Q3 2023 AST SpaceMobile Inc Earnings Call
[music].
Good day, and thank you for standing by.
To the a S T state mobile third quarter 2020, Threep 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 Weizmann risky Chief strategy Officer of all three states model.
Please go ahead.
Thank you and good afternoon, everyone let.
Let me refer you to page two of the presentation, which contains our safe Harbor disclaimer.
During today's call we may make certain forward looking statements. These statements are based on current expectations and assumptions and as a result are subject to risks and uncertainties.
Many factors could cause actual events 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 <unk> annual report on Form 10-K for the year that ended December 31, 2022 filed with the Securities and Exchange Commission and other documents filed by a S. T space 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, we will be starting our Q&A section with questions submitted in advance by our shareholders.
Now referring to page three for those of you who may be new to our company and our mission. There are over 5 billion mobile phones in use today around the world, but many of us still experienced gaps in coverage as we live work and travel.
Additionally, there are billions of people without cellular broadband who remain unconnected to the global economy.
The markets, we are pursuing a massive and the problem. We are solving is important and touches nearly all of us in this backdrop Ast's based mobile is building the first and only global cellular broadband network and space to operate directly with everyday unmodified mobile devices and supported by our extensive IP and patent portfolio.
It is now my pleasure to pass it over to chairman and CEO of Bell Avalon, who will take you through our activities since the last public update.
Thank you Scott I would like to welcome everybody to our Q3 2023 earnings call turning to page four I would like to start off with our key highlights and updates.
We recorded another historic first in the world of connectivity, but we'll get three demonstrated the first and only space based <unk> capabilities and 40 megabit per second data rates. These gaps are highly successful testing program that includes <unk> <unk> and <unk> with participation from partners Vodafone AT&T Rockwood.
Then on Nokia validating Aci's based mobile satellite design patented technology of manufacturing in the study.
We also are moving full speed ahead with our plans to launch the first five satellites in Q1, 2024 manufacturing set up full speed and progressing well in Midland.
As a as a measure of progress to date, we have already in core approximately 85% of the planned capital expenditure for these satellites, including launch cost.
So in addition to our cost profile are we complete certain nonrecurring R&D initiatives and the first five commercial satellite was baked adjusted operating expenses to be between 25 to 30 million per quarter, beginning from Q1 2024 versus historical run rate of approximately 37 to 40 million per quarter.
And lastly for Gray Fone racing airports with multiplicity partners continue to advance and progress and the timing is in line with what we disclosed to you few weeks ago.
In our entering business update press release.
And let's turn to page five so I can provide some additional detail on how this is progressing.
We're moving forward on definitive documentation and completion of diligence with multiple list of TV partners with fatigue investment process is intended to result in new capital and establish new and incremental financial commercial and it's a relationship we didn't the wireless ecosystem. These new investments in <unk>.
Tended to fund the manufacturing launch and operation of additional Bluebird satellites beyond our first five commercial satellites overall, we're encouraged by where we are in this process I hope to be able to share more at any time during November or December.
Transitioning back to our technology and basics for the third quarter in a role we have made telecommunication history.
In September we accomplished another unprecedented leap in its space based cellular broadband by successfully making the first ever five E connection for voice and data between <unk>.
And everyday or modified a smartphone and a satellite <unk> space the.
The five equal was placed on September eight from a modified Samsung Galaxy S. Tony to locate any Hana Hawaii.
Wireless dead zone. The testing was completed with our partners Vodafone AT&T and Nokia chairing our collective success in.
In a separate Dave we broke previous space based cellular broadband data sessions.
By achieving a download rate of approximately 40 40 Megabits per second I would also encourage you to watch the video of the fight inclination another testing milestones using blue Walker three on our website.
Turning to page seven our historic achievement of <unk> cellular broadband directly from its base comps on a time, where the United States have placed an emphasis on ensuring five E broadband connectivity to all Americans.
Today less than half of the geographic United State have <unk> coverage, we download speeds graded down seven Megabits per second these based mobile network is the only space based network design for cellular roadmap, we will be able to efficiently cover unconnected areas of the country to bring fiber connectivity to everyone.
The SEC reopened comments to define E phone for Rural America Rulemaking process, which we participated in we had encouraged the commission to make Saturday. They were eligible for funding through this program and look forward to monitoring developments in the rulemaking process in the near term.
