AST SpaceMobile Inc. Q1 2023 Earnings Call
[music].
Good day, and thank you for standing by welcome to the a S. T space mobile first quarter 2023 business update call.
Please be advised that today's conference is being recorded.
I would now like to hand, the conference over to your host today, Scott was Natzke Chief strategy Officer of V. S. T space Mobile. 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.
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 its new space mobile the annual report on Form 10-K for the year that ended December 31, 2022, with the Securities and exchange.
Commission and other documents filed by S. T 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 forward looking statements that may be discussed during this call.
Also after our initial remarks, he will be starting our Q&A section with questions submitted in advance by our shareholders.
Now referring to slide three for those of you who may be new to our company and our mission at AFC space Mobile there are over 5 billion mobile phones in use today around the world.
Yet many of us still experienced gaps in coverage as we live work and travel.
On top of this there are billions of people without cellular broadband who remain unconnected to the global economy.
The market opportunity for us is large and the problem. We are solving is important in touch with nearly all of us.
In this backdrop Asti space mobile is building the first and only global cellular broadband network and space to operate directly with everyday unmodified mobile devices and this is supported by our extensive IP and patent portfolio.
Over the last few weeks, we have made significant steps to confirm our technology opening new business opportunities.
It is now my pleasure to introduce <unk>, chairman and CEO of Bell Avalon pool summarize what we've been up to since our last public update six weeks ago.
You'll be providing important context for what.
Activities mean to our company.
Partners and our shareholders well.
Hello.
Welcome to our Q1 2023 key highlights we had important quarter here until the board to get off the stops that we wanted to hit on the key messages for our World day today number one we have made history recently successfully completed the first ever direct multiple nation on our blue awkwardly desktop like two <unk>.
Dave just Muslims sorry.
We define our leading position in the market we invented.
No just a major achievement is significantly derisk, our business and create new important opportunities for us.
The success of this first gold validate our technology. We now know that we can move forward with our 16 approach confirming relating to potential action. The older 5 billion mobile devices in simulation.
Lastly, the first call as part of our potential opportunities to form our business, including new options that we are always Florida.
In short time since we last spoke <unk> made history with.
We successfully completed the first ever.
Voice calls from our Blue walk up to the satellite to every day smartphones utilizing AT&T spectrum.
Unused Samsung Galaxy X 22 smartphone and all the forms.
He was a major technical achievement and the result of years of R&D, Honduras maintenance investments.
Back to you by next Dan.
Patent portfolio covering over 2000 seats on the pattern.
Patent pending claims.
We are proud to have AT&T.
One of our closed network partners.
<unk> seen this graphic on page five AT&T have put us in significant historical context, comparing our achievement when he first David Hong Kong first elevation transmission first automation of content over satellite among others.
This is truly hub.
Yes.
We continued strong momentum with the wireless industry.
This achievement has allowed.
Four continued strong momentum with the largest players in the wireless ecosystem.
Margarita.
Vodafone also put our achievement of an important historical context versus the first test match, the standby bulled up on 30 years ago.
Increased who launched AT&T network ankles historical sentiments.
At this point, we had approximately 40 <unk> mobile network operators around the globe on the preliminary agreement representing the top leaders in the wireless industry. Some of these relationships are deep with a strong executive support.
You are truly in the room with us helping to bring this technology to reality.
And these technical milestones, we have achieved we will accelerate our relationships.
Yeah.
The implications of this historical clinical milestone so what does this technology milestone means.
It validates our system architecture, there is no need for us to change our approach or redesign our satellites.
Specifically.
Can you confirm that no major changes are needed to the design of our blog, one bluebird or our technology roadmap.
Accordingly, while ramping manufacturing and material sourcing at our Midland facilities.
The successful first call also confirmed that our technology works with everyday smartphones. The phone that you have in your pocket.
We also confirm our ability to integrate with existing wireless ecosystem, including a spectrum.
The Big question for global countries will come next and that east demonstration of <unk> capability for download speed.
Which we're ramping tours and demonstrated that we can support seamless trend in line with <unk> E. S. P.
Testing confirmed technology ability to work with every day smartphone and devices.
