AST SpaceMobile Q3 2023 Earnings Call Transcript

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November 14, 2023

There are 6 speakers on the call.

Operator

Welcome to the AST SpaceMobile Third Quarter 2023 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 ASC SpaceMobile. Please go ahead.

Speaker 1

Thank you, and good afternoon, everyone. Let me refer you to Page 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 1

For more information about these risks and uncertainties, Please refer to the Risk Factors section of ASC SpaceMobile's Annual Report on Form 10 ks for the year that ended December 31, 2022, filed 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 this call. Also, after our initial remarks, we will be starting our Q and A section with questions submitted in advance by our shareholders. Now referring to Page 3, for those of you who may be new to our company and our 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, work and travel. Additionally, there are billions of people without cellular broadband who remain unconnected the global economy.

Speaker 1

The markets we are pursuing are massive and the problem we are solving is important and touches nearly all of us. In this backdrop, AST SpaceMobile is building the 1st and only global cellular broadband network in 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, Abel Avelon, who will take you through our activities since the last public update.

Speaker 2

Thank you, Scott. I would like to welcome everybody to our Q3 2023 earnings call. Turning to Page 4, I would like to start off with our key highlights and updates. We recorded another historic first in the world of connectivity. LUKOIL3 demonstrated the first and only space based 5 gs capabilities 40 megabit per second data rates.

Speaker 2

This caps a highly successful testing program that includes 2 gs, 4 gs and 5 gs With participation from partners Vodafone, AT and T, Rakuten and Nokia, validating AC SpaceMobile's Satellite design, patented technology and manufacturing strategy. We also are moving full speed ahead with our plans to launch the first 5 satellites in Q1 2024. Manufacturing is at a full speed and progressing well in Midland. As a measure of progress to date, we have already incurred approximately 85% of the planned capital expenditure for these satellites, including launch costs. Transition to our cost profile, we complete certain nonrecurring R and D initiatives and the first five commercial satellite, expect adjusted operating expenses to be between $25,000,000 to $30,000,000 per quarter beginning from Q1 2024 versus the historical run rate of approximately $37,000,000 to $40,000,000 per quarter.

Speaker 2

And lastly, Fundraising efforts with multiple strategic partners continue to advance and progress, and the timing is in line with what we disclosed to you a few weeks ago in our interim business update press release. And let's turn to page 5, 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 strategic partners. The strategic investment process is intended to result in new capital and establish new and incremental financial, Commercial and strategic relationship within the wireless ecosystem. This new investment is intended to fund the manufacturing, launch and operation of additional Bluebird satellites beyond our first five commercial satellites.

Speaker 2

Overall, we're encouraged by where we are in this process and hope to be able to share more at any time during November for December. Transitioning back to our technology on page 6. For the Q3 in a row, we have made telecommunications history. In September, we accomplished another unprecedented leap in space based cellular broadband by successfully making the first ever 5 gs connection for voice and data between an everyday modified smartphone and a satellite in space. The 5 gs call was placed on September 8 from a modified Samsung Galaxy S22 located in Hana, Hawaii in a wireless dead zone.

Speaker 2

The testing was complete with our partners Vodafone, AT and T and Nokia sharing our collective success. In a separate step, we broke previous space based cellular broadband data sessions record by Achieving a download rate of approximately 14 megabits per second. I will also encourage you to watch the video of 5 gs connection and other testing milestones using BlueWalker 3 on our website. Turning to Page 7, Our historic achievement of 5 gs cellular broadband directly from the space comes at a time where United States has placed an emphasis on ensuring 5 gs broadband connectivity to all Americans. Today, less than half of the geographic United States have 5 gs coverage with download speeds greater than 7 megabits per The space mobile network is the only space based network design for cellular broadband, and we will be able to efficiently cover unconnected areas of the to bring 5 gs connectivity to everyone.

Speaker 2

The SEC reopened comments to the 5 gs fund for rural America room making process, which we participated in. We had encouraged the commission to make satellite network eligible for funding through this program I look forward to monitoring development in the rule making process in the near term. This clear need that we are meeting is a key part of how we have been able to develop strong wireless operators, partners over time. On Page 8, I want to give you a few examples of how our collaboration has been highlighted by our MNO partners. First, with a quick preview from how Vodafone is thinking about offering our service to seamlessly our vendor market leading terrestrial network.

