Q3 2021 AST SpaceMobile Inc Earnings Call

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Good day, ladies and gentlemen, and welcome to the a S D space Muddle third quarter 2021 business update call.

At this time all participants are in a listen only mode.

We will conduct a question and answer session and instructions will follow at that time.

No one should require assistance during the conference. Please press Star Zero and you just don't telephone.

As a reminder, this conference call is being recorded.

I'll like to turn todays call over to Scott with company. Thank you. Please go ahead.

Thank you and good afternoon, everyone. This is Scott with Newquay Chief strategy Officer of NFC based mobile.

Let me refer you to slide two of the presentation, which contains our safe Harbor disclaimer.

During today's call we may make certain forward looking statements. These statements are based on current expectations and assumptions and as a result are subject to risks and uncertainties. Many factors could cause actual events could differ materially from the forward looking statements on this call.

For more information about these risks and uncertainties. Please refer to the risk factors section of NFC space levels form S. One filed in June with the Securities and Exchange Commission as well as Form 10-Q for the third quarter of 2021, and other documents filed by ASC States mobile with the SEC from time to time.

Readers are cautioned not to put undue reliance on forward looking statements and the company specifically disclaims any obligation to update the forward looking statements that may be discussed during this call.

With that I would like to introduce chairman and CEO of Bell Avalon and Chief Financial Officer, Tom Severson to the call as well bill over to you.

Thank you Scott I'm really happy to be back we don't want to do again for what may be some someday.

Before I take you through our technology progress and industrialization I wanted to spend few minutes, just playing the market opportunity the pick for those other nuclease needs based model.

Starting with the market opportunity on page three.

I've said before we're chasing a huge market opportunity to connect people everywhere at Atlanta and see.

There are over $5 2 billion mobile phones worldwide and approximately half will be what population do not have rolled back on their phones turning to page four here in H D. Smith.

We're building.

Space, they send a little button at work.

That will allow you to connect you read most simple one do you have in your pocket directly to space.

Well nobody in this alone would be and indeed with industry, leading strategic partners like Vodafone American thought were on track with that.

And our services designed for use by nearly all cinema subscriber Asaf idle.

Most of the main service from the existing wireless Lan.

Now I want to move to an update.

On digitalization of our technology.

And also on how we're dealing with global companies.

There are a lot of exciting things going on with our company and I am eager to take you through our progress on both Google quickly on on the industrialization of power technologies.

I also want to present to you how we're targeting six thousands per month by mid 2020.

Today for the first time, we're going to take you through detailed portals will probably want to knowledge unbelievable correctly.

Talking with our headquarter, we're very proud to be Midland.

And invest it.

Our lost time ammonia in preparing our facilities to be ready for the production of Louisville, Kentucky.

Sadly.

Our headquarter is 80% 85000 Quickbooks facility located in Midland, Texas, where we do engineering testing and manufacturing for outlet space problem.

All the investment that we have done the head count that we have placed at this facility with bank facility to be able to produce up to two satellites per month.

With the extension of our new facility, we were able to hit that we're talking to the seats out like criminal so turning to page seven I wanted to use our new essentials facility in cyclical facility mainland which is under contract.

And with this facility, we have the capability to produce six satellites per month on a highly automated process for Friday.

Rental sector.

So today, we're pleased to announce that we have entered into an agreement to purchase an additional I'll just ask one quick one facility commitment.

In addition to the other capacity. We also have a plan mainly for sealy hardly ultimatum with additional investment the facility will provide us the potential capacity to reach our production goal of six to speak to that for months and this is a big big deal for us.

The two facilities a couple of miles apart.

Connected by trained to provide us a lot of options for granted rotation of component only assemble sadly.

Altogether, the two facility would provide us.

Access to 185000 total square footage manufacturing capacity in Texas I want to show you a picture of our final Assembly integration and testing, where we are actually building our global country and also we plan to use it as a facility to be I would be the one here is a recent photo of our maintained Rooney.

