Q3 2022 AST SpaceMobile Inc Earnings Call
Good day, and thank you for standing by welcome to the a S T space mobile third quarter 2022 business update call.
Please be advised that today's conference is being recorded.
I would now like to hand, the conference over to your speaker today Scott.
What was new ski Chief strategy Officer of S. T space model. Please go ahead.
Thank you and good afternoon, everyone.
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.
Volt are subject to risks and uncertainties.
Any factors could cause actual events to 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 based mobile or annual report on Form 10-K for the year ended December 31, 2021 with the Securities and Exchange Commission and on other documents filed by S. T mobile with the FCC it 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 the call.
Also after our initial remarks, we will be starting our Q&A section with questions submitted in advance by our shareholders.
Okay.
Now referring to slide three for those of you who may be new to our company and mission. There are over 5 billion mobile phones in use today around the world, but many of those still experience gaps in coverage as we live work and travel.
In this backdrop ASC space mobile is building the first and only global cellular broadband network in space to operate directly with standard unmodified mobile devices based on our extensive IP and patent portfolio.
Our engineers and scientists are on a mission to eliminate the connectivity gaps faced by today's 5 billion mobile subscribers and finally, bringing broadband to the 1 billion to remain unconnected.
Since our last quarterly business update we have made strong progress, including the achievement of several critical technology milestones.
My pleasure to now pass it over to chairman and CEO about Avalon, who will take you through that now.
Okay.
We announced this morning and Super excited to report the Blue Walker T successfully until it gets on the 92 quick food a great Andy.
And suddenly it's operating normally.
<unk> deep lung configuration.
Why this is extremely important.
First largest space base.
Phase I, the key technology to support direct to phone blow back from the space.
In order to provide broadband to regular phone from a space. We believe large phase III are the key and essential technology necessary for these type of communication.
Now we are the first and only company that has massive not only how to build them.
Locals, but also how to fly them.
That's it for me.
Approximately 70000 in my throat.
Which we think is critical for the capability to connect regular phones are they flat.
Second.
The year, so far Randy.
Hundreds of millions in investing in this technology are starting to fail and they have now resulted in a deep portfolio of IP of more than 2000 patents and patent pending claims.
Third the successful execution of importing.
692 square feet on re designed it for similar broadband communication validate yeah.
They decide.
Basically way for us to build our next batch of satellites, we plan to incorporate these essential learning and improvement not only.
In how we build them at a lower cost, but also how we fly them in our space that can only be achieved by actually going through the complete process of building and flying in Oregon.
Process with this achievement, we can see the substantial complete.
Fourth our patented <unk> architecture is fundamentally different approach to the one taking ballet that's inside the industry.
Now we had invented patented bill and flown a new satellite architecture that now we own and one we think we change what has been possible to do with satellites up to this point in time culpability uncles.
Hey, this architecture prove that.
So we have the capability to fly and operate the logical the largest commercial communication satellite.
Key enabler to provide direct to regular cell phone connectivity space, an extremely large market, where we have a clear technological on timing advantage as it relates to our planned silver oak robot neighborhood friends space.
These are all.
Both successful and importantly system, we can see as the major the risky part of the probe technology unapproved unapproved.
Unapproved of our southern architecture.
Now we look forward to continue our collaboration with <unk> around the world, including Vodafone AT&T Rocco 10, more wells Bell, Canada, MTN group Orange Telefonica at this a lot in those smart Globe Telecom Millicom is transit.
Telecom, Argentina, Telstra, a presale and leave it to Latin America among others.
And with that I'm happy to pass it to Sean.
Thanks Bill.
Good afternoon, everyone. The third quarter was another period of milestone achievements and execution and I want to congratulate the entire <unk> space mobile team for their efforts on the successful launch of the Blue Walker three tough satellite in the unfolding of the largest communications array ever deployed commercially in lower orbit.
This infrastructure.
Currently orbiting the Earth represents an important step forward in our efforts to demonstrate that the cellular subscribers can enjoy cellular coverage around the globe at <unk> speeds.
This technology is designed to eventually erase those mobile phone dead zones that we all suffered through and more importantly provide the productivity enhancing technology of mobile communications billions of currently unconnected people.