Speaker 2

They will use us the 1st and only space based cellular broadband network to offer voice calls, SMS tests, video calls, Internet browsing, e mail, music streaming, social media, anywhere where the Vodafone subscriber may be located. And with AT and T for the Q2 in a row, they have highlighted us from front and center as a key milestone In their history and on our earnings call, here taking about the support from the world's first direct 5 gs voice call. The high profile public support shows the seriousness and the depth of these relationships. Of course, AT and T and Vodafone are key partners for us, but they are not the only ones. Turning to Page 9, We're proud to have MOUs an agreement with over 40 of the largest mobile network operators around the world, represented over 2,000,000,000 subscribers that will become accessible to us as we deploy our network.

Speaker 2

These M and Os include Vodafone, Rakuten, AT and T, Bell, Canada, Afrecel, Etisalat, Globe, Indosat, Liberty, Latin America, LTC, Maxis, Millicon, MTN, Muni, NYSAT, Optus, Orange, Salam, Safran, SmartSmile, Somtel, FTC, Telecom Argentina, Telefonica, Telconcel, Testra team, Uganda Telecom, Yes, Sain 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 3,100 patents and patent pending claims, Over 30 patent families, over 25 U. S. Patent applications and over 10 additional patents around the world.

Speaker 2

Our strategy since funding has been to patent key aspects of direct to device value change on an end to end basis, as well as key aspects 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. We're In advanced stages of the production of key subsystems of the satellites and have a high level of vertical integration over the full process. All key components manufacturing has been brought in house. We're running 3 shifts at our Midland facilities and had ramped to approximately 160 manufacturing employees with over 100 of them in the pictureable.

Speaker 2

To the date, we have incurred 85 percent of planned capital expenditure, including launch costs. Transition to Page 12. I wanted to give you an update on manufacturing of our Fird Fye commercial satellites, 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 important for us as it allows us to maintain the unprecedented cost per unit delivered for our satellites with the power and capability to deliver broadband directly to everyday smartphones.

Speaker 2

These capabilities are very unique in the industry and will allow us to ramp the manufacturing capacity of 6 satellites per month and 72 satellites per year. This page outlines the key subsystems that are part of our Microns, which are the building block of our phase array. Our Microns are designed for mass production and are all identical. Our ability to mass produce them is essential to the lost cost of our satellites. In order to mass produce Microns effectively, we have vertically integrated the systems of the Micron, Power system, power storage, electronics and antennas.

Speaker 2

We had a solar panel production in line in Midland and our own kick lines, Cover glass and interconnect sales are a supplier in order to lower our costs, extend life a modified performance of solar panels to survive in the space. We also have battery pack production line in Midland, which then we get integrated into the Micron. Both the solar panel and battery were brought in house after being externally sourced for BlueWalker 3. Our electronics are designed to last 7 to 10 years while also maintaining low cost. We produce our electronics for our First, Fisada utilizing FPGAs, field programmable gate arrays and our own PAs LNAs to ensure performance in the harsh environment of the space.

Speaker 2

For Block 2, the FPGA will be upgraded with our own ASICs. Turning to the next page, our system is composed of a very large phased array, which is built out of the Micron that I explained in the previous page, And a center control and progressing unit, which we call our control side, which we will update you here as well. The ControSat is also made in house including the structure that houses our avionic fly software and center processing beam former, which is a unit that generates and creates a beam that turn into cellular cell for managing direct connectivity to devices. This is also made in house. The key component of this has been completed and are being integrated in our Midland, Texas facility.

Speaker 2

The flight computer is an essential part of our system And it's where we host our additive control system to manage and position the spacecraft and also where we run flight software, which talk 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 tested in our Midland facilities.

Speaker 2

In this picture, you see the ControSat components of the Avionics stack, the harness and all of the ground and flight server, which is required to manage and control the satellites. It is important to remind you that all these subsystems and this level of vertical integration is only possible Thanks to the fact that we have BlueWalker 3 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 effectively and cost effectively all these parts of our new Binta satellites. And with that, I would like to pass over to Sean to provide a financial update.

Speaker 3

Thanks, Abel, and good afternoon, everyone. It has been a little over a year since BlueWalker III was lifted into orbit in the night sky at Cape Canaveral. Since that time, AST has continued to achieve a series of accomplishments and make progress towards the goal of building the AST SpaceMobile 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 AST SpaceMobile team completed more groundbreaking test results utilizing BlueWalker 3, Made significant progress towards the expected launch of the 5 BB-one satellites and continue to focus on raising capital to fund the AST SpaceMobile constellation.

Speaker 3

An 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 5 BB-1s for the targeted launch next year. As always, I want to recognize and thank the hardworking 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 and T, Vodafone, Rakuten and Nokia. I want to start by reviewing our key operating metrics for the Q2 that are displayed on Slide 14. On the first chart, we see that for the Q3 of 2023, we had non GAAP adjusted cash operating expenses of $37,300,000 versus $38,400,000 in the 2nd quarter. Non GAAP adjusted operating expenses Excludes certain non cash operating costs, including depreciation and amortization and stock based compensation, which totaled $21,600,000 $19,600,000 for the 3rd and second quarters respectively.

