NextNav Inc. Q1 2023 Earnings Call
Associated question and answer.
Speaker 1: consurgenties relate to analysis and other information that are based on forecasts of future results and estimates of amounts not yet determinable and may also relate to NEXNA's future prospects.
Speaker 1: development and business strategies.
Speaker 1: In particular, such forward-looking statements include statements about next-naz position to drive growth in its 3D geolocation businesses, an expansion of its next-generation GPS platform, the business plans, objectives,
Speaker 1: expectations and intentions of NextNAP. NextNAS partnerships and the potential success thereof in NextNAS estimated and future business strategies, competitive position, industry environment, and potential growth opportunities.
Speaker 1: These statements are based on current expectations of release and are subject to certain risks and uncertainties that may cause actual results to differ materially.
Speaker 1: Such forward-looking statements are subject to known and unknown risks, uncertainties, assumptions, and other important factors, many of which are outside NEXNAV's control, that could cause actual results to differ materially from the results discussed in the forward-looking statements.
Speaker 1: These risks, on certainties assumptions, and other important factors include, but are not limited to, the ability of next-nav to continue to gain traction in key markets and with notable platforms and partners.
Speaker 1: folk within...
Speaker 1: within the US and internationally.
Speaker 1: The ability of NextNav to grow and manage growth profitably, maintain relationships with partners, customers and suppliers, including with respect to NextNav's Pinnacle 911 solution and its TerraPoint network.
Speaker 1: And the ability to retain its management and key employees. The ability to maintain balance sheet flexibility and generate and effectively deploy capital in line with its business strategies.
Speaker 1: The possibility that NEXNAV may be adversely affected by economic, business and or competitive factors, including the impact of the ongoing COVID-19 pandemic,
Speaker 1: coronavirus pandemic, other risks and uncertainties indicated from time to time in documents filed with the Securities and Exchange Commission by next map.
Speaker 1: New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us.
Speaker 1: You are caution not to place ondo reliance upon any forward-licensed statements which speak only as the date made. The next SNAP undertakes no commitment to update or other or revise the forward-looking statements.
Speaker 1: whether as a result of new information, future events, or otherwise.
Speaker 1: Risk factors that may impact our performance are identified in our most recent SEC filings. Following our prepared remarks, the company will host an Operator-led Question and Answer session. In addition, at the conclusion of today's call, a replay of our discussion will be posted to the company's Investor Relations website.
Speaker 2: With that, I'll turn the call over to NextNav's Chairman, Gary Parsons. Please go ahead. Thank you, Operator. Good afternoon, everyone, and welcome to NextNav's first quarter 2023 earnings call. As the Operator said, joining me today is NextNav CEO Ganesh Papadaraman and NextNavNav's CFO Chris Gates.
Speaker 2: 2023 is really all too a solid start. We are having established a strong operational foundation and expanded our product and technology capabilities in 2022. We are continuing to execute against our three strategic priorities.
Speaker 2: As a reminder, those priorities are first, being an industry leader and resilient position navigation and timing or P&T.
Speaker 2: Secondly, leveraging our recent Nest Wave acquisition to dramatically reduce our future capital needs and add significant capabilities to our spectrum assets.
Speaker 2: and then finally expanding our global reach.
Speaker 2: To begin, however, I'd like to touch on our newly announced $50 million debt financing, which includes additional levers for potential expansion of the notes up to $80 million. In short, we're thrilled to have closed this transaction and see this both as a significant milestone for the business.
Speaker 2: and a strong marketplace validation of the significant underlying value of our asset base, including our intellectual property portfolio, our nationwide spectrum assets, and our deployed network.
Speaker 2: Chris will get into some of the specifics, but in my view, the new financing provide us with multiple years of funding with modest equity delusion.
Speaker 2: As you'll hear from Ganesh, we continue to see growing customer and governmental traction in our 3D location and our GPS resiliency services, but even without material revenue increases. Given our ongoing management and refining of our expenses, this financing provides multiple years of funding.
Speaker 2: It's also important to consider this successful financing in concert with several other significant accomplishments over the past several months.
Speaker 2: which are designed to unlock additional value and strengthen our long-term fundamental to the business.
Speaker 2: So remember, starting in late 2022, we closed the Nest Wave acquisition.
Speaker 2: And we've spent much of the first quarter integrating the two technologies with field testing of the combined network capabilities taking place as we speak.
Speaker 2: The rapid integration and testing of the combined technology not only dramatically reduces our future capital needs, as we talked about when we first made the acquisition, but it also significantly improves the spectral efficiency of our network and the underlying spectrum asset.
