profitability on a cohort basis and we can execute at scale and we have a beloved brand. My firm belief is the right capital structure. We have the right opportunity for significant growth and profitability ahead of us.

Thank you for joining and have a great day.