While all of their architecture, we potentially target Sos or tax only features or require additional hardware to potentially work.
Building, the first and only system that will use low earth orbit satellites to connect a cellphone you use today our broadband speeds.
Our technologies designed to what would be over 5 billion phones in circulation.
Carrier aspect to them.
And namely modification to the phones.
Without requiring any special frequency up or chipsets. Our plan is that you can simply download on dial without any any intermediate steps.
Just give us access to the 1.13 million wireless industry.
This is truly game changer in our market. We believe we had a very significant first mover advantage.
Uh huh.
Now moving to the update on industrialization of our patented technology.
First I'm glad to report that our production for our next five block one satellites are on target for a COO.
Q1 2024 launch.
When it comes to the manufacturing of our satellite we have production up and running at our facilities in Midland Texas.
The pictures on this page our site to.
Our second production site and represent and look at some of the initial manufacturing underway for block one.
We remain on track for the planned launch of five block one satellites in Q1 'twenty 'twenty four.
Yeah.
Now, let's talk about our technology roadmap.
Which is designed to be a stage and in red.
As we build and design new advanced satellite architecture, we continuously improving both our unit costs.
Cost per gigabyte delivered to end user, but also we improved the capacity that we're able to deliver it.
In to the network.
With Blue Walker, three we had demonstrated using our current architecture.
The ability to connect directly to handsets, we block one base improvement of 10 times capacity.
Yeah.
Being able to deliver.
Comparable work at three and then there is another 10 times capacity improvement.
The block twos.
So what we see are we we're not only improving our unitary cost we continue to improve our technology, but we also improve our capacity in our network capacity and we add more satellite. This is thanks to our patented technology.
Our integrated our vertically integrated approach to build and design our satellites.
And also the fact that we're on our own software being where oncor.
Custom Asics in order to get to this point.
And with that I move to Sean.
The financial overview.
Thanks Bill.
Good afternoon, everyone.
Since our last earnings call Asti has made history with the first voice calls connecting everyday smartphones to our Blue Walker three satellite.
I want to congratulate our team on this groundbreaking milestone and it's great to see such a feat to be supported and confirmed by some of the most sophisticated wireless companies in the world, including AT&T and Vodafone.
Im making morose history. We also continued to drive our plan of execution.
We made continued progress around our manufacturing milestones and we're excited about the next 12 months, which should see the launch of five block one satellites and progress towards the initiation of commercial service.
Let's spend some time discussing a couple of our key operating metrics for the first quarter that are displayed on slide 11.
At the first chart, we see for the first quarter of 2023, we had non-GAAP adjusted operating expenses of $40 3 million versus $39 1 million in the fourth quarter of 2022.
non-GAAP adjusted operating expenses exclude noncash operating costs, including depreciation and amortization and stock based compensation, which totaled $3 5 million and $4 3 million for the fourth and first quarters respectively.
Our first quarter non-GAAP adjusted operating expenses increased by $1 2 million versus the fourth quarter of 2020 to our research and development expenses declined by $1 $7 million, primarily as a result of increased activity with Nokia, where we are developing our gateway infrastructure.
Engineering nearing services.
<unk> expenses rose by $6 million, our G&A expenses fell $1 1 billion, primarily as a result of cost controls and discipline.
We currently expect that the level of non-GAAP adjusted operating expenses will remain in the high <unk> for at least two more quarters as we continue to pursue important R&D projects for a bluebird satellites and pursue the construction and planned launch of five block one bluebird satellites and the first quarter of 2024.
Turning towards the second chart, our capital expenditures for the first quarter were $13 million versus $10 4 million for the fourth quarter.
This increase in capital expenditures was directly related to our focus on building the five block one satellites and this figure includes materials, which are capitalized.
And the continued investment in our satellite assembly process.
Our capital expenditures, which have been averaging around $10 million to $13 million per quarter will begin to increase to fund the development of our block one satellites, which we currently expect to launch in the first quarter of 2024.
Overall, we continue to expect our total cash capital expenditures for a five block one satellites to be between 100.
$110 million as of the end of the first quarter, we have already extended $40 million of those projected amounts.
