AST SpaceMobile Q1 2024 Earnings Call Transcript

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May 15, 2024

There are 8 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to the AST SpaceMobile First Quarter 2024 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 ASD SpaceMobile.

Speaker 1

Please go ahead.

Speaker 2

Thank you, and good afternoon, everyone. Let me refer you to Slide 2 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.

Speaker 2

For more information about these risks and uncertainties, please refer to the Risk Factors section of AST SpaceMobile's Annual Report on Form 10 ks for the year that ended December 31, 2023, filed with the Securities and Exchange Commission and other documents filed by AST SpaceMobile

Speaker 1

with the SEC from time to time.

Speaker 2

Also, after our initial remarks, we will be starting our Q and A section with questions submitted in advance by our shareholders. Welcome, everyone. For those of you who may be new to our company and Mission, there are over 5,000,000,000 mobile phones in use today around the world, but many of us still experience gaps in coverage as we live or can travel. Additionally, there are billions of people without cellular broadband and who remain unconnected to the global economy. The markets we are pursuing are massive and the problem we are solving is important and touches nearly all of us.

Speaker 2

In this backdrop, AST SpaceMobile is building the 1st and only global cellular broadband networking space to operate directly with everyday unmodified mobile devices, supported by our extensive IP and patent portfolio. It is now my pleasure to pass it over to Chairman and CEO, Abel Elhan, who will go through our activities since the last public update.

Speaker 1

Thank you, Scott. We're happy to be back again with you after 6 weeks since our last business update call. Our most important update to share since our last call is the executions of our first definitive commercial agreement with AT and T. We have signed an agreement with AT and T through 2,030 to provide a space based cellular broadband to AT and T and their end users through our revenue share model. This is a major milestone, and we look forward for the commercial service with Block 1 and beyond.

Speaker 1

As this specifically outline the product and pricing models we will go to market with, we expect to replicate variation of these models in various markets around the world. While each might have slightly different features, this is the spirit in which our core customers' offerings is built upon. AT and T has been an incredible partner to us over the last few years, and we look forward to the next stage of our relationship. And in case that you didn't see in the Master Gold broadcast a few weeks ago, you should check out the commercial that AT and T ran with Ben Stiller and Jordan Spieth, showing the benefit of our space based cellular broadband technology. We're incredibly busy here in Texas as we complete our first five commercial satellites.

Speaker 1

These five Bluebird satellites will mark the beginning of our commercial operations. All necessary parts are at our facilities and being integrated into the satellites. This includes the parts from the 2 suppliers, which we discussed on the last call, but have things been resolved. And micro completion is way under way. So based on this current time line, we want to reiterate our guidance from 6 weeks ago that we are on target for July or August delivery of our 5 Block 1 satellites to the Cape Canaveral launch pad, with our orbital launch schedule shortly thereafter.

Speaker 1

Of course, launch time is subject to many factors, including several outside of our control. But as of today, everything is moving according to the updated schedule. We will share additional progress update as we approach the launch. With these first five satellites, we will have the ability to offer U. S.

Speaker 1

Nationwide non continued service with over 5,600 individual sales using premium low band spectrum. Let me spend a moment discussing our Block 1 satellites and the importance of their size and power. This first five satellite will be the largest commercial satellite in Lotteld orbit alongside BlueWalker 3. That combined with the processing capacity of each of them allowed us to achieve our commercial goals with less than 100 satellites. This will enable cellular broadband everywhere for the phone you have in your pocket.

Speaker 1

Thanks to the technology we invented and that is on the way to become the standard the mobile network operators plan to deploy. On the regulatory front, we're working closely with the FCC to secure market access approval in United States. This will, of course, be a major milestone for us. We are encouraged by the FCC's recent actions to prioritize satellite based telecommunications, as evidenced by our re flagging to the United States and the other new ruling making activities. Our BIBAN application public notice period recently closed, which was a major milestone in the process.

Speaker 1

We will continue to work closely with the FCC to advance this critical approval process. Additionally, I am very excited as we continue to advance discussions with new strategic partners using commercial prepayments alongside new commercial agreements. We currently have no plans for the remainder of this year to pursue and underwritten public security offerings to supplement our existing capital facilities. We also established our 1st government contract, one that generated modest revenue for AST in the Q1, our first commercial revenue. And again, this represent a framework, which we can utilize for future government agreements.

Speaker 1

Simultaneously, we're continuing talks with our 1st government customers, negotiating additional services we could potentially provide to expand our existing relationships. While the core focus of our strategy is consumer cellular broadband, we do think that the government opportunity is a natural extension of our capabilities and can be very meaningful to our company over time. In summary, we're making progress in all fronts, operationally, commercially and regulatory, as we set the foundations of enabling broadband connectivity everywhere for the fund you have in your pocket. And with that, I will pass it to Sean for the financial update.

