Q2 2023 NextNav Inc Earnings Call
Please wait the conference will begin shortly.
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Good afternoon, everyone and welcome to next now second quarter 2023 earnings Conference call.
Participating on today's call are Gary Parsons next.
Snaps chairman.
In Nash.
Hi, Rob.
Robin.
Next <unk> co founder and CEO and Chris Gates next Nancy <unk>, Chief Financial Officer.
Before we get we begin please note that during today's presentation. The company may make forward looking statements either in our prepared remarks or in the associated question and answer session.
In particular, such forward looking statements may include statements about <unk> business plans.
<unk> expectations and intentions to drive growth and its three D geolocation businesses and expansion of its next generation GTS platform <unk>.
To maximize the value of its IP portfolio spectrum, its international business as well as next snaps partnerships and the potential success thereof.
Next snaps estimated and future business strategies.
Additives physician industry environment, and other potential growth opportunities.
These statements are based on current expectations or beliefs, however, such forward looking.
Statements are subject to known and unknown risks uncertainties assumptions and other important factors many of which are outside <unk> control that could cause actual results to differ materially from the results discussed in the forward looking statements.
These statements may be may relate to but are not limited to expectations regarding our strategies and future financial performance, including future business plans or objectives.
Expected functionality of our geolocation services.
Anticipated timing and level of deployment of our services anticipated demand and acceptance of our services crisp.
Perspective performance in commercial opportunities and competitors the timing of obtaining regulatory approvals commercial partnership acquisition and retention.
<unk> and services pricing and marketing plans.
Our ability to realize the anticipated technical and business benefits associated with acquisitions and any subsequent mergers acquisitions or other similar transactions.
Factors relating to our future.
<unk> projected capital resources, and financial condition estimated revenue and losses.
<unk> costs and capital expenditures and expectations about international markets.
Project Jackson's market grows in size, including the level of market acceptance for our services.
Our ability to adequately protect key intellectual property rights our proprietary technology.
Our ability to maintain our location and monitoring service.
M S licensees.
And obtain additional LMS licenses as necessary.
Our ability to maintain adequate operational financial resources, including for research and development.
<unk> raised additional capital or generate sufficient cash flows.
Our ability to develop and maintain effective internal controls.
Our success in recruiting and retaining officers key employees or directors.
Expansion plans and opportunities.
Costs related to being a public company.
Our ability to maintain the listing of our securities on NASDAQ.
Macroeconomic factors and their effects on our operations and the outcome of any known and unknown litigation and regulatory proceedings as well as assumptions relating to their four going.
Accordingly.
<unk> looking statements should not be groups.
Upon as representing our views of any.
Subsequent date.
And we do not undertake any obligation to update or revise any forward looking statements to reflect events or circumstances.
After the date they were made whether as a result of new information future events or otherwise, except as may be required under applicable security laws.
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.
Okay.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session.
If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
If you would like to withdraw your question again, please press the star and the number one.
With that I'll turn the call over to next snaps Chairman Gerry Parsons. Please go ahead.
Well, thank you very much and good afternoon, everyone. Welcome to the next now second quarter 2023 earnings conference call as the as the operator said joining me today on the call will also be the top ramen.
Our CEO and Chris <unk>, our Chief Financial Officer.
It was another busy quarter for next dabble a number of fronts.
We are seeing encouraging momentum as we focus on executing against our key strategic priorities and just as a reminder, I know we've said it a number of quarters in a row, but those priorities remain number one being the industry leader on three D geolocation, and resilient position navigation and timing or PMT.
Services, specifically, providing GPS resilience and backup.
Second leveraging our intellectual property and technology to both reduce our future capital needs and to enhance the underlying value of our spectrum assets and then finally, expanding our global reach.
These three pillars serve as our strategic guidepost and we're encouraged by the progress on each of these areas in the second quarter.
However, before I go into those key priorities I want to briefly touch on the recent closing of an additional allocation of $20 million that was announced this past June .