Speaker 2: through the use of state-of-the-art 5G waveforms. Incorporation of the 5G waveform facilitates data-carrying capability, in addition to optimizing our 3D location and our P&T resiliency capabilities.
Speaker 2: March, we received an order from the FCC finding that NEXNAV's network deployment focus covering urban centers and concentration of tall buildings.
Speaker 2: Promotes to public interest as in and the needs of the public safety community and therefore meets the FCC's substantial service standards.
Speaker 2: In early April , using this standard, the Wireless Bureau at the FCC approved NexNav's final construction milestones for licenses covering 256 cellular market areas, or CNAs. We felt for a long time this was the preferred deployment approach.
Speaker 2: both for E911 as well as for resilient GPS or PNG services. And we're obviously pleased that the FCC has concurred in this position.
Speaker 2: Also in the first quarter, we made significant additional progress in our international international use of international effects by educating in the international
Speaker 2: In March, the European JRC report on alternative PNT technologies was released, with a firm recommendation that every European country allocate spectrum in support of resilient PNT.
Speaker 2: This creates a significant spectrum as well as product opportunity in Europe , much like what we have done with Metcom in Japan.
Speaker 2: We remain in active conversations with other governments globally and believe there is a substantial opportunity ahead of us as the recognized leaders in P&T resiliency.
Speaker 2: Ganesh, we'll get into more detail on the European JRC reports findings as well as on our other PNT resiliency and customer initiative. With that, let me turn it over to Ganesh.
Speaker 3: Thank you, Gary, and good afternoon, everyone.
Speaker 3: It's been a busy quarter for the team and we've had several notable achievements that Gary highlighted.
Speaker 3: We close the debt financing that Chris will get into in more detail.
Speaker 3: majority of the major markets and continue to make progress on our resilient P&T activities globally. The debt financing signals significant confidence from the investment community in our portfolio of assets. It also provides us with multiple years of funding to advance our strategic priorities.
Speaker 3: and efficiently maximize the full value of our asset rich platform for shareholders and customers.
Speaker 3: We were also very pleased that the many recent FCC approvals regarding our spectrum and build out milestones.
Speaker 3: As you may be aware, the FCC requires spectrum holders to demonstrate its ability to meet construction milestones in one of two ways. Either using population coverage or using substantial service.
Speaker 3: This approach really allows us to allocate capital efficiently and provide our service to areas with the highest need first.
Speaker 3: We approved 78 of our licenses, which represents about 256 seller market areas in major markets around the country like New York, LA, San Francisco and Chicago. The approvals are obviously a significant milestone for our business, marking the final step in meeting our spectrum license obligations in these markets.
Speaker 3: Turning now to our Pinnacle technology, we continue to expand our footprint in the public safety and E911 arena.
Speaker 3: Notably, earlier this month, we announced the launch of several new devices on multiple Tier 1 operator networks, helping them meet the FCC's 9-1-1 requirements.
Speaker 3: We recently enabled an additional device under our carrier agreement with Verizon, integrating our z-axis capabilities into Kiosara's Durope X5 Extreme Plus feature phone.
Speaker 3: for both Verizon and Verizon Frontline customers.
Speaker 3: This device is available now online and in Verizon stores nationwide.
Speaker 3: Our Z-axis technology has also been integrated into HotPepper's mobile feature phones, which is currently being sold in Metro by T-Mobile stores nationwide.
Speaker 3: This development builds off of Hot Pepper's mobile agreement with NEXNAV announced in 2022 that allows for Pinnacle's use on Hot Pepper devices across all major wireless carriers, enabling 3D Z-axis geolocation capabilities, which are required in major urban areas for 911 emergency.
Speaker 3: services. And now turning to our global initiatives, the European Union's Joint Research Center released its new report at the end of March on trials of the ultimate P&T technology.
Speaker 3: As part of the report, the GRC recognized NexNAS SharePoint solution as a mature solution that meets or exceeds all relevant benchmarks to serve as a resilient layer to existing GNSS technology.
Speaker 3: Off the technologies tested, SharePoint delivers both horizontal and vertical location services.
Speaker 3: indoor and outdoor timing capabilities while remaining commercially deployable and cost effective for end users.
Speaker 3: As European policy makers begin to develop their resilient P&T policy and strategy tied to the upcoming European Radio Navigation Plan, we look forward to working with them and to use these findings to act quickly before facing serious consequences of a GNSS outage.