Well, we will do all with final assembly integration and testing of our satellite.

Currently the specialty Houston integration of disposal well country.

Then next year when we use it for Blue there one maybe one next year on page nine you will see final assembly integration testing and delivery.

Sadly.

In addition to the maintenance rule, there's a lot of older interesting activities going on in our manufacturing facilities.

Starting from the top left you'll see the SBA loans equal a doctor the whole decided during launch relatively below minimum space. This is the equipment. The hold the microns, which is the modular system that we used to build our phase III and then deploy in that space too and for the service.

At the top of the page is preparing for the Assembly line.

Top right, we'll do a full salaries radio frequency testing on the bolt on less it is the satellite.

S T M CME system Thermo mechanical basically been tested on very fine.

And on the bottom right, that's decided like keeping container arrive into Maitland, which was they decided like to Cape Canaveral for a launch with Spacex Falcon nine.

So a lot of pieces are coming together nicely.

A lot of lessons learned we are preparing in.

In parallel for all the production side.

I thought we'd been doubled in capacity.

Six satellites they remove.

Page 10 chipsets assembly on some items.

The Micros 80, the building block of our satellites that represent approximately 90% of the calls since then and this is where the magic of connectivity directly to <unk>.

Our phones have been decided you denticle parts the form they face array.

The most of the components that make the large phase III of Louisville, Kentucky and production cycle.

Importantly, we have all components not on plan.

Either our old porch is all manufactured by the picture on the adult page choke components coming into Microsoft rely on similar staging areas who are vertically integrated.

We nearly all components assembled by yes. This is a significant and very very significant competitive advantage. We control the technology with 1600 patents and patent claims, but also controlled our costs by being able to assemble completely our technologies by ourself.

Moving to page 11.

You'll walk or three micron testing.

So testing and automation.

Well thought well facilities is extremely important so the ability to verify on the ground. The blue Walker three we'll be able to connect directly to handsets.

Prerequisite for us to launch and it's something that we have passed.

It would be launching little Walker three on a FICO nine from Cape Canaveral and then it would be follow up the satellite launch it would be fully aware of Tesla. The first part of the plan with the deployment basically to demonstrate that we have deployed so I'll say that we have on the ground for over a year and a half.

We will also have the ability to recall the deployment and verify that all the testing that we have done on the ground much with what we see in the space.

Lastly, after the deployment exercise unrecorded bite ecommerce on board.

We'd be doing network integration testing with our network operators, they perceive will be to calibrate their rate to transmit to the ground and then interconnect to our operators in the U S Europe, Japan Africa.

Over a period that would be approximately six months not only to interconnect our network to theirs, but also to that he served as a boy six data and high speed connectivity of four years.

Besides a little walk at three 693 square foot face out rate, we believe that we would be one of the largest space already and then I think going into orbit ever.

The satellite will be located at 400 kilometers.

He has them on all retail.

<unk> 53 degrees.

It would move on and the speed of 17000 miles per hours on a single deal in less than 90 minutes.

Walking through the Finalization of our R&D.

Basically demonstrate everything that were really has tested and verify underground.

The ability to deploy a face of radar these sites.

The ability to connect directly to a handset and the ability to perform broadband connectivity are 45, ESP directly from the space on timing favorable currency.

These costs were uses basics.

Provider for Google correctly, and declaring another window with the Spacex room for March 2022 through April of 2022.

We had the option to pick the panel.

Alternate launch window, it would give us basics notice by December one 2021 payout revoking fee.

We have not yet determined if we will revoke it we determined that we are going to exercise our right to remove the launch which is likely we plan to target them, who won't country launch we didn't mark.

Our launch window. However, any alternative launch will be until you get to mutual agreement and coordination Wednesday.

We have made some significant progress on Blue Walker, three and our team has invested G. As an effort to get to this point.

And we want to make sure that we have fully completely our test program called Blue Walker.