Additional funding comes from a group of existing investors from the original $50 million debt financing facility that we closed back in May and with this additional capital gross proceeds from both deals now total $70 million.
Chris will cover the specifics of the additional financing.
But in our sort of as an overarching indicators, we see this oversubscribed funding.
Clear market validation of our underlying assets, including our IP portfolio deployed network and near nationwide spectrum asset.
The additional capital provides us significant flexibility.
With added liquidity and multiple years of funding to support the growing industry and governmental interest in our three D location and GPS resiliency services.
Typically we're seeing significant traction with underlying technology licenses.
One one implementations as well as government grants all of which are extremely encouraging.
One thing.
It's become apparent to us and which I'm sure you noticed as well is that the sensitive nature of our work most particularly the critical security and public safety aspects of our technology and products. Those resulted in elevated degree of confidence reality, amongst our customers and partners, including government agent.
Z as wireless carriers and other industry leaders.
As we experienced during 2022, many of our key customers and industry partners will prefer to initially work with us privately without attributable public announcements, particularly the national security cases.
<unk>.
We may never be able to disclose the specifics of any services that we may or may not be provided.
In other cases halbur.
As we experienced with Verizon <unk> 911 contract, we are able to offer a greater insights into our work and specific customer relationships once our capabilities are implemented and mature in their networks.
A number of our positive industry and governmental developments fall into this category.
Now, we're only able to disclose them and generalized terms now Ganesh in his section we will describe these in as much depth as we can at this point.
Let me just provide an overview of some of the key efforts.
First we signed a licensing agreement with a top tier global chip manufacturer July since next now technology to provide low power asset tracking capabilities utilizing next nabs intellectual property associated with software defined GPS capabilities were.
We're also pleased with the accelerating interest in our <unk> technology in support of the government PMT resiliency efforts.
We're not in a position to announce anything specific today, but we are hopeful to provide additional insight into significant traction on that front.
Our next quarterly call. We had mentioned in the past calls the executive order 13, 905, and the Inter agency review of that order, notably a number of the key agencies have exhibited significant interest in moving forward with initial implementations in advance of the formal governmental process.
Yes, which is required in order to finalize procurement regulations government wide.
Adding to this.
And additional nationwide U S carrier recently selected our pinnacle technology.
To provide precision Z access capabilities for 911 calls.
With this deal agreement next now is now providing its D access capabilities in support of <unk> devices on three of the top nationwide carriers in the U S. Again, a clear validation of our technology and expertise in advancing <unk> 911 services.
We expect revenue from this segment to increase over time as additional clinical 8911 compliant handsets rollout on various of these carriers networks.
Finally.
During our first quarter call. We noted the very positive FCC approvals, we received regarding our spectrum and successful build out milestones for all of our key spectrum licenses.
We also noticed that.
Notice that we had requested an experimental license in the Bay area.
To allow us to deploy and test a <unk> implementation utilizing industry standard five gene waveforms with a variety of carrier bandwidth configurations and power levels.
During the second quarter, we in fact received approval for that extra metal license and we are currently designing and deploying a <unk> network and bay area to validate our ability to provide highly reliable three D geolocation and resilient position navigation and timing capabilities using that <unk>.
Wave form.
While simultaneously using that <unk> signal for significant data throughput.
Once we've completed the deployment and testing program likely later this year, we would expect to file with the SEC to allow commercial services using this configuration.
As we've noted in the paint us using a <unk> or even an LTE way form has significant cost deployment and performance advantages that strengthen our terra point, PMT and GPS resiliency services.
While facilitating improved broadband services consistent with industry requirements.
With that I'd like to turn the call over to Ganesh.
Thanks, Gary and good afternoon, everyone.
As Gary mentioned, we are seeing strategic momentum in the business as we moved into the second half of the year.
Notably we are beginning to see real recognition towards the effectiveness and importance of our underlying technology and IP to several of the agreements that we are executing.