Speaker 3

Our 3rd quarter non GAAP adjusted operating expenses decreased by $1,100,000 versus the 2nd 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 and D expenses consist principally 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 fell and our general and administration expenses rose modestly in the 3rd quarter. Turning towards the 2nd chart, our capital expenditures for the 3rd quarter were $71,700,000 versus $26,800,000 for the Q2. As we had indicated on our last call, we had expected our level of capital expenditures to increase substantially as we focused our efforts on procuring parts, materials and systems for the BB-one satellites, as well as to make payments to our provider of launch services.

Speaker 3

As of the end of the Q3, we have spent over 85% of the expected amounts for these We are now projecting to spend approximately $150,000,000 $15,000,000 that's 115, for the 5 BB-one satellites, up from our last estimate of $110,000,000 On a positive note, a good portion of the increase in cost was a 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 the slide, we ended the 3rd quarter about $135,000,000 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 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. As we head towards the next fiscal year, I wanted to provide guidance on our expected operating expense levels and capital expenditures 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 BB2 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 3rd party work. Overall, our adjusted operating expenses should decline from a range of 37 to $40,000,000 per quarter to a range of $25,000,000 to $30,000,000 per quarter with the full effect starting in the Q1 of 2024.

Speaker 3

We also plan to reduce our level of capital expenditures as we reach the final investments for BB1 and the material investments for BB2. 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 to a variety of factors. And with that, this completes the presentation component of our earnings call and I pass it back to Scott.

Speaker 1

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

Rolando from Paris asked, can the company discuss the competitive landscape For DTD, I'll differentiate the different offerings that are in the works.

Speaker 2

Thanks, Rolando. There has been a tremendous assignment about direct to device services. Over the past year, we have seen other companies pull their hands up on a me too offering. But clearly, when you get into their details, they are no broadband scalable or compatible with today's smartphones. This is a hard problem, which has a lot of different elements for success, and we have been entirely focused on development of these systems since of our company in 2017.

Speaker 2

We had invested over $700,000,000 to date in this effort, resulting In over 3,100 patent and patent pending claims and our own vertically integrated manufacturing capabilities for our own for our satellites. SD SpaceMobile's critical differentiation is that we are the 1st and only system Designed for 5 gs cellular broadband, we have shown the ability to achieve 5 gs data rates, as well 4 gs and 2 gs. All the systems today are far away from being able to achieve what we have and our primarily narrowband techs and emergency service offering. Our very large phase array Antenna combined with our own ASICs is unique in this space and is critical for achieving 5 gs Directly to existing everyday smartphones to scale up to serve the needs of the 5,000,000,000 phones in circulation In partnership with the leading and largest MNOs on the planet.

Operator

Tanner from California asked, how long from finalizing the ASIC design will you get the chip?

Speaker 2

Santander, the development of the ASIC was a 4 year process with a cost in excess of $40,000,000 that is mostly at this point behind us. The design is substantially complete. We expect we will be able to start getting the first units around 3 to 4 months after the tape out, which is in the process where which is the process where the design gets produced by our foundry partner, TSMC. I just want to remind everyone that the first By commercial satellites, we'll be flying using our current FPGAs, which is essentially the programmable version of the ASIC. The ASIC is expected to give us a 10 times improvement in processing bandwidth of 1 gigahertz to 10 gigahertz of available spectrum per satellite, while reducing the power and consumption and cost of the satellites.

Speaker 2

We believe that this is a significant barrier of entry for Space based cellular broadband along with our large 2,400 square feet base array.

Operator

Liden from New Zealand asked, how much out of factory testing is AST reliant on? Can everything be tested in house at this point?

Speaker 1

Thank you, Leaden. I'll take this one. You may recall with BlueWalker 3 that we had to move the satellite off-site several times. This included vibration and other testing. And right before we shipped the satellite to Cape Canaveral, we actually had to go back to California for testing, which of course is inefficient and introduced extra time to our schedule.

Speaker 1

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 2 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 Bell discussed earlier. As a result of this, we expect to significantly shorten production times and increase our control of our process compared to BlueWalker 3.

Operator

Leighton from New Zealand asks, you expect to enter into commercial agreements with MNOs prior or post launch as the company decided on which inclinations they intend to initially serve?