Speaker 3

Thanks, Abel, and good afternoon, everyone. Let's review the key operating metrics for the Q1 that are displayed on Slide 6. On the first chart, we see for the Q1 of 2024, we had non GAAP adjusted cash operating expenses of $31,100,000 versus $38,600,000 in the 4th quarter. Non GAAP adjusted operating expenses exclude certain non cash operating costs, including depreciation and amortization and stock based compensation. In line with our guidance, our 1st quarter non GAAP adjusted operating expenses fell by $7,500,000 versus the 4th quarter.

Speaker 3

Our research and development expenses fell by 6,500,000 this quarter due to the continued completion of important R and D projects. Our R and D expenses consist primarily of non recurring development activities for which we typically engage 3rd party vendors and payments are based on the completion of milestones. Our engineering services expenses also fell by $600,000 and our general and administrative expenses decreased by $400,000 in the Q1 as compared to the Q4. We have made a series of cost adjustments to capture about $1,000,000 in engineering services and G and A cost savings. Turning towards the 2nd chart in this page, our capital expenditures for the Q1 were $26,700,000 versus $33,900,000 for the 4th quarter.

Speaker 3

The figure was made up of some modest launch payments, capitalized direct materials for the Block 1 satellite and additional facility and production equipment for our assembly, integration and test facility in Midland. Capital expenditures trended down as we again move towards the completion of the Block 1 satellite construction. As of the end of the Q1, we have spent over 95% of the expected amounts for the 5 Block 1 satellites. We are still projecting total spend of approximately $150,000,000 for the 5 BB-1 satellites. And on the final chart on the slide, we ended the Q1 with $212,400,000 in cash.

Speaker 3

We are continuing to pursue using the balance of our senior credit facility, which has a gross amount of $51,500,000 available. As I mentioned at the end of March, efforts around raising strategic capital may take precedence over the senior credit facility and at a minimum the continued deferment has reduced a bit of the negative carry we would have incurred if we had accessed the facility earlier. Our ability to access this facility is subject to certain conditions and approvals. 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 have also discussed in our 10 Q, our cost positions and capital plans are quite modular and this characteristic provides us the flexibility to increase or decrease our rate of expenditures depending upon changes in our build out plans and availability of capital.

Speaker 3

This flexibility provides us comfort that we can manage our liquidity profile dynamically depending on our rate of raising capital. In March, we provided guidance on our expected operating expense levels. As we discussed earlier, we have been supporting the development efforts of our 2 critical satellite designs, Block 1 and Block 2, our ASIC chip design and the construction of 5 BB-one satellites. The completion of this BB-one work and a significant portion of the BB-two and ASIC design work is expected to result in a material reduction in our adjusted operating expenses and future capital expenditures. This reduction in cash expenditures will be done without a material reduction in our employee headcount as most of these reductions are related to the completion of third party work.

Speaker 3

As I mentioned during the Q4 earnings call, we now project that our cash adjusted cash operating expenses will come in at around an average of $30,000,000 per quarter for 2020 4 as the Block 1 design is completed and the Block 2 design approaches completion. These figures will vary depending upon manufacturing activity in each period. This guidance does not include the expected cost of approximately $15,000,000 related to the tape out and initial production of our ASIC chips. These ASIC related costs will be recognized as an R and D expense in subsequent quarters in 2024 as the milestones are completed. We also plan to reduce our outlook for capital expenditures as we reach the final investments for BV1.

Speaker 3

For the next two quarters, we to spend in the aggregate approximately $25,000,000 to $40,000,000 in capital expenditures. Any increase beyond these levels will be in conjunction with the timing of the deployment of our Block II satellites, which could be either in late 2024 or the Q1 of 2025. 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 due to a variety of factors. As I discussed in our last earnings call, we continue to work with our advisors on developing a financing package from quasi government sources, including export credit agencies. Satellite and other infrastructure providers have historically utilized these agencies to source cost effective long term debt funding of large projects.

Speaker 3

The key underpinning of these funding structures has been proven technology and the sale of significant capacity through long term agreements to large creditworthy entities. We remain focused on developing a structure and creating an information package that will support our potential financings. We are encouraged by the progress we are making, but we are still in very early stages and there can be no assurance that we will be successful in the pursuit of this type of funding. And with that, this completes the presentation component of our earnings call and I pass it back to Scott.