Through the expansion of our intellectual property platforms, we have many new opportunities and flexibility in the technologies, we can leverage and deployed.
As a Prime example, we recently signed a new licensing agreement with the top tier U S chip manufacturer provide positioning functionality for low powered GPS tracking.
To the manufacturers mainline chipsets.
By implementing a GPS receiver as a software IP.
Similar to other large contracts, we expect an NRT component followed by a volume based royalty payment with this business starting to recognize revenue from this agreement in the second half of this year.
This is an exciting new licensing agreement and that one which leverages our existing technology alongside technical expertise from one of our subsidiaries. The next night, France office.
With the integration of our technology with <unk>, France, we now have several capabilities some of which are software only.
Fuller implementation.
But what is most evident to us is that more and more companies and parties throughout the industry are coming directly to us as acknowledged PNT expert.
Building on this momentum we are also seeing encouraging movement out of the federal government, which has made clear its intention to prioritize pnp resilience.
An executive order to 13 905.
We believe the tabletop reviews, a process by which the procurement offices within the agencies can provide feedback on the procurement language that is being designed is now complete.
And the guidelines are expected to go for an inter agency approval in the coming months.
We see the government moving forward on its strategy of protecting toughening and augmenting GPS with several initiatives underway ahead of formal implementation of the executive order.
One example of this is the in the protect realm is the government accelerating its progress on the harmonious roop situational awareness for intentional disruption program associated.
Associated with GPS interference detection nationwide.
In addition, several key agencies are beginning the process of augmenting existing GPS based systems with resilience.
Theyre doing so by establishing small scale test beds or as they call them sand boxes, whereas zillion PMT technologies are being integrated on the same platform. It's EPS.
One of the goals is for providers of critical infrastructure and ultimate PNT technology providers like us as well as the federal government to collectively understand what it takes to enable PMT resilience. What is the cost of integration out of the two systems coexist and the and performance of the combined systems.
The sand boxes are being constructed in coordination with universities and research facilities at the state level and with Federal agency participation and we are in active discussions with many of them.
In the most recent Senate homeland security and transportation housing and urban development Appropriations Bill Com.
Congress reiterated its support to executive on the 13th.
At 13, 905 and has further allocated funding to foot further resilient PMT.
These developments are very promising and we expect to be able to announce in the coming weeks that we're providing services to the government in support of their PMT resilient strategy.
As we mentioned earlier due to the sensitive nature of many of our discussions we're unable to provide details at this time.
Turning to our work at <unk> nine one months, we expect to continue to expand our footprint in this arena in early June we announced that another nationwide U S carriers had selected the clinical technology to provide precision the access capabilities for 901 calls.
The agreement will enable precise the access for 901 calls made under carriers entire device portfolio.
Expanding the availability of light lifesaving technology across the United States and exceeding FCC's VX 901 requirements.
The first devices on the network utilizing the <unk> capabilities are expected to be released later this year.
In recent years multiple wireless operators, including ryzen device Oems and other key businesses in the communication industry have continued to select next clinical solution to provide the extra capabilities to enhance color Geo location and emergency response outcomes.
And now that we have multiple devices that are critical technology for 901 emergency calls.
You can actually validate the importance of precise the axes.
Our own internal data based on the devices in the marketplace with clinical technology and in our service area, which if I may remind you. However, it's more than 4400 cities and towns around the country.
Those that nearly half of the emergency calls.
Originated from.
Floor above the ground level.
This is a very important validation of our technology as it points to the importance of <unk> and the role it plays in E 911 call.
We're energized by this fact, knowing that our clinical technologies truly needed for such a substantial number of emergency calls to.
To improve response times.
Ultimately save lives.
Now turning over to international.
Internationally, we're seeing greater resonance on PNT resilience recently in Japan at a conference chaired by the Japanese Prime Ministers, one of the key scientific advisors. Dr. <unk> submitted an opinion highlighting the importance of PMT resilience.