Let me move on to a discussion about some of our key operating metrics.
Centered on slide six looking at the first chart.
We see for the third quarter of 2022, we had non-GAAP adjusted operating expenses of $38 6 million versus $31 $8 million in the second quarter non-GAAP adjusted operating expenses exclude noncash operating costs, including depreciation depreciation and amortization and stock based compensation.
<unk> $3 6 million and $3 6 million in the third quarter and second quarter, respectively.
Our third quarter non-GAAP adjusted operating expenses increased by $6 8 million versus the second quarter.
This increase is mostly result of the achievement of certain milestones in our R&D projects, which brought forward certain milestone payments and an increase in engineering services cost due to an increase in head count.
Our research and development expenses consisted principally of nonrecurring development activities.
We typically engage third party vendors and payments are based on completion of milestones.
After evaluating future R&D milestones over the next few quarters, we expect that the level of non-GAAP adjusted operating expenses will remain in the high <unk> for the next two quarters as we continue to pursue important R&D projects for a bluebird satellites and decline to the low thirties thereafter.
Our other components of non-GAAP adjusted operating expenses, namely Engineering services and G&A is expected to remain in about the same range for the next two quarters and will trend up slightly over time as a result of growing operations.
Turning towards the second chart, our capital expenditures for the third quarter was $11 3 million versus $9 4 million for the second quarter, we expect our levels of capital expenditures, which include direct material cost capital improvements of AIG facilities and ground infrastructure will average around $12 million over the next four quarters.
<unk>.
And on the final chart on the slide we ended the second quarter, just shy of $200 million in cash on hand.
We believe this cash is sufficient to support our cash expenditures for the next 12 months, including completing the construction of our next five block one satellites. In addition to this cash on hand, we have been working hard to develop other sources of cash and liquidity to supplement our activities, we understand the capital incentive.
<unk> of our project and we are highly focused on exploring a wide range of options in order to efficiently fund our efforts. If we are successful in attracting additional capital we would look to reevaluate our business plan and might further accelerate certain R&D expenditures and other investments designed to enable us to achieve our goal of.
Global coverage more rapidly.
As Blue Walker three continues to perform as expected we are now focusing our investments towards the production of our Bluebird satellites in the latter half of 2023 and setting up ground infrastructure to connect to the terrestrial network of the Msos supported by technology and infrastructure partners, such as American Tower rocket.
Symphony and Nokia.
We believe a key advantage of this space mobile system is its ability to be deployed in a phased manner, where we can target a modest number of satellites to provide limited coverage in specific countries. We believe this ability to phasing our coverage will provide us a first to market advantage and enable us to work with <unk> to introduce services and develop them.
<unk>.
We continue to project that our materials and launch costs for our first 20 satellites remains at between $300 million to $340 million with a midpoint per satellite cost of $16 million.
The projected cost of these satellites could be adversely affected by a number of factors, including inflation supply chain disruptions design changes and increases in the cost of electronic components Assembly equipment launch costs salaries and other aspects of our satellite design and assembly activities has increased the cost to design.
Assemble and launch our satellites.
These estimated costs are preliminary estimates and based on certain assumptions and information currently available to us and are subject to change based on numerous factors described earlier as well as delays in the development of components and materials launch costs and other factors.
I am encouraged by the progress that the team has made and I'm excited about the company's future as we transition from the development phase to commercial satellite production.
For your continued support of the space mobile mission and with that I'll turn it back to Scott.
Thanks, Sean.
Before we go to the queue of analyst questions, we'd like to address a few of the questions submitted ahead of the call by our investors operator could you. Please start us off with the first question.
Yes. Thank you Damian from England asks could you provide some key milestones during the six months testing program. So that we can have a feel when to expect certain types of results during the program.
Thank you Damian.
A question.
Well first of all let me say.
Having had deployed the phase III.
If I may your mind.
Milestone for us as well.
<unk>.
The less that was not completely deaf people on the ground.
Now having that behind us that gave us up.
But for how to complete our test this.
So what is left is basically connecting.
The <unk> rate, which you have to be deployed.
The sales force and it's something that we advance.
With it.
First we will walk or one.
And then we haven't seen that we have done on the ground with our partners.
Nokia and work with them.