In previous quarters, we have provided estimates for the capital cost of each of our block two satellites, which includes materials and launch costs.
And the last quarter, we estimated that the cost would be 16 million to $18 million going forward. We expect to provide these estimates once a year unless there are material changes as we believe annual reviews provide more meaningful views on the trends of these long lived assets.
Yeah.
As at the end of the first quarter, we had capitalized costs totaling $92 5 million.
Blue Walker III based.
Based on the successful testing regimen, including the voice call I mentioned earlier, we have determined that the boardwalk or three is now operational for accounting purposes, and will begin to depreciate. This asset over the next 16 months. This depreciation will increase our noncash depreciation charges by over $17 million per quarter until this asset is.
Fully depreciate it.
And on the final chart on the slide we ended the fourth quarter, just shy of $185 $7 million in cash on hand.
As we stated in our 10-Q, we believe this cash as well as our ability to raise capital through our existing facilities is sufficient to support our expenditures for at least the next 12 months.
We have also received numerous questions about where we maintain our and invest our cash our cash investment policy implemented last year has three investment objectives and I'll list them in order of priority principal protection liquidity and lastly returns. We currently invest most of our cash and one of the largest U S.
Government money market funds in the World managed by JP Morgan asset management, who is our custodian of these funds.
On the next slide I wanted to provide some history and context on our capital raising efforts to date in total since our founding we have raised over $700 million in capital to help fund our development I would like to point out several aspects of these capital raising efforts.
In the first column, you'll see that our founder and CEO of Bell invested the initial risk capital to fund the business <unk>.
It remains the largest shareholder in the company and does not draw a salary.
Bell's future returns and most of these management teams will be driven by the performance of Asps, which means he is highly aligned with the shareholders.
The next part of the chart I would highlight is our list of strategic investors and partners Vodafone American Tower. This is narrows groups in Rotterdam are sophisticated world class operators. They all have representatives that sit on our board of directors and they all have made two investments in AFP.
The next column I would highlight is our sale of our stake in nano we identified invested in and help grow this space company. When we determined this company was no longer strategic to ft. We decided to sell this asset recognizing a nine times return on invested capital.
And finally on the fundraising chart I would highlight that we tend to target our fund raising efforts as we derisk our business through the successful completion of milestone.
Our recent equity raise in the fourth quarter with completed following the successful launch of Blue Walker three and the subsequent unfolding of its large scale array.
We believe that investors will continue to see our milestone achievements as good times to consider new or additional investments you know.
As we contemplate raising additional capital for ASP.
We are working very hard to explore a variety a wide variety of sources of capital designed to fund our operations in an efficient manner and while these efforts are preliminary and there can be no assurance that additional funds will be available to us on favorable terms or at all we are encouraged by these initial efforts.
On the debt side, we are exploring raising capital with export import agencies structured debt providers and over time potentially accessing the debt capital markets, where loan markets. We believe that the modularity of our business plan creates the potential to reach operating cash flow with a modest portion of our planned constellation.
Producing operating cash flow before completing our constellation may enable us to access the debt markets to support the build out of our constellation.
Another area, we're focusing on is raising capital through players in the wireless ecosystem.
A key component of our strategy is to develop close relationships with important parts of the wireless industry, including Msos electronics manufacturers based companies and others.
We believe we are developing the next growth leg in the wireless industry and we are working with these strategic players to evaluate their interest in helping us commercialize our business and fund our plant.
And with that this completes the presentation component of our earnings call and I pass it back to Scott.
Thank you Sean.
Before we go to the queue of analysts' 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.
Josiah from Michigan asked how does a S T space mobile plan to maintain their lead and the day to day market.
Thank you Shannon for the question well.
First we are the first and only space based cellular broadband system.
Second we invented this new cellular broadband market and haul over 2600 patents and patent pending claims.
Third we're currently operating the largest communication at rate in low Earth orbit.
For commercial use and have validated our technology in orbit. We're far ahead of any other system with approximately 40 wireless operators around the world on the preliminary agreements or not.
I agree missile for understanding.
These relationships continue to accelerate and we continue to make our technical milestones.