This we believe has two very tangible outcomes. One we believe the Japanese government will likely follow the U S and the European Union.
In establishing PNT resilience for Japan.
And two we believe this also paves the way for the spectrum allocation in Japan to Metcom to provide resilience to the Japanese market.
In Europe , we announced new Testbed for our clinical technology in France. This is our first European Testbed for high accuracy vertical location technology.
And will be located in the patents area.
The test that will demonstrate the benefits of clinical technology can offered to emergency response agency as well as provide integration with applications and devices to.
<unk> partners.
This initial deployment will enable us to demonstrate our clinical technology to industry partners and paved the way for delivering not only superior floor level accuracy, but also resilient <unk> capabilities, leveraging our P&C technology.
The European Radio Navigation plan was also released at the end of June .
This report conferred.
Referred to the recommendations from the European Union's trial results at the Joint Research Center.
As we shared on our previous calls were released in March 2023.
The report recognized <unk> resilient PMT technologies, Powerpoint as a mature technology that met or exceeded relevant benchmarks to serve as the resilient layer for existing GPS and DNS technology.
As the European policymakers continue to move this forward Redemand closely engaged in discussions on how we can help advance those initiatives.
Finally, before I hand things over to Chris I wanted to highlight some exciting news you may recall, we had discuss the significant progress on our technology integration.
With LTE capabilities.
We recently announced the successful testing of our positioning and timing solution that combined <unk> <unk> system with the existing LTE and <unk> networks signals.
This testing took place in and around San Jose, California, and demonstrated how tariff point can leverage existing cellular signals to deliver accurate <unk> positioning and timing information that is not reliant on conventional satellite based GPS RG and assess signals.
With this integration we have demonstrated a highly scalable and lower cost alternative <unk> solution, which overcomes the vulnerabilities of GPS.
With the complementary ground based resilient PMT layer that extend PNT capabilities in urban and indoor environment.
We're excited by the test as they validate that the new system delivers cost and performance consistent with our prior expectations.
And finally as Gary indicated we're also now deploying a <unk> implementation of <unk> and the Bds using our recently approved experiment to license.
Hope to have testing results from that network implementation later this year.
And with that let me turn it over to Chris for a run through of our financials Chris.
Thanks Ashley.
Good afternoon, everyone before jumping into the results I'd like to discuss the $20 million of additional debt financing that Gary briefly touched on.
He pointed out this was in addition to the $50 million senior secured notes that we closed on May nine.
These additional notes were issued under the same indenture.
To the investors that participated in the $50 million.
<unk> of that financing seeking a greater allocation of those notes and the warrants.
Sharing the same underlying.
Security agreement that was likewise announced on May nine.
The key terms just to review for those of you that perhaps.
Perhaps missed our prior presentation on the senior secured notes mature on December one 2026.
Total term of approximately three and a half years issued in a private placement.
Notes bear interest at a 10% rate payable semi annually and importantly from a cash point of view, we can elect to pay up to 50% of any accrued interest and shares of our common stock.
Notes are redeemable at 101% of the principle value. After the first anniversary of the initial issuance and in conjunction with the sale of these additional notes.
We issued an additional $7 4 million warrants to purchase shares of <unk> Nixdorf common stock at the same $2 16 strike price that we issued the warrants along with the initial $50 million closing.
The warrants are exercisable for cash there is theres no cashless exercise option.
And are partially callable beginning in 2025 and expire on June one 2027.
We see this as another strong validation of our business and asset base and investor support for our long term objectives.
Now turning to our results in the second quarter top line revenue was $800000 compared to approximately $1 4 million in the second quarter of 2022, the year over year decrease was driven by a decline in nonrecurring revenue from network integration activities offset by predominantly recurring revenue from commercial customers.
<unk> revenue was essentially flat compared to the first quarter of 2023 and for the first half of the year. Our revenue was $1 6 million compared to $2 6 million in 2022 with the decline again, resulting.