Speaker 3: Finally, before I turn things over to Chris, I want to touch briefly on our work with the federal government.
Speaker 3: Currently, we continue to believe that the Federal procurement language mark-cations that's outlined in Executive Order 13905 will be released in the coming months. As we have more insight into the exact timing, we will be sure to update the market.
Speaker 3: In the interim, we continue to hold extensive discussions with federal officials on potential implementation architectures of the executive order. Therefore, we continue to make progress there.
Speaker 3: We continue to see government officials highlighting the importance of resilient P&T systems in several of their conversations.
Speaker 3: Recently in a presentation to the House Committee on Science, Space, and Technology, Dr. Parimal Koppelkar, Director of NASA's Aeronautics Research Institute at Ames Mountain View, discussed the work that NASA is doing to develop technologies for urban air mobility operations in the US, including its work in the alternate P&T space.
Speaker 3: As many of you know, we are happy to partner with NASA Ames in support of their ongoing initiatives.
Speaker 3: With that, let me turn it over to Chris for review of our financials. Chris.
Speaker 2: Thanks Ganesh and good afternoon everyone. Before I dive into the first quarter's results, I'd like to provide more detail on our recently announced debt financing.
Speaker 4: on May 9th
Speaker 2: We closed on $50 million in senior secured notes due on December 1, 2026, the total term of approximately 3.5 years in a private placement.
Speaker 2: The notes bear interest at a 10% rate payable semi annually and importantly from a cash point of view We can elect to pay 50% of any accrued interest in shares of our common stock
Speaker 2: For the next 30 days, the note holders have the option to acquire up to $20 million of additional senior secured notes, and we have the further option to sell 10 to 15 million of peripassu notes to existing or new parties in the future, depending on the exercise of the current option up to an aggregate total of $80 million. The notes are redeemable at 101% of the principal value.
Speaker 2: and are partially callable beginning in 2025. The warrants will expire on June 1, 2027. As Gary and Ganesh both mentioned, this notice in its substantially extends our operational funding, and we believe especially in this market, is a strong endorsement of the opportunity presented by next day as a UNICASAP platform.
Speaker 2: And now I'll turn to our first quarter results. First quarter of 2023, top line revenue, was approximately $830,000, compared to approximately 1.2 million in the first quarter of 2022. The year over your decrease was driven by a decline in one time the integration revenue, partially offset by an increase in recurring revenue from commercial customers.
Speaker 2: and represents sequential growth from the fourth quarter. Operating expenses for the first quarter of 2023 were approximately $14.8 million, down from $17.2 million in the same period last year. Operating expenses included $1.1 million in depreciation and amortization, as well as $3.9 million in equity compensation expenses.
Speaker 2: Net loss for the first quarter of 2023 was $16.3 million, which included a $2.8 million loss associated with fair value or warrants, compared to $9.7 million in the first quarter of 2022, which included a gain on the fair value of warrants of $6.4 million.
Speaker 2: From a balance sheet perspective, we finished the quarter with $46.8 million in cash, which does not include the benefit of the financing we recently closed.
Speaker 2: As Gary mentioned, I'd like to reiterate that while we continue to see opportunities for new P&T customers and revenue expansion in this financing, provides this with multiple years of runway even without material revenue growth. As we've indicated in the past, we're continuously working to refine our expenses.
Speaker 2: and as we bring new customers into service, we remain focused on success-based capital. With that, I'll turn the call over to the operator for questions. Operator.
Speaker 1: The floor is now open for your questions. To ask a question this time, please press star 1 on your telephone keypad. If at any point you'd like to withdraw from the queue, please press star 1 again. We'll now take a moment to compile our roster.
Speaker 1: Our first question comes from the line of Mike Crawford from B. Riley Securities. Your line is open. Yes, yes, it is.
Speaker 2: Thank you. It's nice to see you get that cash on your balance sheet one quarter ahead of one we've been modeling. And also thanks for the update in Europe . What can you tell us about progress in Japan with Pinnacle and SharePoint?
Speaker 3: Yeah, Ganesh, you want to hit that? I can hit, yeah. So we continue to make good progress in Japan. As we noted, Mike, earlier in Japan, Metcom, our partner, launched the service in Tokyo and Osaka for the Pinnacle service.
Speaker 3: They are right now in several commercial or several of their trials are now converging to a point where we expect. Commercial activities to begin in the later this year. And we are also continue to work with.
Speaker 3: Them and the Japanese government as they finalize and establish their. Resilient P, and T strategy along with folks like Jack. So who are the NASA equivalent organization responsible for a lot of their. P and T strategy and.