Speaker 1

As we discussed earlier, we've been continuing to grow the list of MNOs that we have MOUs and agreements with, And we're now at over 40 operators globally, who collectively cover over 2,000,000,000 subscribers. 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 both the Northern and Southern Hemispheres. And with that, I'd like to thank our shareholders for submitting these questions.

Speaker 1

Operator, let's open up the call to analyst questions now.

Operator

Thank you. We'll now be conducting a question and answer session. Thank you. Our first question is from Benjamin Sall with Deutsche Bank. Please proceed with your question.

Speaker 4

Hey, guys. Thanks for taking the question. A couple from me. The first one is, is there any more color you guys can share on the strategic investment process? What it is you're looking for and what shape you think those partnerships could take?

Speaker 4

Thanks.

Speaker 1

Hi, Ben. I appreciate the question. I think we've put most of the latest information in this presentation already. This is an important Phase 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 During November December.

Speaker 4

Got it. And now that you've achieved 5 gs connectivity, what's the next Major testing milestone you guys are looking for, if any?

Speaker 2

Well, we are turning We're turning our attention to the build of the next five satellites. We continue testing with BlueWalker 3, But the major milestones require out of BlueWalker to have been completed.

Speaker 4

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 decline, but just wondering at what pace and kind of to what magnitude? And that's it for me. Thanks.

Speaker 3

Obviously, this last quarter, we've seen a pretty big bump up in our CapEx as a result of some final payments on BB1 and some other BB2 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

Operator

Thank you. Our next question is from Griffin Baugh with B. Riley Securities. Please proceed with your question.

Speaker 5

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 3 months regarding And ability to process multiple calls concurrently within a certain beam or cell?

Speaker 2

Yes. I mean, we have already given preliminary guidance of what is the capacity per satellite And what is the processing bandwidth that we can support? For Block 1 with the FPGA based system, it's about 1 gigahertz Processing bandwidth with the ASIC, that is a 10 fold increment to 10 gigahertz Processing bandwidth and our testing support these assumptions.

Speaker 5

Okay. Got it. And then so but just with BlueWalker 3, have you been testing with multiple calls at once? I don't know that I've seen any test data regarding multiple Calls at a single time or multiple video calls?

Speaker 2

Yes. We have done multiple and simultaneous. We also have Open up the pipes to let 100, in some instances, thousands of phone ratcheting connecting to the system. So that also has been verified during the testing.

Speaker 5

Okay, great. Thanks, I appreciate that. And then so stepping back, just regarding the U. S. National Spectrum that was released yesterday.

Speaker 5

Just curious if there was anything in that that caught your eye as notable as it relates to supplemental coverage in space or if there's anything in there that suggests to you that the FCC might now move faster on developing such a framework?

Speaker 2

Yes. Well, as you know, we invented direct to device. We are the first one to demonstrate it at a broadband. We had the only system to support it. We are super encouraged by having a Presidential notice where the first item is basically A system that replicates what we have invented.

Speaker 2

So yes, that caught our eyes. We are very happy. We are very encouraged about that. I think this will facilitate in the future how our services will be regulated, in particular, in United States. United States is also a reference for other countries.

Speaker 2

Together with our strategic investors, Current strategic investors, we had achieved significant progress in around the world in getting the system regulated and be able to be used, and we solved a big problem. So yes, we're very proud of being mentioned and being part of presidential strategies for spectrum, which is basically an expected usage of support, a system that we invented and where we are the only one that can provide broadband connectivity directly regular devices. So we are very happy, very encouraged by that.

Speaker 5

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 could share any of your opinions, if you have any as to why you think Qualcomm walked away from Iridium recently?

Speaker 2

Yes. Listen, I mean, there is 5,000,000,000 phones in circulation. When we launched This design of this system, there was a prerequisite, that is that you do not need any special chip, any special Frequency, we're especially nothing in your device because the moment that you do that, you take that 5,000,000,000 phones in circulation to a niche play. Anything that require a change or is an SOS or test, we believe that is limited. And with a limited Market opportunity compared with broadband directly to everyday smartphone with the phone that you have in your pocket.

Speaker 2

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 next quarter, next year. All those solutions become less and less relevant. So we're not surprised by it. And I think, if anything, We support our vision that these systems need to support any phone, every phone, everywhere Without regard to any change, any chip, any special ASIC or any special chipset or anything that is proprietary to the phone in order to make it Available for all 5,000,000,000 phones in circulation.

Speaker 1

Got it.

Speaker 5

All right, great. Thanks. Appreciate it and good luck.

Operator

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

Speaker 1

Great. Thank you, operator. Our company is building a space based cellular broadband network designed for use of the phone in your pocket today. Want to thank everyone for joining both the shareholders and the research analysts for their questions. Have a great evening.

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