Before we go to the launch site.

Then, let's talk about with cool, we would partner to launch our satellite.

Who will walk and three we are planning to launch on Falcon nine out of Cape Canaveral, but we had the signing maybe one on all our satellites b multi launch.

We don't use many of the leading launch providers to accommodate our shuttling up to 15 or single launch before I pass it to Scott I want to talk about the business.

I want to basically remind.

Everybody, especially for those that are new to space most of them the difference between our approach and any other approach the space.

The first one is when we launch build.

And you suddenly.

We are the only satellite system that connect directly to handset.

Hold regular cellphones.

Connectivity to that is a very very large opportunity.

Explain it before 90% of the yourself that do not have access to cellular connectivity aimed.

90% of the surface. There is 5 billion people are moving around a corner duty. There is possibly what population doesn't have more hot rolled band into their phone and their.

Approximately a quarter of a billion people that do not have any actually whatsoever. So we are the only space system to have the retroactivity do regular say phones that.

And that make us very different than older approaches.

Although approaches are very valid.

You have direct appropriate only mobile phones.

Houston is having quite a special phone usefulness typically very expensive.

Capacity.

Despite all of those impairments those systems generated approximately $2 billion of annual revenue.

And then you have also broadband connectivity into an antenna.

She social.

Most similar to <unk> or broadband connectivity to a terminal. So we went to if we were talking about Ah Ah.

Planted with everything from the space the connection from Tennessee, slightly worsening that you have the new home would be equivalent to the cellular service that you have two days when you said when will provide us but everywhere in the plan.

So with this I want the budget just got it.

Talk about.

Yeah.

A little bit more in detail the differentiation side with some of the packages that we're expecting to offer to ink conjunction with our network partners and operators great.

Great. Thank you Bill.

Starting on page 16, I'm really excited to cover a few topics with everyone today first.

Like many of you we've watched the steady increase in activity public attention and investment in the space back over the past year.

This backdrop ASC space mobile is the only pure play for investors and Leo broadband.

And there's a bill highlighted but it's worth repeating we are playing in a very large market with a solution that is applicable to over 5 billion mobile phones and a related one trillion addressable market.

We're jointly going to market with industry Giants.

A leading mobile network operators, who have hundreds of millions of subscribers and importantly, we're not competing with them.

We have a revenue share business model designed to allow users to sign up with a simple text message and we have approximately $360 million in cash on hand to fund business operations and the first phase of our production satellite.

Without basis, let's spend a moment on how we plan to go to market on page 17.

Recall, our customers will be the mobile network operators, who will make our services available to their subscribers under a revenue share business model.

Based on country in subscriber mix, we have a lot of flexibility on how to monetize our service.

The framework options you see on this page are some of the packages, we're discussing with the mobile network operators and are designed to not only provide a highly valuable service to their subscribers, but also limit friction of adoption.

First you can see our day pass option illustrated.

On the phone on the right side of the page.

When our subscribers out of coverage that moment, when they've lost connectivity and need it most that's precisely when they would receive a tax coming from.

You may have experienced something like this from your current operator, when you travel abroad.

This is a very low friction customer acquisition process linked to an immediate payments.

It's a very efficient way to drive adoption of our server and it's also a great marketing.

Overtime, we expect that many subscribers, who useful service and want a habit at the monthly add onto their plan. This.

This would create a recurring revenue stream on a monthly island basis.

And enterprise packages for corporate or power users may also have a lot of interest in some markets.

Lastly, we think a standalone plant can make sense, particularly in areas, where theres no real cellular coverage today.

We see these use cases are the biggest opportunities, but given the flexibility of our technology. There are a lot of other services that can be built around the space mobile network.

<unk> emergency connectivity during natural disasters when ground networks are overwhelmed.

Now before I hand, it off to Tom on page 18, I want to take you through a handful of other business update.

On the commercial side, we're happy to announce the signing of three additional employees this quarter, including MTN group.

