Pinnacle Holdings Inc. painted a grim picture during its third-quarter earnings call last week, as executives tried to offer some hope that the company is going to survive even though two of its customers have disappeared and another is about to call it quits.
“Pinnacle is clearly a company in transition,” said Steve Day, chief executive officer of Pinnacle.
Sarasota, Fla.-based Pinnacle suffered greatly when its paging provider customers PNI and TSR Wireless filed for bankruptcy and another defaulted on its leases. As a result of these lost customers, Pinnacle reported a net loss of $315.4 million, or $6.51 per share, for the quarter, compared with a loss of $38.3 million, or 79 cents per share, for third-quarter 2000. Shares of Pinnacle were trading at 24 cents at RCR Wireless News press time.
To add further complication and insult, Arch Wireless Inc., Pinnacle’s largest customer, looks like it will file for bankruptcy soon. A group of shareholders commenced an involuntary bankruptcy case against the company last week.
Approximately 30 percent of Pinnacle’s revenues come from the paging and wireless data sector. The company does not have any anchor tenant contracts with large national or regional wireless carriers, and it has historically been more interested in acquiring towers than adding tenants-a strategy that is coming back to haunt the tower company.
At the end of the third quarter, Pinnacle said it owned 2,075 sites, having added 214 new tenants. Pinnacle reported revenues for the third quarter ended Sept. 30 of $46.5 million, just slightly more than the $45.3 million the company reported in revenues for the same period the previous year.
With the stability of its customers clearly in doubt, Pinnacle is scrambling for cash, but perhaps the biggest thorn in Pinnacle’s side is the ongoing investigation of its auditor, PricewaterhouseCoopers L.L.P., by the Securities and Exchange Commission. The SEC is in the process of determining the independent status of PWC.
“The investigation of the company’s public accounting firm by the SEC continues to create uncertainty as to whether Pinnacle will be required to restate its financial reporting, and it effectively eliminated the company’s ability to access the public capital markets over the past year. With the recent weakening of the overall economy and financial markets, the company’s ability to obtain additional funding remains extremely limited,” said Standard & Poor’s, which lowered its rating of Pinnacle to negative.
Analysts agree that the SEC investigation makes Pinnacle an unattractive investment and introduces a problem into the mix that no one has the money or patience to deal with right now.
“Other public tower companies have enough problems,” said one analyst who wished to remain anonymous, raising doubt that Pinnacle could be acquired by another, larger tower operator.
Pinnacle also is out of compliance with several of the financial covenants under its senior secured credit facility. In a move to address this problem and other near-term liquidity issues, Pinnacle is making available for sale its investment in Pinnacle Towers Ltd., the company’s United Kingdom subsidiary, as well as certain land parcels. Pinnacle also is selling five collocation facilities.
“We are pursuing every reasonable option we have in front of us to enhance liquidity,” said Day.
He said the company has received hard offers on three of the collocation facilities, the sale of which is expected to generate $22 million. The land parcels are expected to fetch $8 million.
“We’re asking you to keep watching as we move forward over the next several quarters,” Day said.