Speaker 2

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

Operator

Liden from New Zealand asked what milestones should investors look out for?

Speaker 2

Thank you, Leland. Looking ahead to the remainder of 2024, I think the biggest milestones to look out for are the launch and successful operation of our Block 1 satellites, market access, regulatory approval in the United States, commercial agreements with additional MNO partners, and then further progress on our government program. We're really set up for an exciting summer here and we look forward to sharing updates on these milestones with you as they occur.

Operator

Jordan from North Carolina asked, it was reported that the FCC will be publishing the official report and order for SCS Services. Can you please explain if this rule and the FCC approval for QV Spectrum backhaul are required conditions for the completion of definitive agreements with AT and T, FirstNet or other MNOs?

Speaker 2

Thank you, Jordan. This is certainly not a requirement for commercial agreements as demonstrated by the commercial agreement we announced today with AT and T. When we go to the FCC or really any regulator globally, we go with our in country partner and they further support the technology and validate the case that we're making. The FCC has been moving incredibly fast here in establishing rules for direct to device. And we've been working with them for a long time on that.

Speaker 2

And we believe that this is going to ensure that our technology can be utilized once it's available commercially. And our M and O partners fully understand the process of the regulator and are even much closer to them than us. They're comfortable that our system will be regulated and usable.

Operator

From New Zealand asked, is ASCs focusing on fundraising from past partners or new partners?

Speaker 1

Linden, it's time for the question. First of all, we're very proud of the strategic shareholder support that we have. We have Vodafone who had invested 3 times in our company, Rakuten and American Tower twice, AT and T, Google and Bell Canada have all invested. This reinforcing notion that ST is the industry leader of this technology that we invented, direct to device, on a global basis. We are super excited about where we are with new and all strategic partners.

Speaker 1

We have around 50 operators on a global basis that we have MOUs and agreements of understandings and relationships. There's a lot of excitement from them in what do we need for the plans and provide universal connectivity to every regular cell phone. So we're excited. We're excited. We are bullish about where we are in that process with them.

Speaker 1

And we are turning more into operational agreements similar to what we did with AT and T. There are more definitive commercial agreements. And the commercial agreements are going are planned to include prepayments that are going to be fundamental for the continued build out of our network.

Speaker 2

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

Thank

Speaker 1

you.

Operator

Our first question comes from the line of Mike Crawford with B. Riley Securities. Please proceed with your question.

Speaker 4

Thank you. I'm glad to hear you're on track on these launch milestones. Can you provide us any additional color on how you expect to fly the first five Bluebirds? Would that be in like a string of pearls formation or more spread out? And would it potentially enable access in say Bell Canada service area or just in the U.

Speaker 4

S?

Speaker 1

Thank you, Michael. Well, we are facing them in a way that we'll prioritize United States and also some government applications that we have. The configuration will be initially, we deployed out of the launchers in a strip of pearls. There are certain configurations that we are tailoring for the users of these 5 satellites. And then as we move on time after the launch, we will spread them evenly as part of the net launches that will complement the constellation.

Speaker 1

We're prioritizing the 53 degree inclination that give us access to a 59 degree Solitude all the way to the equator and from the equator to minus 59 degrees of latitude with this configuration.

Speaker 4

Okay. Thank you, Abel. And then how I think the first Block 2 satellite will just be a single satellite that launches and then after that maybe they're in groups of 4 perhaps depending on which vehicle used?

Speaker 1

Yes. There will be we launched in group of 4 or 5. We're in the process of working on that for the next batch. And Block 2 are larger. I mean, Block 1 are already the largest objects in the space.

Speaker 1

That's why we need a few of them. And I think the only thing bigger than us is the ISS in LEO. So we're launching 5 this summer, and then we're moving blocks of 4 on the bigger configuration that is the 2nd version and the upgraded version for Block 2.

Speaker 4

Excellent. Thank you. And then final one for me is, can you just remind us what levels of service you envision being able to provide at different quantities of satellites in your space mobile constellation?

Speaker 1

Yes, the type of service that we actually can enable regardless of the number of satellite is the same. So what it changes how often you have an above view that you can use it. So we this is a broadband service. It's a full data service. We have worked with our partners enable voice data, Internet download.

Speaker 1

I don't know if you see it, we were able to we're streaming videos directly from the satellite to regular phones. So this is a full broadband experience. What it changed as we add satellite is for how long you can enjoy that during the day. But with these 5 satellites, we will across all United States. Of course, they will not be available all the time.

Speaker 1

There will be no continued service only with 5 satellites. But how we have more satellites that that persistence of this service keep increasing and we launch more.

