Starry seeks paths to bridge its funding gapStarry seeks paths to bridge its funding gap
Starry, a fixed wireless operator that expects to end 2022 with over 100,000 subscribers, is 'exploring a combination of debt, equity and other financing vehicles' to get to break-even, CEO Chet Kanojia says.
August 9, 2022
Coming off a quarter in which it added a record number of subscribers, Starry is pursuing a range of options to ensure that the fixed wireless access (FWA) specialist has enough funding to reach the break-even mark.
Starry, which raised about half the proceeds it expected to raise after going public in March, is "exploring a combination of debt, equity and other financing vehicles," CEO Chet Kanojia said Tuesday on the company's second quarter 2022 earnings call.
Figure 1: With a network deployment underway in Las Vegas, Starry reiterated guidance that it will end 2022 with more than 100,000 customers.
Starry, he added, has made "significant progress on several fronts." Of note, the company has set up a deal (with Cantor Fitzgerald) that enables Starry to raise up to $100 million capital, or up to 19.9% of shares outstanding, exclusively at its discretion.
The company is also in "advanced discussions" with multiple, unnamed partners about potential, additional investments, Kanojia said. He stressed those discussions may not lead to any firm agreements, but said those deals, if successful, would put Starry on a path to break-even and profitability.
Access to $100 million via the agreement with Cantor Fitzgerald serves as a "down payment" amid estimates that Starry's initial capital raise fell about $200 million short of its original objective, MoffettNathanson analyst Craig Moffett explained in a research note (registration required) in response to Starry's Q2 results.
FWA is "all the range at the moment," but financing "has stolen the spotlight" at Starry, Moffett wrote. "Financing issues tend not to matter... until they are all that matters. And Starry's financing issues is now all that matters."
Moffett estimates that, absent of additional financing, Starry would have run out of cash in another six months. He sees the new capital raise from Cantor Fitzgerald, if executed fully, to buy Starry another six months of burn.
Study shows a speedy path to profitability
Starry issued an analysis that backs its business case, particularly around its ability to rapidly turn a profit in various multiple dwelling units (MDUs). A new, granular study (PDF) posted today showed that Starry was able to turn a profit in multiple buildings (described in the study as "cohorts") that were launched in 2020 and Q1 2021 within three to four quarters after launch.
Figure 2: Click here for a larger version of this image.
(Source: Starry Internet Cohort Analysis - August 2022)
"This is a really constructive operational building block towards the profitability across the company," Kanojia said. He said average MDU penetration across the Starry network as of last quarter was 16% 30 days after launch, 24% or more one year after launch, and 30% or more three years after launch.
Execs also touched on the competitive environment, confident that its low-cost approach (its 200Mbit/s service starts at $50 per month) will make its service attractive against incumbent cable operators.
"There's a flight to better value plans over expensive bundles and the services that put customers first instead of taking them for granted," Kanojia said. "I think the share shift away from cable will continue as more competitors emerge with fiber and fixed wireless, especially in suburban and rural areas."
Cable's general competitive response, he said, has been to bundle products and raise speeds, and not to lower prices.
Service and business expansion plans
Starry currently has service lit up in parts of Boston, New York City, Los Angeles, Washington, DC, Denver, and Columbus, Ohio. Starry's seventh market, Las Vegas, is set to come online in Q3 2022. The company plans to cover about 500,000 homes in Las Vegas and the surrounding area using its 24GHz spectrum.
Starry's main priority is on MDUs, but work continues on a "Comet" product for single-family homes that is currently being used in Columbus. A next-gen Comet device, expected to debut later this year, will reduce costs by 20% to 25%, Kanojia estimated.
Outside the US, Starry has conversations to expand internationally, particularly in emerging markets in Asia and Latin America. Kanojia said discussions are also underway domestically to provide wholesale access to excess capacity on Starry's network.
Starry posted revenues of $7.8 million, up 52.2% versus the year-ago quarter, and a net loss of $36.3 million, narrowed from a net loss of $38.6 million. Capital expenditures were $20.8 million, up slightly from $20 million in the year-ago quarter. Starry ended the quarter with about $100 million in cash and outstanding term debt of $224.5 million.
Starry preannounced that it added a record 9,703 customers in Q2 2022, for a grand total of 80,950, up 69.4% from the year-ago period. Starry reiterated guidance that it expects to have more than 100,000 customers by the end of 2022.
The average Starry customer consumed 432 gigabytes of data per month, with the top 5% consuming more than 1 terabyte per month.
The company ended the quarter with 5.7 million serviceable homes, about 1 million more than what it had in the year-ago quarter. Kanojia said Starry added about 10,000 new units per month in the quarter, bringing its total deployment to 400,000 activated units.
"We have only deployed 7% of serviceable area to date, so we have a lot of runway left for the immediate future," he said.
Starry estimates that about 10% of its base are customers signed on through the Affordable Connectivity Program (ACP), the successor to the Emergency Broadband Benefit (EBB) that provides discounts on broadband services and equipment for qualified, low-income households.
"These are attractive customers that the market has largely ignored," Starry CFO Komal Misra said. "We will continue to pursue ACP customers as an avenue of growth going forward."
Misra also offered a brief update on Starry's participation in phase I of the Rural Digital Opportunity Fund (RDOF). The FCC has completed its review of Starry's long-form application, and the company is "confident it will be approved," she said.
Starry adds record subs in Q2 as total nears 81,000 Starry to cover 500,000 households in Vegas this year Starry needs another $1B to fund ambitious growth plan – analyst Starry CEO: Get ready for personalized broadband — Jeff Baumgartner, Senior Editor, Light Reading
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