This clear need that we are meeting is a key part of how we have been able to develop a strong wireless operators partners overtime on page eight I want to give you a few examples of how our collaboration has been highlighted by our <unk> partners.
First with a quick preview from how boarder phone is thinking about offering our service to seamlessly all lender market, leading terrestrial network. They will use us the first and only space based cellular broadband network to offer voice calls SMS. This video calls internet browsing email.
Music streaming social media anywhere where the border phone subscriber may be located.
And with AT&T for the second quarter in a row.
They have highlighted us front and center as a key milestone in the in their history and on our earnings call here, taking up all the support from the World first direct Figgie voice calls.
The high profile poorly support chose the seriousness and the depth of these relationships.
Of course, AT&T and boiler phone are key partners for us, but they are not the only ones turning to page eight nine we're proud to have Mou and agreement with over 40 of the largest mobile network operators around the world represented over 2 billion subscribers that will become accessible to us.
Deploy our network.
The segment also include Vodafone track within AT&T Bell.
Canada, a free sale of diesel our globe in dose at Liberty Latin America, LTC, Maxis, Milliken MTN Mooney nice set up to Orange Selim.
Fran.
The smart smiled, some tail F D C <unk>.
Telecom, Argentina, Telefonica, telco and cell death, or a theme, where gander telecom guests sane and others.
Before I provide an update on our manufacturing progress I want to take a minute to highlight the strength of our intellectual property on page 10.
Our IP portfolio continues to grow now accounting to over 3100 patents and patent pending claims over 30 patent families over 25 U S patent applications and over 10 additional patents around the world.
Our strategy since funding has been to pattern.
Key aspects of direct to device value change on an end to end basis.
Whaler ski aspect of our manufacturing process.
Turning to page 11, we're pleased to report great progress on the manufacturing of our first five commercial satellites at our facilities in Midland, Texas, where.
In advanced stages of the production of key success dental or VSAT life and have a high level of vertical integration over the full process.
All key components.
Manufacturing has been brought in house, we're running three shifts at our Midland facilities are had ramp it to approximate 160 manufacturing employees with over 100 or even in the picture above two.
The date, we have incurred 85% of planned capital expenditure, including launch costs.
Sensation to page 12, I wanted to give you an update on manufacturing of our first five commercial satellites, which are.
Which are in advanced stages in Midland, Texas. It is important to understand the high level of vertical integration in our manufacturing process.
Being vertically integrated is very is very important for us as it allow us to maintain the unprecedented cost per unit de lever for our satellites with the power and capability to deliver broadband directly to everyday smartphones.
These capabilities are very unique in the industry and will allow us to round the manufacturing capacity or six satellites per month on seven two satellites per year.
This page outlines the key success than the R. Part of all our microbes, which are the building block of our phase Iia, our microsite designed to for mass production and are all identical.
Our ability to mass produce them is essential to.
So the loss cost of our satellites in order to mass produce micro <unk> effectively we have vertically integrated the systems or the micron power systems power storage electronics and Dana.
We had a solar panel production in.
Line in Midland and our own kick lines for cover glass and interconnect sales at a supplier in order to lower our cost extend life, a multi five performance of solar panels to surviving a space.
We also have battery pack production line in Midland.
Which then we get integrated into the Micra AV boldly solar panel and battery were brought in house after being externally sourced for Blue World country.
Our electronics are designed to last seven to 10 years, while also maintaining low cost we produce our electronic for our five first five Saturdays utilizing fpa's field programmable gate arrays, and our own P. H <unk>.
To ensure performance in Bihac environmental for space for block to the SBA will be upgraded with our own Asics Tony.
Turning to the next page our system is composed of a very large phase III, which is billed outdoorsy, Mike that I explained in previous page and our central control on progress in unit, which is which we call our control center, which we will update you.
Yes, well the countryside and social meeting house included a structure that houses our IV only fly software in our central processing beam, former which is a unit that generate and create the bean that turn into cellular sale for managing direct connectivity to devices. This is also made in house. The key component of these had been complete.
And are being integrated in our Midland, Texas facility, the fly computers and essential part of our system.
<unk> East, where we wholesale our added to control system to manage the position of the spacecraft and also where we rolled fly software, which talked to every sensor and actuator onboard to control. Our spacecraft. This is all made in house, including the wiring harness.