Speaker 4

Okay. Thank you very much.

Operator

Thank you. Our next question comes from the line of Brian Kraft with Deutsche Bank. Please proceed with your question.

Speaker 5

Hey, good afternoon guys. I just wanted to ask you on the new AT and T agreement. Can you talk about what the key elements of the agreement structure are? Is it consistent with the fifty-fifty revenue share model you've talked about historically? Is this just formalizing the MOU you already had or the terms any different?

Speaker 5

And is there any impact on the $20,000,000 in prepaid revenue that you'll be getting from AT and T later this year? In other words, will there be additional prepaid revenue that maybe is coming in as part of this agreement? Thank you.

Speaker 1

Yes. Well, Fertig, I'm super happy with having to complete a definitive agreement with AT and T. This is a long coming project for us. It's the conclusion of all the tests, pricing, discovering, understanding of the usage. We believe there is a significant part of the U.

Speaker 1

S. Population that will then will be willing to pay for the service as they move in and out of connectivity in the U. S. So we have a multitude of packages. We are disclosing that together with AT and T, so I'm not going to be able to disclose the packages, but there are packages where, yes, they're sold to our revenue share, as we historically have discussed.

Speaker 1

These packages allow users to get text, voice, full broadband Internet and is priced accordingly depending on the amount of service that the user is willing to pay. It is designed to be used everywhere in North America and to offer a broadband experience. And how much of that broadband experience depends on how much the user is paying. It's frictionless, so the user doesn't need any special phone, doesn't need any special package. It will be all what you will see is a different symbol in the 5 gs icon with an S, something similar that indicate that you're on satellite.

Speaker 1

Other than that, the user doesn't need to do anything. So we're very excited about this. AT and T has done significant amount of market stories on how to price it together with us and how to position it in order to maximize the take on the service.

Speaker 5

Thanks, Bill. Anything on the prepaid revenue? Is it still just the $20,000,000 or I just was curious if there was any incremental financing coming from this? And then I guess the other follow-up I had is just can you give us a sense as to when you think the service will actually be available? Will it will that be sometime next year?

Speaker 5

Or how are you thinking

Speaker 4

about that? Sure.

Speaker 2

I'll jump in. First on the deal structure, I think, Bill walked through some of the finer points, but this is a term through 2,030. This is a definitive agreement, which means that it's a document that's the legal vehicle through which revenue will be brought in with all the detailed SLAs and other legal requirements in a real commercial agreement. So it's very powerful from that perspective because it means that both companies have aligned around how this offering will occur in many ways. So that's the key element.

Speaker 2

In terms of prepayments, we reiterated the same prepayment that came in January, right? So there's no new economics with this agreement right now other than laying out the vehicle through which we'll be able to generate revenue when our services is available. And I'll refer back to Abel's comments on the go to market strategy and doing that jointly with our customer. We're prepared to announce the timeline. But as we've said, these 5 satellites going up are commercial satellites.

Speaker 2

They have 10 times the capabilities of BlueWalker 3. And after several months of preparations, they will be commercial ready. So this is something for us that's technology driven and we want to get this up as fast as possible.

Speaker 1

Yes. By using these 5 satellites, we are already starting some initial revenue with the government with BlueWalker 3. They will continue on AT and T and others. Hopefully, we'll disclose soon. We'll start using these 5 satellites as a commercial operating satellite.

Speaker 1

Of course, that revenue is planned to increase significantly as we add more satellites, but we will start monetizing these satellites commercially in the U. S. And in other key regions as we continue progressing and signing definitive agreements with the operators. And those definitive agreements, we expect them to have prepayment features that are a key part of how we keep continuing financing the constellation.

Speaker 4

Okay. Thanks very much.

Operator

Thank you. Our next question comes from the line of Andres Coelho with Scotiabank. Please proceed with your question.

Speaker 6

Yes. Thank you for taking my question. You just mentioned other regions. I guess that is the 5 satellites will cover the United States, they can also cover parts of Europe, perhaps Japan, perhaps part of Northern Mexico. So I'm just wondering if covering the U.

Speaker 6

S. Also gives you capabilities in other parts of the world for these 5 satellites. Thank you.

Speaker 1

That is correct. I mean, these 5 satellites have they're in kind of 53 degrees of inclination. What they mean is they pass, they circle the earth constantly, and they cover everything plusminus59 degrees of latitude. That's from Canada all the way to Argentina in the Americas, from it covers South Africa all the way to Northern Europe and Japan. So yes, these are the global coverage.

