NextNav Q1 2023 Earnings Call Transcript

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Provided by Quartr
May 10, 2023

There are 6 speakers on the call.

Operator

Afternoon, everyone, and welcome to NextNav's First Quarter 2023 Earnings Conference Call. Participating on today's call are Gary Parsons, NextNav's Chairman Ganesh Patraburam, NextNav's Co Founder and CEO and Chris Gates, Nxnap's Chief Financial Officer. Before we begin, please note that during today's presentation, The company may make forward looking statements either in our prepared remarks or in the associated question and answer session. These statements, which involve risks and uncertainties, relate to analysis and other information that are based on forecasts of future results and estimates of amounts not yet determinable and may also relate to Nexnaz's future prospects, Development and Business Strategies. In particular, such forward looking statements include statements about NexNav's position to drive growth in its 3 d Geolocation Businesses and expansion of its next generation GPS platform, the business plans, objectives, expectations and intentions of NextNAP.

Operator

NextNaaS Partnerships and the potential success thereof in NextNaaS estimated and future business strategies, competitive position, industry environment and potential growth opportunities. These statements are based on current expectations or beliefs and are subject to certain risks and uncertainties that may cause actual results to differ materially. Such forward looking statements are subject to known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside NEX NAV's control that could cause actual results to differ materially from the results discussed in the forward looking statements. These risks, uncertainties, assumptions and other important factors include, but are not limited to, the ability of NextNav to continue to gain traction in key markets and with notable platforms and partners, both within the U. S.

Operator

And internationally. The ability of NextNAP to grow and manage growth profitably, maintain relationships with partners, customers and suppliers, including with respect to NextNav Pinnacle 911 solution and its TerraPoint network and the ability to retain its management and key employees, the ability to maintain balance sheet flexibility and generate and effectively deploy capital in line with its business strategies. The possibility that NexNav may be adversely affected by economic, business and or competitive factors, including the impact of the ongoing COVID-nineteen coronavirus pandemic, other risks and uncertainties indicated from time to time in documents filed with the Securities and Exchange Commission by NEX NAV. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. You are cautioned not to place undue reliance upon any forward looking statements, which speak only as the date made.

Operator

And NextNav undertakes no commitment to update or revise the forward looking statements, whether as a result of new information, future events or otherwise. Risk factors that may impact our performance are identified in our most recent SEC filings. Following our prepared remarks, the company will host an operator led question and answer session. In addition, at the conclusion of today's call, a replay of our discussion will be posted to the company's Investor Relations website. With that, I'll turn the call over to NextNav's Chairman, Gary Parsons.

Operator

Please go ahead.

Speaker 1

Thank you, operator. Good afternoon, everyone, and welcome to Nexnaz Q1 2023 earnings call. And as the operator said, joining me today is NextNav's CEO, Ganesh Pathavaraman and NextNav's CFO, Chris Gate. 2023 is really off to a solid start. We're having established a strong operational foundation and expanded our product and technology capabilities in 2022.

Speaker 1

We are continuing to execute against our 3 strategic priorities. As a reminder, those priorities are: 1st, being an industry leader in resilient position navigation and timing or P and T secondly, leveraging our recent NestWave acquisition to dramatically reduce our future capital needs and add significant capabilities to our Spectrum assets and then finally expanding our global reach. To begin, however, I'd like to touch on our newly announced $50,000,000 debt financing, which includes additional levers for potential expansion of the notes up to $80,000,000 In short, we're thrilled to have closed this transaction and see this both as a significant milestone for the business and a strong marketplace validation of the significant underlying value of our Asset Based, including our intellectual property portfolio, our nationwide spectrum assets and our deployed network. Chris will get into some of the specifics, but in my view, the new financing provides us with multiple years of funding with modest equity dilution. As you'll hear from Ganesh, we continue to see growing customer and governmental traction in our 3 d location and our GPS resiliency services, but even without material revenue increases.

Speaker 1

Given our ongoing management and refining of our expenses, this financing provides multiple years of funding. It's also important to consider this successful financing in concert with several other significant accomplishments over the past several months, which are designed to unlock additional value and strengthen our long term fundamentals of the business. So remember, starting in late 2022, we closed the NestWave acquisition. And we've spent much of the Q1 integrating the 2 technologies with field testing of the combined network capabilities taking place as we speak. The rapid integration and testing of the combined technology not only dramatically reduces our future capital needs as we talked about when we first made the acquisition, but it also significantly improves the spectral efficiency of our network and the underlying spectrum assets through the use of state of the art 5 gs waveforms.

Speaker 1

Incorporation of the 5 gs waveform facilitates data carrying capability in addition to optimizing our 3 d location and our P and T resiliency capabilities. On future calls, we'll provide ongoing updates on these key efforts. Importantly, in late March, we received an order from the FCC finding that NextNav's network deployment focus covering urban centers and concentration of tall buildings promotes the public interest and the needs of the public safety community and therefore meets the FCC's substantial service standard. In early April, using this standard, the wireless bureau at the FCC approved NxNav's final construction milestones for licenses covering 256 cellular market areas or CNAs. We felt for a long time this was the preferred deployment approach, both for E911 as well as for Resilient GPS or P and T Services.