The software and control system is architected and designed in our U S offices, and get integrated and 13 in our Midland facilities.
In this picture you see the contours of components of the IV only stock the harness and all of the ground on flights over which is required to monitor and control of the satellites.
It is important to remind you that all of these systems and this level of vertical integration is only possible. Thanks to the fact that we have blue Walker three operating for over a year successfully and that has given us all the learnings and all the require heritage in order to be able to integrate it.
Effectively and cost effectively all of this part of our new beetle satellites and with that I would like to pass over to Sean to provide a financial update.
Thanks, Bill and good afternoon, everyone. It has been a little over a year since blue Walker three was lifted into into orbit and the night Sky at Cape Canaveral.
Since that time <unk> has continued to achieve a series of accomplishments and make progress towards the goal of building. The S. T space mobile constellation, we are now driving and defining the satellite to device industry, which is rapidly becoming one of the most exciting innovations in the mobile phone industry in the last 50 years.
Since our last earnings call. The S. T space mobile team completed more groundbreaking tests results utilizing blue Walker three made significant progress towards the expected launch of the five BB one satellites and continue to focus on raising capital to fund the S T space mobile constellation and exciting and tangible part of this advancement.
Is watching our assembly integration and testing facility in Midland begin its production activity with dozens of technicians and engineers as well as highly specialized processes. All contributed to the production of five <unk> for the targeted launch next year as.
As always I want to recognize and thank the hard working team of engineers technicians and suppliers and the support and confirmation by our partners who are some of the most sophisticated wireless companies in the world, including AT&T, Vodafone rocker Tien and Nokia.
I want to start by reviewing our key operating metrics for the second quarter that are displayed on slide 14 on.
On the first chart, we see them for the third quarter of 2023, we had non-GAAP adjusted cash operating expenses of $37 3 million versus $38 4 million in the second quarter.
non-GAAP adjusted operating expenses excludes certain noncash operating costs, including depreciation and amortization and stock based compensation compensation, which totaled $21 6 million and $19 6 million for the third and second quarters, respectively.
Our third quarter non-GAAP, adjusted operating expenses decreased by $1 $1 million versus the second quarter, Our research and development expenses fell this quarter as a result of reduced expenditures associated with our ASIC chip design as we continue to get closer to the completion of that work our R&D expenses consist primarily principally.
<unk> of nonrecurring development activities for which we typically engage third party vendors and payments are based on the completion of milestones.
Our engineering services expenses fell in our general and administration expenses rose modestly in the third quarter.
Turning towards the second chart, our capital expenditures for the third quarter were $71 7 million versus $26 8 million for the second quarter.
As we had indicated on our last call we expected our level of capital expenditures to increase substantially as we focused our efforts on procuring parts materials and systems for the BV, one satellites as well as to make payments to our provider of launch services.
After the end of the third quarter, we have spent over 85% of the expected amounts for these satellites. We are now projecting to spend approximately $150 million $15 million. That's 115 for the five <unk> satellites up from our last estimate of $110 million on a positive note a good portion of the.
Increase in cost was the result of a potential customer requesting a change in the inclination of the orbit so that our constellation could provide better coverage for their subscriber base.
This change to the orbital location required an additional payment to our launch provider.
And on the final chart on this slide we ended the third quarter with about $135 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 as we've also discussed discussed in our 10-Q, our cost positions and capital plans are quite modular and this characteristic provides us the <unk>.
Flexibility to increase or decrease our rate of expenditures depending upon changes in our build out plans and availability of capital. This flexibility provides us comfort that we can manage our liquidity profile dynamically depending on our rate of raising capital.
As we head towards the next fiscal year I wanted to provide guidance on our expected operating expense levels and capital expenditures as we flipped towards page 15.
We have been supporting the development efforts of our two critical satellite designs block, one and block to our ASIC chip design and the construction of five <unk> satellites. The completion of this VB one work and a significant portion of the <unk> and ASIC design work is expected to result in a material reduction in our <unk>.
<unk> operating expenses and future capital expenditures this reduction in cash expenditures will be done without a material reduction in our employee head count as most of these reductions are related to the completion of third party work.
Overall, our adjusted operating expenses should decline from a range of $37 million to $40 million per quarter to a range of $25 million to $30 million per quarter with a full effect starting in the first quarter of 2024, we also plan to reduce our level of capital expenditures as we reached the final investments for PD one.