Speaker 1

We're starting with 5. We are very careful where we start initiating services with customer. We're prioritizing customers that are signing definitive agreements with prepayments. But we have the ability to do that globally in the U. S, in Europe, in Africa, in Asia.

Speaker 1

And that's how we're prioritizing the usage of these very valuable assets.

Speaker 6

Understood. And just confirming, it's going to be a string of pearls, correct? The configuration is going to be a string of pearls?

Speaker 1

At the beginning, yes. We are more satellite. We're going to be facing them out in the planes where we're putting them

Speaker 6

Okay. Thank you.

Operator

Thank you. Our next question comes from the line of Chris Scholes with UBS. Please proceed with your question.

Speaker 5

Great. Thank you for taking the questions. Just a few follow ups. As you think about measuring on the first five Block 1 satellites, any guardrails you can give in terms of expected revenue generation and over what time frame? And then second question, historically we've seen the wireless carriers bundle value added services into their premium offerings.

Speaker 5

Do you think a similar hard bundle approach could be taken with your service or do you still expect that customers will need to opt in?

Speaker 1

We are basing our offering as an add on service to the user. Of course, every country, every operator has their own plan and their own methodology on how to monetize the service, and how to differentiate it in each of the respective markets. But fundamentally, this is an add on service with a very low friction to opt in and start paying for it. The customer, as I said earlier, doesn't need to basically know anything other than it's out of connectivity and that is willing to pay for getting that connectivity. So you think about it, you get your monthly bill.

Speaker 1

It's a line item in your monthly bill that it would be a space mobile as you move around the earth in places where there is no connectivity or the connectivity is not good enough.

Speaker 5

And then just a follow-up maybe just on the first five satellites, any sort of guardrails you're thinking of in terms of the revenue generation and how quickly that can scale into the end of this year?

Speaker 2

Hey, Chris. We're not going to be providing revenue guidance at this time, but these first satellites are commercial ready. We've talked about our government customer. Obviously, we announced their commercial agreement today. There's revenue potential that's real on these first five satellites.

Speaker 2

But again, it's not our focus, right? We believe that the big opportunity is as we scale the system. So to a certain extent, we're not focused on the revenue opportunity for the first five, but you'll start to see it come in. But you'll see our focus be on what does service look like with more satellites and that's point you back to the agreement today is all about how do you provide a mass market solution to a broad consumer base, right? And that's where the focus will be.

Speaker 2

That's where the big revenue opportunity is for us. And so we won't be as focused on just the first five will be focused on continuing to build up the constellation. Okay, great. Thank you.

Operator

Thank you. And our next question comes from the line of Chris Quilty with Quilty Space. Please proceed with your question.

Speaker 4

Hi, gentlemen. I was hoping you could give an update on your ASIC development.

Speaker 1

Yes, Chris. I mean, we are we have been tape out for 1.5 months already. It's a process of around 3 months, 3 to 4 months. We are ready to receive our chip. This chip will have another 10x increase in the processing capacity of our satellites.

Speaker 1

As a reminder, BlueWalker 3 had 100 megahertz of processing bandwidth. Block 1, the satellites that we have now that we're planning to launch very quickly here, they had a 10x DART capacity using FPGAs And the next generation of V Block IIs, we had another 10 times increase to a 10 gigahertz of processing bandwidth per satellite. So that's very significant step up. And but we're using we have the ability to keep using our PGAs for a long as needed, but we are in the tail end process of receiving our chip.

Speaker 4

Great. And on the operating expenses, it looks like you've made some nice reductions. Is the current quarter a good run rate or are some

Speaker 7

of the cost cutting effects going to accrue

Speaker 3

as the year plays out? I'll take that. Yeah.

Speaker 1

Sean, why don't you take that?

Speaker 3

Yeah. As we mentioned in March, we are going to probably average somewhere on $30,000,000 We came in at a little over $31,000,000 quarter. Just the one caveat is there's $15,000,000 of expenses that Canada we paid for, but haven't been run through the income statement on anything. But we have targeted to R and D, Engineering Services and GA and keep it around a $30,000,000 run rate probably through the end of the year.

Speaker 4

Great. And Abel, did you get a picture with Ben Stiller?

Speaker 1

Well, we want to invite our investors to the launch. And let's see. Let's see if he's available.

Speaker 4

All right. Thank you, gentlemen.

Operator

Thank you. At this time, I'm showing no further questions. I would like to turn the call back over to management for closing remarks.

Speaker 2

Thank you, operator. Our company is building a space based cellular broadband network designed for use of the phone in your pocket today. I want to thank everyone for joining both the shareholders and the analysts for their questions. I hope everybody has a great rest of the week. Thank you.

Operator

This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.

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