Fourth we have a system that worked with with the phone.
In your pocket.
Support access to <unk>.
Over 5 billion phones in circulation today.
And.
We are deeply invested in vertical integration, we own our own ASIC development software and literally we start with metal and composite of manufacture the majority of our satellite box.
We believe all of these points provide us with a strongly in this market for years to come.
Thank you.
Okay lighting from New Zealand asked what are some upcoming FCC milestones that investors should look out that are relevant to a S. T.
Thank you I'll take that one.
We have been in front of the FCC for several years now are talking.
Talking about the potential for cellular connectivity from space and also the unique capabilities that our technology is designed to support.
More recently over the last six months the SEC has taken a handful of steps that we support including starting a rulemaking process.
Likely for cellular connectivity from space and they are also dedicated more resources to reviewing space applications by putting in place a standalone space Bureau.
And then just last week, we took important steps on two different regulatory process with the FCC.
First we need AT&T made filings regarding a spectrum lease agreement between US one that covers the vast majority of At&t's low band spectrum assets.
This filing requesting a waiver to lease AT&T spectrum to us for space Mobile service.
And second we and AT&T and others also submitted comments to the ongoing rule, making process for supplemental coverage from space.
Brian from Connecticut asked there was some concern about finding confirming launch states and class can you provide details of the ongoing discussions with large service providers.
Scott I'll take that thanks, Brian .
We signed an agreement in February of this year to launch our block one satellites on a dedicated Spacex Falcon nine rocket in the first quarter of 2024.
In terms of future launches for block two we earn.
In active discussions with a variety of operators, who we feel have enough capacity and manifest openings to support our plants.
In order to increase our flexibility. We have also developed a configuration, which makes our block two design compatible with multiple launch vehicles and look for launch market evolved. We believe we are a very interesting customer to launch providers, who are looking for anchor customers, who want the volume and cadence to drive their business.
Leiden from New Zealand, how many months post launch our BB once expected to need before they began commercial service.
Take all items.
After all the learnings that we have.
Walker.
Which including the initial deployment initially.
<unk> optimization I'm than the initial robust you know.
Cellular signals.
We estimate that it will take three to four months to activate for commercial service pulse launch separation.
That includes the Norway.
Scepter and penalties based on the initial.
Fine tune them.
The system prior to start than.
Utilizing.
The service.
Interacting directly with end users.
And with that I'd like to thank our shareholders for submitting these questions operator, let's open the call to analyst questions out.
Thank you.
I also would like to ask questions. You May press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue you.
You May press star two if he likes to Australia. Your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Thank you and once again Thats star one.
Our first question comes from the line of Mike Crawford with B Riley. Please proceed with your question.
Thank you.
Three I know you started the optimization process by turning on kind of one micron.
At a time.
And until those stores first close but.
With a fully integrated.
How would you characterize that capacity.
You now expect to achieve with that satellite and what you've maybe theoretically thought you would get out of that.
Satellite.
Prior to launch and then kind of where we are not in that process today with that boardwalk or three satellite.
Okay.
Basically separate deployed.
Ponting Nader through the year.
And our end to end delay compensator our pattern.
It has opened in April just later than we start the process started up.
<unk>.
New element to the food elements.
Before we haven't seen at all that process culminated into Louisiana Duane.
Connectivity directly to Samsung devices, but others as well.
At this point also we completed measurements so seamless.
To elaborate as ever.
Where we are getting.
Around three bits per Hertz.
Yes.
Sufficient to support <unk> database beats, which is less the intended.
<unk>.
Okay. Thank you a barrel and just to clarify the order of magnitude improvement in capacity you expect with the Black warrior bluebirds as that.
Her satellite or is that sort of a block of five.
No body per satellite.
Each satellite is local and he would have 10 times capacity.
What we can get the Walker <unk> block two we have another 10 times 100 times.
The capacity improvement compared to Louisville, Kentucky.
This allowed us to really continue with that.
New.
Adding significant cost reduction per unit costs, they leave into the cell phone.
And that is thanks to our vertical integration. So we're fully vertically integrated all the software all the hardware all the custom Asics.