And the material investments for Bebe too.
Timing of the changes in our adjusted operating expenditures and capital expenditures as I've. Just described could be delayed or may not be realized through a variety of factors 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 analyst questions wed 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.
Well Aldo from Paris as can the company discuss the competitive landscape for DTD and differentiate the different offerings that are in the works.
Thanks Orlando.
There has been a tremendous assignment our director of <unk> services.
Over the past year, we have seen other companies put their hands up on our need to offering.
But clearly when you get into their details there are no broadband scalable compatible with two days of smartphones.
This is a hard problem, which has a lot of different elements for success and we have been entirely focused on development of this system since the founding of our coal but in 2017.
We had invested over 700 million to date in these are four resulting in over 3100 patents and patent pending claims and our own vertically integrated manufacturing capabilities for our own site for our for our satellites.
<unk> mobile critical differentiation is that we are the first and only system designed for <unk> cellular broadband we had shown the ability to achieve <unk> data rates.
<unk>.
All of those systems.
Today.
Are far away from being able to achieve what we have.
On our primarily narrow band takes an emergency service offering.
Our very large phase array antenna combined with our own Asics is unique in this space and is critical for achieving five E directly to.
Two existing everyday smartphones to scale up to serve the needs of the 5 billion phones in circulation in partnership with the leading and largest immuno suddenly blood.
Tanner from California.
How long from finalizing the ASIC design, where you get the check.
Santander the development of the AC was a four year process with a cost in excess of $40 million that is mostly as these pulling behind us.
We signed a substantially complete.
We expect we will be able to start getting the first unit of around three to four months. After the tape out which is in the process, which is in process with design gets produced by our foundry partner TSMC.
I just want to remind everyone that the first by commercial side would be flying using our current EBITDA, which is essentially the programmer will version of the ASIC.
<unk> is expected to give us a 10 times improvement in processing and bandwidth.
One gigahertz to 10 gigahertz of available spectrum per satellite, while reducing the power consumption and goals of the satellite.
We believe that this is a significant barrier for entry for space based cellular broadband along with our large 2400 square feet phase Iia.
We then from New Zealand.
Out of factory testing is ask too reliant on and everything we tested in house at this point.
Thank you Lee and I will take this one.
You may recall with Blue Walker three that we had to move the satellite Offsite. Several times. This included vibration and other testing.
And right before we ship the satellite the Cape Canaveral, we actually had to go back to California for testing, which of course is an efficient and introduced extra time to our schedule.
Now for our first five commercial satellites, we will be able to conduct all of our out of factory testing in house at our site two facility in Midland, Texas.
This testing includes component level and satellite level thermal vibration and RF testing.
This is another great capability that we've brought in house alongside the vertical integration that bill discussed earlier.
As a result of this we expect to significantly shorten our production times and increase our control of our process compared to <unk> three.
Waiting for New Zealand App do you expect to enter into a commercial agreement with <unk> prior or post launch is the company decided on which inclinations may attempt to initially sir.
As we discussed earlier, we've been continuing to grow the list of <unk> that we have Mou and agreements with and we're now at over 40 operators globally, who collectively cover over 2 billion subscribers.
Yeah.
Our plan is to sign some of these agreements prior to launch and in fact, we recently changed the inclination for our first five satellites based on customer feedback.
We're going to be at a 53 degree inclination and this orbit allows our satellites to cover anywhere on the globe up to 59 degrees latitude for both the northern and southern hemispheres.
And with that I'd like to thank our shareholders for submitting these questions.
Operator, let's open up the call to analyst questions now.
Thank you.
We will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
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 for participants using speaker equipment. It may be necessary to pick up pick up your handset before pressing the star one moment. Please while we poll for questions.
Thank you. Our first question is from Benjamin install with Deutsche Bank. Please proceed with your question.
Hey, guys. Thanks for taking the question.
A couple for me. The first one is there any more color you guys can share on the strategic investment process. What it is youre looking for and what shape you think those partnerships can take thanks.
Hi, Ben I appreciate the question.
Hey.
Good point.
Most of the latest information in this presentation already.
This is an important space for us because it lays out not just funding, but also the commercial and strategic relationships that will be important for us.
So we're very.