From the same drivers.
Operating expenses for the second quarter or approximately $15 8 million down from approximately $18 4 million in the same period last year.
Excluding stock based compensation and depreciation and amortization operating expenses were approximately $10 3 million compared to $10 8 million in the prior year.
At $9 8 million in the prior quarter for the first half of the year operating expenses were $30 6 million compared to $35 7 million in 2022, excluding stock based compensation expense and depreciation and amortization operating expenses were $20 million for both periods.
Net loss for the second quarter of 2023 was approximately $15 8 million down from a net income of 830000 in the same period a year ago with the change primarily driven by a difference in the change of the fair value of warrant liability, which was a loss of 263000 in the second quarter of this year compared to a gain of <unk>.
$1 8 million in 2022.
For the first half of the year net loss was $32 1 million compared to a net loss net loss of $8 9 million in 2022 with the change again being primarily driven by the change in fair value warrant liability, which was a loss of $3 million in 2023 compared to a gain of $24 million in 2022.
From a balance sheet perspective, we finished the quarter with $52 $8 million in cash and cash equivalents $32 2 million and short term investments and together $85 million between those two those two categories.
<unk>.
With $34 million in debt net of unamortized.
Unamortized discount attributed to transaction costs and the issuance of warrants with a gross value of $50 million from the recently announced debt financing deal now as a reminder, this does not include the $20 million either in cash or in the debt line in our balance sheet from the additional notes because we closed those on July 6th after the end of the quarter.
We believe this liquidity provides us with multiple years of runway to achieve our strategic objectives.
With that I'll turn the call over to the operator for questions operator.
Yes.
At this time I would like to remind everyone in order to ask a question. Please press star and the number one on your telephone keypad.
We'll pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Griffin Bos B Riley Securities.
Hi, Thanks for taking my.
Okay.
Thank you operator, thanks for taking my questions.
So to start off maybe one for Chris can you comment on the revenue implications at all of the new pinnacle agreements with that additional carrier and theres going to be similar to two.
What do you expect with Verizon and then sort of similarly, how should we be looking at the new licensing agreement with the.
Yes.
From a top line contribution perspective just.
Trying to get a sense, if theres going to be a material impact in the back half of the year.
Yes, Griffin Thats a great question.
As you know, we don't provide guidance in part because of course, especially with new contracts that involve usage based components.
However, we do expect.
Both the <unk> 911 agreement that <unk> referenced as well as the chip agreement.
To be additive in the second half of this year.
Two they're substantially recurring revenue that we recognized in the first and second quarter.
So we are looking forward.
Starting to see the effects of those in the second half of the year and I think.
Longer term, we expect both of those agreements have the potential to grow to be multi.
Multimillion dollar contracts, although the timing of their growth into that scale is of course dependent on.
In the case of the United win one agreement device integration.
And in the case of the chip agreement of course, our customers chip sales and then the attach rate of our feature into those into those sales.
Okay. That's great. Thanks, Chris and then I guess just more broadly it's obviously the successful turbine testing I'm wondering if you all can provide any update just on how thats way of integration is coming along.
Unless you want to add.
Yes, I can take a stab at that I think.
I think highlighted in a few of our cause.
The integration started quite well.
Late last year.
We had the teams.
We're starting to work together on the combined platform.
And we obviously have gotten to the point, where we were.
Being able to combine the necessary platform with our <unk>.
<unk> signals.
Earlier this year, we envy.
We've been we've established a couple of test beds, both in San Jose and San Francisco, and we started collecting results, which as I indicated have been largely consistent with what our expectations were.
So in a matter of six to eight months, we've been able to combine the two technologies and start seeing the benefit.
Synergies in the platform the Capex opex implications.
And the corresponding performance that we believe meets what what was originally anticipated.
With this new capability.
No.
Net net I would say, it's going extremely well and we.