And that.
That would be an extra step so.
By by completing the deployment, while we have all the learnings require four storey launching operating testing I'm flying a satellite.
That had been accumulated over the last two months of flying the Batesville.
So we're very confident with the architecture.
Uh huh.
We don't foresee any changes.
Our next batch of satellites, which we called block one.
I mean thermal next steps for the Walker three we plan to definitely many of our mobile network operators.
And technology infrastructure partners.
In order to commercialize our ground network capabilities, and we expect that timeline to court.
Over the next several months.
Into 2023.
So for that we have an agreement the license to go with AT&T to start testing in the U S go in Texas and Hawaii.
In parallel.
We'll be working with Rakuten in Japan.
Vodafone in Europe , and Africa, among other minerals, where we will plan testing virtually in every country.
Steve from Arizona asks how does the bill for the first five bluebirds progressing is it still on schedule for a second half of 2023 lunch.
Yes, we knew they are we're targeting.
Targeted for launch in the first Blue Blue worsen in late 'twenty or 'twenty till the second half of 'twenty two 'twenty three.
We have been making all the necessary investments in site to our second site in Midland.
We have so far invested $50 million to date.
At the location and we have only five minutes ago.
Uh huh.
Also we have.
Be buying all the equipment.
In order to support the assembly integration on that you know will be little bit program, including he's shown up out of the assembly, which we have in source.
The learnings to date from global country are well contracted with our supply base in Italy inventory builds of long lead items.
Give us confidence on.
The planned timeline for the next.
Much of satellite in 2022.
Jay from California asks what happens to blue birds transmitting to ships in the middle of a specific when there isn't a gateway and its line of sight to relate back to the network can you elaborate on how that works.
Okay.
Yes, we have we had a a very large field of view.
Sadly it is given to the yield materially suddenly it also.
Their size. So we can cover all through 2900 kilometers.
So days Eh.
12, minus 58 degree of latitude days always land mass, where we can place our gateways.
And be able to cover all deals and so I mean, having said that our main market is.
Where people leave a walk outside of regular locations in C DS.
Populated areas, but we will have the full capability to go over.
Populated areas.
Oh Jones day search National Parks.
On a global basis.
Karl from Sweden asks when you test some measures to reduce brightness preceded by astronomers on the next set of satellites.
Thanks, Carl So our network is being designed to support a universal good cellular broadband for more people globally helps address poverty support economic development and build a diverse digital society.
Our network is designed to connect hundreds of millions of devices for the scope for impact.
Quite attractive.
The brightness issue that's been a longstanding complaint projects of lower floor, but and we're eager to use the latest innovations.
Is the issue.
Do that we're actively working with industry experts.
On the latest innovations, including next generation anti reflective materials.
We're also engaged with NASA and certain working groups within the astronomy community to participate in an advance industry solutions.
And lastly, compared to other constellations that require thousands of satellites.
Besides of our satellite and its got mature in field of view we.
We require much fewer satellites to achieve global coverage for cellular broadband.
And we think that that together with the scope of our impact.
Very important.
And our final question comes from Tom.
Thomas you always mentioned that Youre ahead of the competition. How many years ahead do you think you are.
Well, we think that we are in.
Many years ahead.
In the last few months, we have seen a lot of attention to the market of connecting directly to cell phone.
We obviously were not surprised by that.
The size and the large opportunity that we're playing in.
But ultimately connecting.
Regular modified devices.
To twist.
So the space is challenging.
Yeah.
Problem.
One that we.
We have been actively working for many years.
The best partners around the world.
We have developed patent that are now launching operated.
New architecture.
He supported by 2200 patents and patent pending claims.
As of today, we don't see anyone else who is pursuing.
Cellular broadband solution to modify forms.
Sos solution, so very low dedicated solutions, we ultimately don't see them as competitors.
Or direct competitors.
Our solution is providing direct connectivity to handsets.
E a proof I E broadband speeds.
And with that I'd like to thank our shareholders for submitting these questions.
Operator, let's open the call to analyst questions now.
Yeah.
Thank you well now be conducting a question and answer session.
Wanted to ask a question today. Please press star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue.
You May press star two if you'd like to remove your question from the queue.