<unk> in Malaysia, and some cable and somebody then.

For those of you don't know MTN group is one of the top 10 mobile network operators globally with nearly 300 million subscribers, including a number one position in Nigeria, the country with a population of over $200 million.

With many of our other mobile network operator partners. We are focused on cost plans cause Walker three to configure their infrastructure for commercial grade air connection with our network.

On the organizational side a few further updates building on what a bell took you through Midland. We've also signed a lease to expand their technology center in Maryland. The freight has 16000 square feet for engineering offices, and it'll be the future home of our satellite Operation Center and network Operation Center.

In terms of people, we continue to grow and are employee hiring plans to support scale production and network operations added 40, new full time employees in the third quarter.

This brings the total ASP based mobile team to over 500 people.

This includes 301 full time employees as well as other full time contractors and third party engineering service providers.

Lastly.

As Bill mentioned, we remain active safeguarding our technology advantage, increasing our patents and patent pending claims to over 1600.

This represents the competitive moat around our tech.

Now with that it is my pleasure to hand, it off to pump.

Thank you Scott.

First I would like to also welcome everyone to our third quarter business update call.

A reminder, we became a public company on April six of this year and raised $416 million from new investors in our pre transaction investors, including Ratchets and Vodafone American tower and says narrows.

We ended the quarter with $364 million of cash and the company is currently debt free.

So now, let's turn to the financial highlights for the third quarter.

As you May recall, we compare our operating results on a sequential quarter over quarter basis, and allows us to better discuss current trends and provide a baseline for future trends.

During the third quarter, our cash operating expenses, including engineering services R&D and G&A.

<unk> to $22 2 million, a decrease of $2 3 billion compared to the prior quarter.

This decrease was primarily due to R&D expenses, which decreased $4 seven.

Compared to the prior quarter.

Our R&D cost primarily related to our agreements with third party technology partners.

And will fluctuate quarter to quarter as milestones are achieved.

We expect our future quarterly R&D cost to be on average in the $9 million to $10 million range through the end of 2022.

During the third quarter, our G&A costs were $9 $3 million and remained relatively flat.

Compared to the prior quarter, we expect that our quarterly G&A costs will remain in this range through the end of 2022.

Engineering services increased by $2 2 million during the third quarter and we expect to continue to see our quarterly engineering costs increase as we ramp up our assembly integration and testing team in preparation for full scale manufacturing at our facilities in Midland Texas.

The head count of our engineering and AIG employees and full time consultants grew from 193 at the end of Q2 to 241 at the end of Q3, and we expect this to grow to approximately 300 by the end of 2022 as we near the completion of the R&D.

Phase and prepare for full scale manufacturing of our production satellites.

In terms of our Capex to date, we've invested $56 7 million in the construction of the Blue Walker three satellite and.

And we expect to incur an additional $10 million to $12 million to bring the project to completion.

A significant portion of the total cost of Blue Walker three is largely comprised of nonrecurring engineering development and to a lesser extent satellite componentry and launch costs.

Total investments in our property and equipment were $19 9 million through the end of the third quarter and we're happy to report that the build out of our facility in Midland, Texas is complete.

Now with 35000 square feet of production ready isolate clean room, we're currently utilizing our Midland, Texas facility to assemble integrate and test the Blue Walker three satellite and.

In addition in October we entered into an agreement to purchase an additional facility located just a few miles from our existing facility and the Midland.

This new facility has an ideal footprint to accommodate the assembly and integration of our production satellites and will provide an additional 75000 square feet of isolate clean room manufacturing capacity.

The new facility purchase is $8 million and we expect to close on the purchase in Q4.

We estimate that we will invest an additional $3 million to $4 million to get the facility production ready and we plan to complete this build out during the first half of 2022.

Once completed we will have a total of 110000 square feet of ISO eight clean room space in Midland, Texas.

We believe these facilities will be sufficient to support our manufacturing goal to complete six production satellites per month by mid 'twenty two.

Finally, we continue to ramp up the procurement process for our Bloomberg one production satellites.

As we progress in the procurement process, we reaffirm our cost estimates to build and launch the first two satellites with an average cost in the $13 million to $15 million range for satellite and.

For the full constellation of 168 satellites, our average cost per satellite is currently expected to be in the 10 to $11 $5 million range per satellite.

As we prepare the company for full scale manufacturing over the next few quarters.

We remain ever confident in the ability of our amazing team to execute our plan and deliver our technology.

And with that operator, let's open the call to questions. Thank you.

Thank you at this time, so I'll ask a question you will need to press star one on your telephone again to ask a question. Please press star one.

To withdraw your question just press the pound key.

Please standby, while we compile the Q&A roster.

Yes.

Your first question comes from the line of Bryan Kraft from Deutsche Bank. Your line is now open.

Hey, guys. This is Ben on for Brian. Thanks for taking the question I'm. Just wondering if you could provide a little bit more color on the construction and development process for Blue Orca three relative to your expectations and just curious if there's anything that changed this quarter around how you think about the timing for that build out and eventual launch.

And then I've got a follow up thanks.

Hey, Brian how are you.

We basically are progressing.

Great expectations.

We are in the final.

A stage of building assembling and test in Blue what country, we have old box on hand, we I don't know related to reboot the launch.

In December.

We have not make a determination we will do that however, we think if we do.

Our next two sides of that option would be within <unk>.

A.

Few months.

Or date, however that is contingent to agreement with Spacex.

On a coordination windows basics.

The satellite that we had to spend a significant amount of time testing.

Idling particular deployment.

We're very very confident on this point on the deployment.

For the satellite.

On.

We're working very hard to be on time.

However, we will know launch.

We have full confidence that we have passed all the tests. The major task, which is do we normally decided that will connect directly to a handset had been passed.

Uh huh.

<unk>.

In thermal.

The main modules.

Which would go micros I don't want to be.

Performance on its baked in yes, they are.

We are in the middle of followed out as we speak.

Got it and then just around the testing.

Can you give us a little bit more detail around the timing for when those tests will take place and when will receive them and how much cushion do you guys need between receiving those test results and then finalizing the.

The commercial satellites and then launching them. Thanks.

You are referring to we will contribute.

In general.

What I'm, saying for the Blue Orca three test.

When when can we expect to get updates on that and then when you are building in the test results from block III for the commercial satellite I assume that there is a certain amount of time you need to.

You know to build in the results from the tests and to tweak that sure.

Sure.

Are you referring to when we launch the first thing that will happen is we will verify the deployment of basically the satellite deployed.

That would have been within weeks of launch.

We have to determine the appropriate time to do the deployment, but when we initiate the deployment that will be very quick and that will be recorded in our cameras.

After that.

We still are.

Testing campaign with our network operators.

In the America Africa, Europe and Japan.

<unk>.

Dash and integrate.

The decidedly capability with their networks and that is a process to take approximately six months.

But at that point, we are very fine not only the functionality of the satellite, but we're also integrating our satellite architecture to the network operators.

And that's kind of a process that would follow after after we launch for testing of the spacecraft.

Thanks, guys.

Your next question comes from the line of Chris Quilty from Colby analytics. Your line is now open.

Hey, Bill I wanted to follow up on that test scheduled.

I believe Blue Walker three is using F. P. G as in because I think the testing data eventually it gets fed into the development of an E cig, which would come I'm assuming is that at the end of the six months testing campaign and if you can verify that and then what would be your expectations for how long it would take to be.

Manufacturing those ethics in volume and I guess, given current supply chain issues. How sure are you or assured of your your supply chain.

Yes.

Hey, Chris.

We will we will.

We will continue based on NFPA.

That allowed us to incorporate the learnings of the operation over to Volker three into our subsequent satellite.