We expect to continue to make progress on that.
Okay, great. Thank you Dinesh, it's nice to see the product.
Your next question comes from the line of Tim Horan from Oppenheimer, Tim Your line is open.
Okay.
Hi, guys, Dan Mcdonald on for Tim Thanks for taking my question.
I know you guys mentioned the capital raises should provide multiple years of runway.
But do you guys feel fully funded and do see possible means to.
Further raise and then secondly.
After you plan to file for those commercial licenses later this year.
How long do you expect that.
To take to receive approval. Thank you.
Yes, thanks very much.
And definitely two very good questions.
Obviously with the amount of balance sheet liquidity, we have and runway that we have right. Now we are envisioning any type of an additional offering or fund raising.
Dan or bill or equity by the way I would remind.
Analyst or.
Investors are looking at the.
The specifics of the $70 million that we took in.
It's often overlooked we still have.
Headroom that we have an additional $10 million that we can add to the parry pursue with the same underlying collateral if.
If we wanted to do that so that's an opportunity for us and as Chris covered in his section earlier. These arent penny warrants and they don't allow a cashless exercise so candidly if those warrants were exercised.
$56 million or something like that so.
There are plenty sufficient.
Nancy.
Elements available to us so from this standpoint.
I prefer to not referred to it as.
Totally funded because that may or may not be the case, if we were to undertake international expansion or other things of that nature, but certainly nothing that we see in the near term requires additional cash either equity or debt and we're very comfortable with it always stands stand from the financial standpoint.
Actually given us a good bit of flexibility if things that we can do operationally and even strategically.
The next element that you.
Mentioned and I guess, that's probably the one that.
A lot of the investors follow because of the <unk>.
True underlying value of the two.
$2 4 billion megahertz Pops that we have.
And contiguous eight megahertz spectrum near nationwide.
The key element in doing that is first what we're doing right now which is having.
Having received approval for our experimental license, we're actually deploying a tariff point.
Trends emitters network in the Bay area.
Not using our existing wave form, but in fact, using a <unk> wave form.
It's one thing for us to tell both investors or.
The FTC that we can do both simultaneously.
We can provide by GE commercial data traffic.
While simultaneously, providing a really high quality position navigation and timing three D. Geolocation service one thing to say that it's another thing to then prove it and we feel very comfortable that what will be seen later this year and the test results from that.
And in fact, we will be able to approach the FCC showing validation that yes. They can approve commercial use of the data carrying capacity.
Without farming at all our underlying strategic value.
The licenses were initially awarded four four position navigation and timing.
The timing on that.
I think once again were pointing towards this year type of a filing.
I think in prior calls we may have mentioned that.
You then follow that with a public call.
Amit period, which May run a couple three months and then after that at that point in time simply answer the questions of the FCC and show them the data on that.
There may be some additional testing they may want to undertake as they did 10 years ago. When we first received our commercial licenses.
By the way after a very similar testing program.
But certainly our hope is that this is a.
In 2024 event.
It's something that exactly when in that process. It occurs depends upon what additional questions. What comments are received and how much further.
Further we have to go with the FCC, but.
In my view, we're right on time and right on our milestones that we were looking at.
So with that in mind.
I do view it as anything on 2020 for him.
Great got it thank you so much.
Again, if you would like to ask a question. Please press Star then the number one on your telephone keypad.
If there are no further questions at this time, Gerry Parsons I turn the call back over to you.
Thank you very much operator, and thanks, everybody for joining us.
On this call as I said when I kicked it off.
There were a number of very key announcements that we adhere and hopefully some that we will have next quarter based on the traction that we are already seeing both operationally ready.
Revenue wise strategically and certainly on the FCC and spectrum side relative to utilizing this.
Experimental license for <unk> deployment of our own on our own <unk> service.
With that we appreciate your attendance and we look forward to talking to you again on our next quarterly call.
This concludes today's conference call you may now disconnect.
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