Encouraged where we are right now and we look forward to giving more details.
November and December.
Got it and now that you've achieved five G connectivity, what's the next major testing milestone you guys are looking for if any.
Well, we have done and are now on our retention high event, where you went on and now our attention to the build of the next five satellites. We continued testing, we will walk or three but EMEA Europe. The major milestone require auto Bill Walker have been completed.
Okay got it and then.
Is there any more color you guys can give on the capex trajectory going forward.
I heard the comment that it might decline, but just wondering at what pace and to what magnitude.
And that's it for me thanks.
Obviously this last quarter, we've seen a pretty big bump up in our Capex as a result of some final payments on.
CB, one and some other PV to expenditures, we expect the number to come materially down from there we don't give guidance on that but it will be significantly lower than what we've seen in the last two quarters.
Thank you. Our next question is from growth in golf with B Riley Securities. Please proceed with your question.
Hi, Thanks for taking my questions. So first for me is are there any additional insights you can share that you might have learned over the past three months regarding capacity and ability to process multiple calls concurrently within a certain beam or sell.
Yeah, I mean, we have already given preliminary guidance what is your capacity per satellite TCU.
And what does he processing bandwidth that we can support.
For blog, one with the FPGA based system meets a on one gigahertz.
This bandwidth.
With the <unk> that is a 10 fold increment to 10 gigahertz processing bandwidth on our testing support. These these assumptions.
Okay got it and then so but just with Blue Walker three have you have you been testing with multiple calls at once I don't know that Ive seen.
I need any test data regarding multiple calls I do think we have our.
Multiple vehicles.
Yeah, we have we have the.
Multiple and simultaneous we also have opened up the pipes to led hundreds.
In some instance ounces sold or fallen to watching connect into the system. So that also has been verify during the testing.
Okay, Great alright, Thanks, a lot I appreciate that and then just stepping back on just regarding the U S. National spectrum security that was released yesterday just curious if there was anything in that that are there.
That caught your eye is notable as it relates to supplemental coverage and space or if theres anything in there that suggests to you that the FCC might might now move faster on developing such a framework.
Yeah, well as you know we invented director device and we are the the first one to demonstrated at our broadband.
The only system to support it so we're super encouraged by by having a presidential.
No. These were the first item is basically.
Assistant that replicates what.
While we have invented so yes, I caught our eyes, we're very happy we're very encouraged about that.
This will will will facilitate in the future.
Our services will be regulated in particular in the United States United States Social.
Reference for all the countries together with our strategic investors current.
<unk> investors, we had achieved significant progress in around the world.
Getting the system regulated and to be able to be used so we sold a big problem. So again, we're very proud of being mentioned.
Part two presidential strategies for spectrum.
Which is basically.
Unexpected usage does support a system that we invented and where we are the only one that can provide broadband connectivity directly to two regulatory devices. So we are very happy very encourage by that.
Got it great. Thanks for the insights and then if I could just sneak one more in.
There was a question earlier on the competitive landscape I was wondering if you are you could share any of your opinions on if you have any as to why you think Qualcomm walked away from Iridium recently.
Yes.
Lisa <unk> 5 billion fall into circulation.
We when we launched this these these design of the system. There was a prerequisite that is that you do not need any special chip and spatial frequency wherein especial nothing in youll device because the moment that you do that you take that 5 billion influences installation to a niche play.
Anything that would require a change or is an Sos will test we believe that is limited.
Uh huh.
With limited.
Limited.
Market opportunity compare with broadband directly to everyday smartphone with your phone do you have a new focused so we're not surprised by this and I do believe we do believe that any solution that requires special terminal.
We become a reality as we start launching our satellites as early as <unk>.
Next quarter next year.
All of those solutions become less and less relevant.
So we're not surprised by it.
And I think if anything is support.
<unk> that these systems need to support any phone every phone everywhere without regarding any change any cheap any any facial AC.
Especially chipset or anything that is appropriate or Italy phone in order to make it.
We look forward.
Bye Bill influences emulation.
Got it alright, great. Thanks, I appreciate it and good luck.
At this time and showing no further questions I would like to turn the call back over to management for closing remarks.
Great. Thank you operator.
Our company is building a space based cellular broadband network design for use of the phone in your pocket today I want to thank everyone for joining both the shareholders and the research analysts for the questions have a great evening.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.