Speaker 3: They were especially hardened to see some much of the findings from the European report. Especially on the spectrum piece that reinforce their views on the desire to. Establish a spectrum capability for PNT services in Japan.
Speaker 3: And that is now still progressing within the as they evaluate the next steps to to get bare fruit there.
Speaker 4: Okay, thank you. And then can you?
Speaker 4: Okay, thank you. And then can you elaborate on the
Speaker 4: The excess data carrying capacity you have given the spectral efficiency – abandoning electronic download
Speaker 4: achieved with the way that you're implementing your PNT signal now or intend to be doing so.
Speaker 5: And then.
Speaker 4: maybe extend beyond that what would be
Speaker 4: inappropriate ask.
Speaker 4: spectrum in addition to what you're able to achieve for timing and location.
Speaker 6: indicated we're actually have deployed some in the Bay Area and are testing there right now to ensure that the you know the accuracy time to fix all of the other elements that are part of our overall services can be accomplished through this combined technology which just as a reminder combines our atomic clocks from our signal
Speaker 6: That in and of itself dramatically drives down the cost of any deployment for P&T services or position navigation and timing.
Speaker 6: And it also would speed it because you have far fewer beacons that you have to put out there in order to achieve it. So that's the first element of integration and what we get from that. The second element that I think would be useful is with our experimental license that we have in the Bay Area as well, we'll be developing...
Speaker 6: both 4G but more particularly 5G waveforms that we can test to determine whether or not those meet the characteristics that we believe they will meet as well too. The key to that factor is if we converted our waveforms, the current waveforms that we have from a GPS oriented base.
Speaker 6: over to a 5G waveform base.
Speaker 6: then it's not so much a matter of having surplus spectrum that that creates. It's the fact that your spectrum and your waveform can support simultaneously.
Speaker 6: Both your position navigation and timing services, all of the E911 and backup GPS capabilities that are so attractive to the federal government and the first responders, but it simultaneously carries the full data payload that a 5G signal would normally carry as any carrier.
Speaker 6: that deployed 5G would gain out of that. So it's that combined capability that reinforces and actually improves the P&T capability because of the number of beacons that you would have access to, combined with the data carrying capability that obviously has significant commercial value.
Speaker 6: that we think is, again, in the public interest, promoting the public interest in the needs of the public safety community, while simultaneously providing a significant commercial value. So, relative to what flexibilities we would request from the FCC, I think.
Speaker 4: We'd like to provide guidance given the early stage of your revenue opportunities, but –
Speaker 4: To any extent you could opine on what?
Speaker 4: Vertical markets might be most promising for near to midterm revenue and when.
Speaker 4: we might expect to see some upward trajectory and or
Speaker 4: you know magnitude thereof would be quite helpful.
Speaker 6: Let me let Chris address that or Ganesh Ganesh potentially for what possible consumers or customer potential would be. I think obviously it's pretty clear that the various government agencies have a significant interest in these P&T capabilities.
Speaker 6: you know, whether that manifests itself in, you know, initial trials, NRE for deployment of those trials or eventual purchase of the capabilities, versus whether it comes from people bidding on government contracts and needing to respond to RFPs.
Speaker 6: that require backup GPS or resilient P&T as part of those procurements. It's not clear how much of that will come directly from the government versus parties who are bidding on government contracts, but I think those are significant elements. And I think the other element you can initially see from the announcements...
Speaker 6: contract, but are the ones that we are in the process of putting in place and announcing as we go along there. I guess, Chris, you can decline to provide a projection or I can decline to provide whichever one. Yeah, go right ahead, Gary. I think you captured the key.
Speaker 6: Last year's first quarter was a bit distorted because of the integration, one-time NRE integration funding that we got from Verizon to pull the things together for their network. The revenue from Verizon this quarter is all...
Speaker 6: recurring revenue. So I think we're migrating more and more towards a fully recurring revenue type of a standpoint and while we'll still have NRE that may come with other carriers or other handset providers that pay us for that portion, I think it'll flow more into an ongoing recurring revenue mode at least in the United States.
Speaker 6: I think it's quite possible in, you know, international, either deployments or joint ventures that we do, that some of that could in fact take the place as it has in Metcom with payments for services or capabilities that we provide to them to integrate or turn up their networks. I think it's quite possible in, you know, international, either deployments or joint ventures that we provide to them to integrate or turn up their networks.
Speaker 6: Yeah, I can ask you if you want to address that one both, I guess, domestically and internationally.