Allowed to get through these two points also that combined with the size of our rate that allowed us to basically scale.
Significantly the capacity, we continue to develop our didn't already from a rollout.
Okay. Thank you and the last question for me just relates to beam, forming so you can dynamically points, where you wanted to put the power down to make a connection and.
I'm wondering if you could share.
How accurate you are able to do that versus expectations and then.
Signal strength say in the center of a beam.
This is on the edge once you're trying to support multiple.
Cause firms are same.
Now.
Yeah, So one of the T V.
Features of our technology the ability to reuse the rest you'll expect them. So basically the ability to direct very precisely.
The signal into particular direction, where there is not a rescue seamless.
To basically use expected from the from the global terrestrial operators.
Areas, where they don't have to deploy or where is it also more appropriately.
So that has been demonstrated with Walker <unk>.
We recently have lease.
We have signed an agreement with the commission with the SEC.
Actually our usage of the spectrum in combination with AT&T, which is actually paying users these feature allowing us to basically.
Precisely the point.
Is the signals into the direction where the.
The rest of the footprint.
It is not in use or is not working properly.
So the precision of that is winning.
115 degrees.
Two two and a half.
Depending on the size of the array.
On the immediate designs and dynamically.
<unk> reallocated space.
Our system is a software defined system.
We don't own it all.
Actually.
Point.
Capacity is needed by the operator.
Excellent. Thank you very much.
Thank you.
Our next question is from the line of Caleb Henry with quality space. Please proceed with your questions.
Hi, guys a few questions from me I noticed in your 10-Q last quarter and this quarter that the description of the total constellation size is now 95 satellites.
110, I was wondering if you could walk us through some of the changes to the architecture that are now based on the <unk>.
Slightly smaller constellation.
But we have no confirmation of the seasonal trends.
By innovation.
For.
The water services margins will have to do lease at wholesale.
We feel we signaled a standby elevation, which is basically well.
Related to the nominal statement that you'd need for continued service on a global basis.
Our procurement that we need about 90 Saturday for global.
Global.
Global broadband connectivity directly to handsets on a global basis.
It's Omar, let's say 70 global basis.
Okay.
And can you also going to share.
And it looks like Theres 25, Blue Walker, three kind of clones before the transition to the bluebirds.
Is there a reason why that transition was made as well.
No there is five which are in construction.
Once they have capacity improvement, even though that they are the same size of the Walker.
Disposal next batch of satellites 25.
Tools.
Roger.
<unk> done the <unk>.
Yeah.
The the.
Recent <unk> being larger.
In combination with our goal of exiting.
The ability to buy another 10 time capacity improvement intermodal total amount of user data model gigabytes. The HIV stat that we support will continue to do that.
And in clinical studies.
Okay and does that mean between the slightly larger satellite sandy.
And I guess better than expected.
Quality of the spectrum usage.
Does that mean that youre going to get more than 9% to 13 Gigabits per satellite I think that was the previous benchmark.
But we're not providing guidance, but we will be new capacity, but we've been winning new lands that we have provided before.
Okay and then my last question is just if you could provide an update on the the Asics I think during the last call you said those were nearing completion.
Do you have a sense of are those done this finalized today or if not how far away do you expect that to be.
We are at the very last in all of the development.
Enter into the phase, where you go to Paypal Devastates all development.
Is that having validated.
The AUC basically.
It's a very similar approach.
The background of what we have done on the Walker three on EBITDA.
That allowed us to basically confirm that one way of implementing our calibration of our beam forming in the weaker Canadian than prior quarters.
<unk>.
Web development. So we are in the latter stage of.
The ASIC.
Albeit on them or our Brussels, which I want to be.
Here.
<unk>.
Again the U S.
The positive improvement.
Colbert to LIBOR inside of some construction on both lines.
Alright, thank you.
Thank you.
At this time I'm showing no further questions I'd like to turn the call over back to management for closing remarks.
Thank you operator.
The Bell discussed this was a historic quarter for us completing our first ever space based voice calls using everyday and modified smartphones and we really appreciate everyone for joining the call and we appreciate your support and thank.
Thank you.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.