Listen, it's using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment. Please so we poll for questions. Thank you.
Thank you.
Our first question will be coming from the line of Gryphon boss with B Riley. Please proceed with your questions.
Hi, Thanks for taking my question so in reference to some of the language from the 8-K this morning.
Just curious to what extent are you already manufacturing your bluebird satellites versus waiting for data from the Blue block III testing to determine if any modifications are going to be needed or are there certain aspects of production that you are waiting on until you get more data from block III.
Yeah, Let me, let me clarify that so no we have not been waiting for 440 data.
The productions are ongoing.
But.
Got to be received and be manufacturing in our factories.
These reconfirmed that our architecture do not need any.
The benefit patients we were able to successfully.
Successfully deploy stabilized on flight satellite on the design that it basically.
Our gross over till the next batch of satellites. So so of course as a little learnings by fly and operate in the satellite.
We are applying that they have to live with the saltwater.
On how these satellites operated but.
Since the plan on the manufacturing of all next launch a satellite is ongoing.
Nothing has been modified on them based on the.
And the only on the schedule that we have per cent.
Yeah.
Okay. Thanks for that clarification, there at all and then so I haven't seen the Q released yet I was just curious how many shares of class a stock were issued.
In that $16 9 million number that you guys gave for 17 point out.
Yeah.
And I think we'll have to come back to you offline on that we don't have that to him.
Okay.
Got it and then just last one clarification for me for Sean.
Did you say I just wanted to clarify on the Opex guidance, you said non-GAAP adjusted Opex will remain in the high <unk> over the next two quarters before declining did I hear that right.
That is correct.
Going to be about this thing it will be about the same level. It was this quarter.
That increase is all R&D milestone related and we will go back down to around the 30 level.
Following two quarters.
Okay, great. Thanks, Sean I appreciate it guys.
Thank you. Our next question is from the line of Bryan Kraft with Deutsche Bank. Please proceed with your question.
Hi, good afternoon.
A few if you don't mind I guess first it's great to see that you've unfolded the array successfully on boardwalk or three.
I guess the question there is how much of a proof point is that for the successful unfolding of the Bluebird arrays I understand that the bluebird arrays are larger than Blue Walker three so just trying to understand how much of a read through of the success with the Blue Walker array is into the probability of also having success with the blue birds and.
How much that technology or design risk has been.
It has been.
Minimized now and then I guess the next question is how should we think about the pace of launches in 2024 off of the five satellites by the end of 2023 guides and.
Yeah just.
Trying to understand that velocity of launch going into 'twenty, four and how quickly the revenue ramp would therefore be in 24 based on the number of launches. Thank you.
Hey, Brian let me answer that for the.
For the next batch of satellites basically what we will call block. One is identical architecture is the same the same architecture say mechanism same same technology for doing the deployment and also very importantly, same software monarch onto them operate these spacecraft so.
We will basically repeating what we did on.
The first local satellites.
As it relates to your question on the first five satellites we.
We disclosed that we will be launching in the second half of 2023, the next batch of satellites.
Five of them.
During 2024, we will be ramping up production.
Production.
To get eventually took six satellites per month.
We're not giving guidance, yes, exactly how many in 2024, but that's what we have.
Hey, Don in preparation.
To get to the cadence on that what we have the two sides beside one onsite tool index us and how we automate it to get to our base.
So just to be clear the six satellites will be the manufacturing pace in 'twenty four and then I guess the launches would be on a little bit of a lag from that is that the right way to think about it.
Yes, that's the right way to think about it.
Well I think 'twenty three.
<unk> ramping up.
Amping up due in 2024 for up to six satellites per month.
Got it okay.
If I could ask you one other one.
How do you think that the announced starlink relationship with T mobile in the Globalstar relationship with Apple will affect your business. If at all long term I know that initially those are pretty eliminate capability services, but I guess I was just wondering what your perspective is on their ability to maybe evolved those into something that's more.
Additive with what you're offering.
Well our focus has been from the baby beginning is we are the only.
Broadband space based cellular broadband network are.
All of these other architectures.
But limited to Sos or very very limited amount of capacity.
We believe that people will be selecting and using services.
Based on access.
Access to the.
Catherine what we have access now to $1 8 billion subscribers through.