Our first initial subsequent satellites are going to be also based on NFPA, even though that will run in parallel to program. The SBA program and the ASIC program.

We are.

Maybe advance on the ASIC.

However, we're not dependent only for our initial satellites.

The reason on the EBITDA basically to be able to reprogram the.

The technology, even when the satellites are flying it obviously you don't see that you cannot do with the AC. So we're taking our time with the ASIC.

Of the AC will be obviously because of the particular component.

Also power.

But we will we would be initially operating based on this architecture that we are using.

On a very similar architecture to the.

Although we are using in Louisville, Kentucky.

Got it and that would presumably account for why they're early satellites.

Cost more in addition to learning curve for latter satellites, absolutely. So you'll see you'll see our business plan.

Initial settlement costs.

And more than the Dundee.

On the later part of the startup of the functionality will be equivalent.

And sticking with the supply chain issues.

And the setup of the new facility.

Are there any specialized machine tools or equipment that you might need for the facility that that would slow your ability to bring it into operation or are you dealing with.

Primarily.

Standardized equipment.

Primarily standardized equipment.

Our auto mating a lot the production line. So Luo countries you see the way of Assembly and testing very manual with us as our first experimental satellite.

The subsequent satellites are all fully automated.

Well, let's say fully automated with every state, but the main steps or the assembly power automate. It we are in the process, we get closer on the facility. We are in the process of basically sourcing those equipment, we will be able to report on those in the next quarter or two.

But we don't we don't see we don't we don't see any major.

Problem.

With that.

Regarding the supply chain as I said before we have all parts on hand at this point for me to work at three <unk>.

Purchasing the long lead items on the four be one part of the process.

Launching the first production satellites.

Great and I guess for Scott I think you mentioned three new M O use and I just wanted to confirm that's now up to 22.

And <unk>.

You gave last time also.

A sense of what sort of population is covered by that as well as how many licenses you hold and population covered.

Sure so by way of an update.

Not number and giving the exact number but that's the general general area, adding these three new.

<unk> does continue to grow our subscriber counts with M announced we have agreements with that number is now $1 5 billion.

And in terms of regulatory approvals, we continue to work approvals globally and that's.

That stands at six countries fully approved with 360 million Pops covered.

Great. Thank you and what does the pipeline look like or what sort of activity or are you doing internally.

In terms of number of people out.

Reaching out to potential new M N o's.

How does that process look like I mean, how aggressively do you have to.

Reach out to those customers and.

Are you growing the actual staff to do that or do you wait until you get further down the demonstration and operation path.

Yes, Chris I mean, $1 5 billion subscribers represent roughly 20% of the addressable market, which is the.

The rest through agreements.

And we'll use that we have.

Our sales were mostly scientists and engineers building satellites.

Know that we need a battalion, our people too to continue to increase the numbers of <unk>. I mean, this is a service <unk> III asset the other amino need to get it.

This.

It's something that really differentiate one from another.

Hum.

So the way that we had approached it is is cover the large ones in each of the regions partnering with them.

To test our service an integrated lower service, if those discussions with them when appropriate or all the packages that they will be used to promote the services to the end users.

We we believe in low friction to getting access to our service product is something very important that the <unk> is you.

<unk> committed to basically advertise our service through a text message when people get out of service.

I'll make it part of their packages. So that's where we're concentrating one concentrated morning plant in quality rather than quantity.

We believe that we have taken a significant part of the market very early on in our lifecycle.

Great. Thanks for the update.

As a reminder.

To ask a question you will need to press star one on your telephone keypad.

Again that is star one to ask a question.

There are no further questions at this time I would now like to turn the call over to the company.

Thank you operator, our company is building a space based cellular broadband network designed for use with the phone in your pocket today, extending cellular coverage beyond what was ever thought possible I want to thank everyone for joining today and hope you have a great rest of the week.

This concludes today's conference call you may all disconnect.

Okay.

Thank you.

Okay.

Okay.

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