Speaker 3: Yeah, so so to be clear, Jamie, the. The report was focused primarily on the European Union and the activities that that's driven by the European Commission.
Obviously, this is very similar to the Department of U.S. Department of Transportation report that came out in 2021 and had a set of recommendations that the U.S. federal government is now trying to follow through the executive order 13905 and some of the federal and state initiatives that are under the…
first the report that captures sort of the recommendations from a technology perspective. We expect that to then be reflected in the European Radio Navigation Plan, which we expect to be released imminently. That would have the policy recommendations for the European Union on what they want to do.
To in terms from a policy perspective to implement the recommendations. And and I think the individual governments and countries will obviously pay close attention to the recommendations. And as we noted. The technical report recommended allocation of spectrum, for instance.
and we were one of the technologies that were tested to demonstrate PNT capabilities on an extensive basis. So we think it will follow, it has a very good footing and follow similar to the framework that's been established in the US.
And we do see the European government.
Wanting to act more quickly, just given the nature of the disruption that they're experiencing on a daily basis today in the Russian Ukrainian conflict and much of Eastern Europe . With Poland and the Baltic States, and therefore we do see several activities that the government European Union has already started to.
fast track or implement, for instance, they launched low Earth orbit PNT constellation just recently to start experimenting with the LEO system and seeing the impact of that on PNT capability.
Similar to the US, the European Commission, the European governments also believe it's a multi technology approach to solving the. PnT resilience problem and so the terrestrial component is going to be a strong. Feature in that framework and so we're having.
Continue to have a lot of discussions with with the European. Union folks, and some of the policy makers there, and we see. Uh, once the radio navigation plan come out, the sort of concrete next steps that lead towards implementation of of the recommendations.
Hey, Jamie, I'd also note, though, that because our capability is viewed more as a platform, it's kind of a foundational technology that has to be in place for these things. A lot of the activity may well take place in advance of actual revenues. In other words, whether we're partnering with other sat cro fruitful systems, you know, between O
Those are things that could be reasonable next steps that will occur before you actually have a situation where France or Germany is doing something like the United States has with this executive order or actually putting out bids on that front. And candidly, I don't want to overlook the Middle East either because there's a lot of opposition....
It seems like it's working both the European and American front. So, yeah, so since you're basically licensing your technology, you've put it in much developed and applied for. I mean, pretty much can be working with developers. And I mean, how developers are going to pay you a fee? How is the...
fee structure? Well, it's a question and whether it's a JV or I wouldn't necessarily say a developer because it quite potentially may be a telecom entity or a carrier of some sort that may want to put that together. But I think Japan is a pretty good precedent for what can take place that way. And yes, we have gotten revenues from them for purchase of equipment or for licensing fees.
We've also, in that case, got Nickaried interest in the country and the company. So it is truly a joint venture from that standpoint. So it's unclear right now exactly what the form of those relationships will be. I think the part that we feel most comfortable with is
It's very clear whether it's tested in Japan, in Europe , in the United States, we are viewed as the leader in the P&T capabilities. In fact deriving this desire to allocate spectrum for that purpose.
across the EU. So all of those things establish a pretty good platform for us.
All right, well, I can't wait till the next step to go global. True. No, that's not unreasonable. That is part of our strategic plan. But I do want to clarify one thing, Jamie, is that in the U.S., obviously, we are the service provider that is providing the service in Japan and in Europe .
is similar to what Metcom has done in Japan. But in the US market, we are working with the governments. We're working with the end users of the service who may potentially benefit from the capability. So that's what you see, for instance, with our Pinnacle service, where we've got several of the Tier 1 wireless operators.
leveraging or buying service from us to to meet certain of their requirements
I would now like to turn the call over to Gary Parsons for closing remarks. Well, thank you very much, operator. And once again, thanks, everybody, for calling in and listening to the report. We feel very good about the progress that we've made and the number of substantial achievements that we've had over the last number of months that I mentioned.
And most particularly, this financing, let's face it, it's a challenging marketplace out there, particularly when you're looking at debt financing as well, too. We did not want to do a highly diluted equity deal. We knew from past experience that we would be able to have secure debt because of the asset base that we have.
And we feel good about how it's pulled together, which provides us an awful lot of certainty and stability from a financial standpoint to allow us to drive forward and achieve the milestones operationally, revenue-wise, and then strategically that we think are important going forward. So, we look forward to next quarter's call, and thanks very much to everyone for participating.
Thank you ladies and gentlemen. This does conclude today's call. Thank you for your participation. You may now disconnect.