A significant number of adult.
Telcos around the globe. So we do not see that get direct competition to what we're doing our our proposition broadband broadband everywhere.
Without dedicating a spectrum.
To the phone.
Basically reusing the spectrum or the operator on a global basis in partnership with the operator access and 5 billion subscribers around the globe they move in and out of.
The service I'm always in partnership with the telco so we.
We believe the.
The.
Sos or very limited.
Tim.
Hey.
Connectivity a few megabits.
<unk> per sale is not a direct competitor to what we do it.
Understood. Thank you.
Thank you.
You May press star one to ask a question.
The next question is from the line of Caroline Henry with quality analytics. Please proceed with your questions.
Hey, guys congratulations on the antenna deployment.
Big milestone I had a question on <unk>.
What about the first five satellites. So I think there was some discussion last quarter about switching those from equatorial to a mid inclination.
Has that been inclined orbit I should say has has that been finalized where those five satellites will go.
Hey, Kevin This is Scott.
Retain flexibility on that point.
We have not given guidance on and claimed versus regulatory all of this crap.
Hi, Paul.
And then also for the block one satellites those were originally supposed to be 20 satellites and I think the recent discussion is centered on five.
What's the plan for the other 15 that are going to be part of block one will those also look like.
Clones of the Blue Walker.
Yes.
Clarify.
For us to build out our network.
We've talked about 2000 satellite chronic vittorio.
<unk> 90 to get global coverage and then another 58 on top of that.
Or for Nemo, and so those are intentionally phase right. So that we can build out our network as we go and retain flexibility. So that's how we think about our network build and our network design overtime.
As it relates to the five satellites that we have given guidance on for next year. Those are satellites that could play in.
Either of those networks quite frankly so.
The satellites to come beyond that don't necessarily fill out to 'twenty or the 90. Those are those are just kind of would have designed the first five with.
Is nearly identical to the dual Walker three design as possible in order to accelerate there.
Their development and construction and so that's how we've thought about.
<unk> five and how it links to the other the other network builds that we've talked about.
Okay.
For the two phases do you have.
Sense of the timeline for when you would have.
I guess, the 110 satellites in orbit.
Yes, the guidance was given on timeline as those five satellites for late 2023, and then in 2024.
Building as fast as we can ramping in about six per month cadence. So at what point do we get to those those total completed numbers, we haven't given guidance on that but our objective is to build and launch five as quickly as possible and follows the side a lot more satellites.
On top of that in 'twenty 'twenty four.
Okay and then just my last question early in the call there was mention of.
And interest in accelerating some R&D goals their projects.
They can be secured for those can you give more color on what exactly what kind of R&D, you hope to do and what impact that might have on the constellation or service rollout.
Well.
Well I'll start.
Some things we have a variety of R&D.
R&D projects, whether it's in the RF side or solar or some of the components of the satellite. So we're going to continue to spend money because we're going to continue to improve the power of the satellite.
RF capacity and that will continue on.
What my point was that we might bring some of those expenditures forward. So we can accelerate the launch of the constellation in order to get to market sooner.
So we just want to give you a good guidance for how much worse than our last four quarters, but if we had more money with myself.
Yes, I mean the.
The primary areas of R&D, and we have our own ASIC.
It will be.
But the real great. We move forward. So we can continue to use these these architecture.
<unk> for up to 120 satellites.
<unk>.
We continue to progress on our ACD element.
Manufacturing.
Which is enter into the loss space.
Production.
We will be completed that R&D phase, we also on pretty much all major subsistence had been internally develop in order to me then at cost and of course that is not available in the market today, including our own solar panels, our own reaction wheels, our own avionics.
If they fly system.
So based on numerous.
And then the policy.
Integrating well.
Let's see.
Thus, we reversed some R&D and we will continue to lower.
Because of our our satellites.
Okay.
Okay. Thank you.
Thank you.
This time I'm showing no further questions I would like to turn the call back over to management for closing remarks.
Thank you operator or.
Our company is building a space based cellular broadband network designed for the use of the phone in your pocket today.
And with today's announcement, we're very happy to speak to you and I want to thank everyone for joining both the shareholders and analysts for their questions and wish everybody a great week.
This will conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation.