AST SpaceMobile, Inc. (NASDAQ:ASTS) Q4 2022 Earnings Call Transcript

AST SpaceMobile, Inc. (NASDAQ:ASTS) Q4 2022 Earnings Call Transcript March 31, 2023

Operator: Good day, and thank you for standing by. Welcome to the AST SpaceMobile Fourth Quarter 2022 Business Update Call. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your host today, Scott Wisniewski, Chief Strategy Officer of AST SpaceMobile. Please go ahead.

Scott Wisniewski: Thank you, and good morning, 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, 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 AST SpaceMobile’s 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 AST SpaceMobile 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 the forward-looking statements that may be discussed during the call. Also, after our initial remarks, we will be starting our Q&A section with questions submitted in advance by our shareholders. Now, referring to Slide three. For those of you who may be new to our company and our mission, there are over five billion mobile phones in use today around the world, but many of us still experience gaps in coverage as we live, work in trouble. With this, AST SpaceMobile is building the first and only global cellular broadband network in space to operate directly with standard unmodified mobile phones based on our extensive IP and patent portfolio.

Our engineers and Space scientists are on a mission to eliminate the connectivity gaps based by today’s five billion mobile subscribers and finally bring broadband to the billion to remain unconnected. With that, it is my pleasure to now pass it over to Chairman and CEO, Abel Avellan.

Abel Avellan: Thank you, Scott. Good morning, everybody. Very glad to be updating you or what has happened since our last call. Before I start, I want to remind everybody that we’re currently operating the first and only satellite designed to deliver space-based cellular broadband, with the largest ever communication array deployed commercially in low Earth orbits. That’s a monumental achievement. We’re very proud of it. We’re also currently testing BlueWalker 3, and we detail that we have on so far we have successfully validated key technologies to deliver cellular broadband directly to standard in modified phones. We also have took significant steps to further industrialize our technology with in-house manufacturing of key components and electronics and secured loan services for our next five satellites.

We continue to progress the path to commercialize our services with customers, partners and regulators on a global basis. Let me take you to Page five. With BlueWalker 3 we have it in orbit, we had orbiters — successfully more than 2,000 times. The pictures that you see here are the satellite, a fall before its launch. And then in the bottom, you see the satellite unfold on the air and then the satellite falls in the space. This is basically around 695 square feet structure flying around the earth and pointing to the ground at around 70,000 miles per hour. Our ability to manage it, control it, terminally controlled and flight is very important and that had been a major step in our technology. So where are we with testing BlueWalker 3? First of all, we are happy to announce that the initial test results indicate that the downlink signal strength necessary to reach 5G cellular broadband speed can be met with our technology.

We also have demonstrated our ability to deploy the largest ever communication array deployed into low Earth orbit. We have demonstrated the satellite ability — our ability to fly control and fly our satellite with the array fully deployed with a size of 693 square feet. We have demonstrated our patented technology to validate Doppler and delay compensation, a key component — a key part of the component to be able to do 5G speed, and we continue to target to complete cellular broadband speed directly to standard modified phones. Page seven, update on the industrialization of our patented technology. We continue to invest in our facilities around the globe with a focus in our facilities in Texas. We have ramped up our initial manufacturing facility starting with the capability two satellites per month ramping up to six satellite per month.

And we continue to have two main facilities in Texas in order to produce our flight techniques. Progress on key commercialization milestones, we continue our customer momentum. We have signed seven new MOUs, including Saudi Telecom and Zain in Saudi Arabia. We also have announced plans to explore potential opportunity to market our services to the military and defense market. We continue to formalize our constellation plans. We have signed an agreement with NASA in order to protect both of our assets by signing the Space Act agreement. We have secured our launch agreement for our next Block 1 satellite, but also we are in negotiations for our subsequent launches passing our first Block satellites. And we’re also driving U.S. regulatory framework.

We have participated in the initial FCC ruling related to Supplemental Coverage from the Space which will allow satellite operators to collaborate with terrestrial service provider to expand coverage to terrestrial licensees and subscribers. And with that, I want to pass it to Scott, who will talk about our next key milestones to reach a space cellular broadband commercial services.

Scott Wisniewski: Thank you, Abel. Looking ahead, we want to summarize the key future milestones we’re tracking ahead of initial space-based cellular broadband commercial service. First, we’ll look to publish joint test results of BlueWalker 3s capabilities with our MNO customers and technology partners. We’ll also be looking to manufacture and assemble the Block 1 Bluebird satellites at our Texas facilities. Alongside these steps, we will also be pursuing the completion of definitive commercial agreements with initial customers and regulatory approvals in key markets. For our Block 2 program, we’ll be looking to finalize the design, including doing ASIC tape out, and then we’ll be looking to launch our 5 Block 1 BlueBird satellites leading into initial commercial service using those Block 1 satellite. And with that, I’d like to hand the conversation over to our CFO, Sean Wallace.

Sean Wallace: Thanks, Scott. Good morning, everyone. The fourth quarter was another busy three months for AST. Beyond operational execution, including and unfolding of the largest commercial communications array ever deployed in low Earth Orbit. We also continue to march forward with our plans to integrate — become an integrated manufacturer, assembler integrator and tester of our own satellites. Our Site 2 facility in Texas has been transformed into a giant clean manufacturing space with an increasing set of sophisticated equipment and a growing team that will turn components into satellites. In the finance area, we were also active as we demonstrated continued access to capital by raising over $85 million in equity in the fourth quarter, where we welcomed new investors and raised important capital for the company.

Overall, we remain focused on building a constellation designed to erase those mobile phone dead zones that we all suffer through and providing the productivity-enhancing technology of mobile communications to currently unconnected people across the globe. Let me move on to a discussion about some of our key operating metrics that are presented on Slide 10. Looking at the first chart, we see for the fourth quarter of 2022, we had non-GAAP adjusted operating expenses of $39.1 million versus $38.5 million in the third quarter. Non-GAAP adjusted operating expenses, excluding non-cash operating costs, including depreciation and amortization and stock-based compensation totaling $3.6 million for both the third and the fourth quarters. Our fourth quarter non-GAAP adjusted operating expenses increased by $0.6 million versus the third quarter.

As expected, our research and development expenses increased again this quarter, mostly as a result of the achievement of certain milestones in our projects, which brought forward certain milestone payments. Our R&D expenses consist principally of non-recurring development activities for which we typically engage third-party vendors and payments are based on completion of milestones. Our other components of non-GAAP adjusted operating expenses namely engineering services and G&A are expected to remain at about the same range for the next two quarters and will trend up slightly over time as a result of our commercialization efforts. We currently expect that the level of non-GAAP adjusted operating expenses will remain in the high 30s for at least two more quarters as we continue to pursue important R&D projects for our BlueBird satellites and declined to the low 30s thereafter.

Turning towards the second chart. Our capital expenditures for the fourth quarter were $10.4 million versus $11.3 million for the third quarter and $30.3 million for the full year. We expect that our levels of capital expenditures, which include direct material expenditures and launch costs for satellites as well as capital improvements for our manufacturing facilities and ground infrastructure will increase. As disclosed in our 10-K, we now estimate that our capital expenditures for our 5 Block 1 satellites will be between $100 million to $110 million. Our capital expenditures, which have been averaging around $10 million to $11 million per quarter, will begin to increase to fund the development of our Block 1 satellites, which we currently expect to launch in the first quarter of 2024.

Our estimates for the capital cost of each of our Block 2 satellites, which includes materials and launch costs, is now $16 million to $18 million. The increase in Block 2 satellite costs versus our previous estimate reflects increases in material costs and a higher estimate for future launch costs. The projected cost of these satellites could be adversely affected by a number of factors, including inflation, supply chain disruptions, design changes and increases in the cost of electronic components, assembly equipment, watch costs, salaries and other aspects of our satellite design and assembly activities, could increase the cost of design, assemble and launch our satellites. These estimated cost trends are preliminary estimates based on certain assumptions and information currently available to us and are subject to change based on numerous factors described earlier as well as delays in the development of components and materials, launch costs and other factors.

And on the final chart on the slide, we ended the fourth quarter just shy of $240 million in cash on hand, up from approximately $200 million at the end of the third quarter. As we stated in our 10-K, we believe this cash as well as our ability to raise capital through other existing facilities is sufficient to support our expenditures for at least the next 12 months. In addition, we continue to evaluate other sources of cash and liquidity to supplement our activities. We understand the capital-intensive nature of our project, and we are highly focused on exploring a wide range of options in order to fund our efforts. As described in our 10-K, a key strategy of AST is to develop our constellation on a modular basis, focusing our satellite capacity on the most attractive commercial markets in conjunction with our mobile network operator partners.

I am encouraged by the progress that the team has made and I’m excited about the company’s future as we transition from the development phase to commercial satellite production. Thank you for your continued support of the SpaceMobile mission. And with that, I’ll turn it back to Scott.

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Q&A Session

Scott Wisniewski: Thank you, Sean. Before we go to the queue of analyst questions, we’d like to address a few of the questions submitted ahead of the call by our investors. Operator, could you please start us off with the first question.

Operator: Bob from Washington asked, are you satisfied with where testing progress and time lines are at right now?

Abel Avellan: Thank you, Bob for the question. Well, we are never satisfied, but we’re very, very encouraged by what we have learned so far during the testing. We have validated our architecture end-to-end, and we have validated our ability to provide satellite cellular broadband with our architecture. We have done something that nobody has done before. We have building infrastructure alongside with this capability, and we are also protected with IP, which is very significant, and we are also very advanced in our commercial listings of our satellites. So fundamentally, we’re happy where we are at this point.

Operator: Jay from California asked, where is AST SpaceMobile on the production of the 20 full size BlueBirds for a function and constellation? Will the 5 BW3 sized satellites to be launched later this year be included in that constellation?

Scott Wisniewski: Thanks, Jay. That’s right. The first block on BlueBird still not only offer initial services on our own, but we expect their capabilities will be incorporated into the overall constellation as we build it out. our Block 2 satellites, which will leverage our custom ASIC, they’re going to offer significant upgrade to the RF capabilities versus Block 1, but a few networks are designed to be compatible. And in terms of timing, we currently plan to launch and deploy Block 2 BlueBird satellites in a phased approach beginning in 2024 after the launch of the Block 1 BlueBird satellite.

Operator: Luke from Connecticut asks, how should we think about military use and potential revenue?

Abel Avellan: Thank you, Luke for the question. First of all, I want to reiterate that our focus is providing cellular broadband globally for people that live work in places where there’s not satellite connectivity that allow us to participate in the $1 trillion wireless market, and we think that that’s our core business. Connecting those 5 billion phones that moving on connectivity every day. However, we have making considerations to also participate in large government-related opportunities for both security and defense opportunities, in particular in the United States.

Operator: Jay from California asks, in our recent economic environment with VC money, capital constraints and higher interest rates, where does AST SpaceMobile expect to receive funding for the production of the 20 full-size BlueBirds and beyond?

Sean Wallace: Thank you, Jay. As we have stated during our earnings presentation and disclosed in our 10-K, we believe we have enough cash on hand and other resources to fund the next 12 months of operations, including the construction launch of 5 Block 1 satellites, which are targeted to be launched in the first quarter of 2024. In addition to this liquidity, we have been working hard to develop other sources of cash and liquidity in order to supplement our future activities, including the construction of 20 BB1 satellites. This activity includes exploring a wide range of instruments, including structured debt, excellent government financing, the public debt markets, the potential to presell capacity to important customers and selling equity in both private and public transactions.

We are optimistic that we have a window of many quarters to determine the best financing alternatives and are hopeful that our access to capital will continue to remain strong, especially if we’re able to continue to execute our strategy.

Scott Wisniewski: And with that, I’d like to thank our shareholders for submitting these questions. Operator, let’s open the call to analyst questions now.

Operator: Our first questions come from the line of Mike Crawford with B. Riley. Please proceed with your questions.