FTE Networks Inc (fka FTNW)

[Chris1]

The CrossLayer Opportunity
By Daniel Carlson -

August 29, 2018


As an investor in FTE Networks, it’s easy to get focused on their infrastructure business. It generates almost 100% of their current revenue and essentially all of their $30M in projected EBITDA in 2018. It’s a big business.



However, the more exciting part of FTNW, at least in my opinion, is their CrossLayer unit. This group is going from zero in 2017 to 30 buildings on net by year end 2018, which projects at a potential $10M or more run rate by year-end.



This is very rapid growth of a very (60-70%) high gross margin business. While it generates minimal income now, it is easy to project CrossLayer becoming more than 50% of their EBITDA within a few short years. Therefore, to better understand the CrossLayer opportunity, and where they are at today, I spoke with company CEO Michael Palleschi earlier this week.



Tailwinds Research (TW): Let’s start off with your first international foray, as you recently announced a partnership with Buttcon. Can you talk about the size of the opportunity in Canada and with Buttcon specifically? Also, is this deal an exclusive for Canada?



Michael Palleschi (MP): CrossLayer announced on 8/28/2018 a relationship with Buttcon in Canada where CrossLayer will be the preferred technology partner for Buttcon’s family of businesses utilizing Buttcon’s construction services for installation and deployment of fiber, conduit, and equipment required for CrossLayer’s services in Buttcon-sourced buildings in the Province of Ontario. Buttcon will also be designated as the exclusive provider of remote/on-site service support for all commercial, institutional, industrial, and residential properties using CrossLayer Services in Ontario.



Through this alliance, Buttcon is expected to install CrossLayer’s edge compute network in more than 10 buildings during the first six months of the working relationship once the contract is executed. This is a really just the start of our plans in Canada, however, as the Buttcon opportunity itself is quite large and it really positions us as a disruptor in the overall Canadian market.



TW: In the US, you’re partnered with CBRE. We are still waiting for the first CrossLayer buildings to be announced from that partnership. What’s the status of that relationship and the timeline for investors to see progress?



MP: CBRE is the largest manager of commercial property both in the US and globally. As such, we are extremely excited that they have chosen us to be a part of their technology solutions.



CrossLayer is currently working with CBRE on several active projects that we are not yet able to discuss due to non-disclosure requirements. These projects are a significant part of our pipeline and we anticipate communications to the market specific to CBRE related projects as well as projects from other partner and sales channels by year-end.



TW: You’ve spoken to an average CrossLayer opportunity of $400,000 per building, which is a very big number. What level of services and number of users are supported in this figure?



The Opportunity for CrossLayer in a building reflects the demographics/make up of the tenant mix in the building. It ranges from buildings that are retail and office space combined to all Office to all residential. The $400K reflects the number at end state which provides for CrossLayer achieving 100% of its target penetration rate of the tenant population in a building that is comprised of Retail and Office Space utilizing CrossLayer Services.



The Services that are generally offered to tenants are Business Wifi, Guest Wifi, Campus Connect, VOIP Phone Service and Internet Service. However, one compelling aspect of the CrossLayer solution is the services that we provide to building owners, as, by having ubiquitous Wifi throughout the property, we enable them to more efficiently manage their buildings, which can generate significant savings to the building owners over time.



TW: Industry City in Brooklyn is your first CrossLayer client and you’ve been in there for over 8 months. Can you talk about your experiences there? What have you learned? What sort of customer feedback have you received?



MP: To-date, CrossLayer has deployed its edge compute network solutions in 11 of 16 Industry City buildings. Thus, we have enabled services in 75% of Industry City, representing over 5 million square feet. Moreover, CrossLayer continues to build out infrastructure to support core services and provide new offerings at Industry City that generate on-going revenues. A few examples, include Campus Parking Automation to ensure revenue generating space is fully utilized and Data Center and Fiber POE (Point of Entry) services that have been consolidated under CrossLayer for all tenants which has reduced service turn-up time and provided access to revenues.



Furthering the depth of our relationship, Industry City has appointed CrossLayer as its prime contractor for tenant structure cabling services, and is working with our marketing team on a 4-month tenant services campaign to promote CrossLayer services and tenant contract conversion that will run through December.



TW: You’ve targeted 30 buildings on-net by year end, but the opportunity is massive. How do you intend to scale faster? Are there opportunities for acquisitions or additional partnerships that can help you achieve scale?



MP: Both through CBRE and other partners, we are finding that the CrossLayer pipeline continues to grow rapidly. We are working directly with Large REIT’s that have an inventory of large commercial buildings centrally located in the major NFL cities that are focused on increased building amenities and upgrades.



FTE is also partnering with other companies looking to expand their DAS footprint into WIFI technologies and service offering. These opportunities are expanding into large commercial retail settings such as Malls and outlets. As a result, we remain very confident that we will meet or exceed our guidance.

Tailwinds' Disclaimers & Disclosures: For a full list of disclaimers and disclosures, please visit http://tailwindsresearch.com/disclaimer/.



Ted Haberfield

MZ Group | President – MZ North America

Direct: 760-755-2716

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