Speaker 1

And we're obviously pleased that the FCC has concurred in this position. Also in the Q1, we made significant additional progress and our international initiatives. In March, the European JRC report on alternative P and T Technologies was released with a firm recommendation that every European country allocate spectrum in support of resilient P and T. This creates a significant spectrum as well as product opportunity in Europe, much like what we have done with Metcom in Japan. We remain in active conversations with other governments globally and believe there's a substantial opportunity ahead of us as the recognized leaders in P&T resiliency.

Speaker 1

Ganesh will get into more detail on the European JRC Reports findings as well as on our other P and T resiliency and customer initiatives. With that, let me turn it over to Ganesh.

Speaker 2

Thank you, Gary, and good afternoon, everyone. It's been a busy quarter for the team and we've had several notable achievements as Gary highlighted. We closed a debt financing that Chris will get into in more detail, secured approval from the FCC on our build out requirements for vast majority of and continue to make progress on our resilient P and T activities globally. The debt financing signals significant confidence from the investment community in our portfolio of assets. It also provides us with multiple years of funding to advance our strategic priorities and efficiently maximize the full value of our asset rich platform for shareholders and customers.

Speaker 2

We are also very pleased with the many recent FCC approvals regarding our spectrum and build out milestones. As you may be aware, the FCC requires spectrum holders to demonstrate its ability to meet construction milestones in 1 of 2 ways, either using population coverage or using substantial service. Consistent with the latest SEC order on 911, we had planned our initial service to cover multistory and we petitioned the SEC to adopt the same model for our build out requirements. This approach really allows us to allocate capital efficiently and provide our service to areas with the highest need first. We were therefore very pleased to see the SEC's concurrence on the approach in the order that they issued on March 29.

Speaker 2

The SEC approved 78 of our licenses, which represents about 256 settler market areas in major markets around the country like New York, LA, San Francisco and Chicago. The approvals are obviously a significant milestone for our business, marking the final step in meeting our spectrum license obligations in these markets. Turning now to our Pinnacle technology, we continue to expand our Notably, earlier this month, we announced the launch of several new devices on multiple Tier 1 operator networks, helping them meet the FCC's 911 requirements. We recently enabled an additional device under our carrier agreement with Verizon, integrating our Z axis capabilities into Kyocera's Dura X5 Extreme Plus feature phone for both Verizon and Verizon frontline customers. This device is available now online and in Verizon stores nationwide.

Speaker 2

Our Z AXA technology has also been integrated into Hotpepper's mobile feature phones, Tabasco, which is currently being sold in Metro by T Mobile Stores Nationwide. This development builds off of Hotpepper's mobile agreement with NextNav announced in 2022 that allows for Pinnacle's use on Hotpepper devices across all major wireless carriers, enabling 3 d Z axis geolocation capabilities, which are required in the major urban areas for 911 emergency services. And now turning to our global initiatives, the European Union's Joint Research Center released its new report at the end of March on trials of the ultimate P and T technology. As part of the report, the JRC recognized NextNav's TerraPoint solution as a mature solution that meets or exceeds all relevant benchmarks to serve as a resilient layer to existing GNSS technology. Of the technologies tested, TerraPoint delivers both horizontal and vertical location services, indoor and outdoor timing capabilities, while remaining commercially deployable and cost effective for end users.

Speaker 2

As European policymakers begin to develop their resilient PNT policy and strategy tied to the upcoming European radio navigation plan. We look forward to working with them and to use these findings to act quickly before facing serious consequences of a GNSS outage. Finally, before I turn things over to Chris, I want to touch briefly on our work with the federal government. Currently, we continue to believe that the federal procurement language as outlined in Executive Order 13,905 will be released in the coming months. As we have more insight into the exact timing, we will be sure to update the market.

Speaker 2

In the interim, we continue to hold extensive discussions with federal officials on potential implementation architecture of the executive order. Therefore we continue to make progress there. We continue to see government officials highlighting the importance of resilient PNT systems in several of their conversations. Recently in a presentation to the House Committee on Science, Space and Technology, Doctor. Parimal Koperkar, Director of NASA's Aeronautics Research Institute at Ames Mountain View, discussed the work that NASA is doing to develop technologies for urban air mobility operations in the U.

Speaker 2

S, including its work in the alternate P and T space. As many of you know, we are happy to partner with NASA AIMS in support of their ongoing initiatives. With that, let me turn it over to Chris for a review of our financials. Chris?

Speaker 3

Thanks, Ganesh, and good afternoon, everyone. Before I dive into today's into the Q1's results, I'd like to provide more detail on our recently announced debt financing. On May 9, we closed on $50,000,000 of senior secured notes due on December 1, 2026, a total term of approximately 3.5 years in a private placement. The notes bear interest at a 10% rate, payable semi annually and importantly from a cash point of view, we can elect to pay 50% of any accrued interest in shares of our common stock. For the next 30 days, the note holders have the option to acquire up to $20,000,000 of additional senior secured notes, and we have the further option to sell $10,000,000 to 15,000,000 Perry Passu notes to existing or new parties in the future, depending on the exercise of the current option up to an aggregate total of $80,000,000 The notes are redeemable at 101% of the principal value on or after the 1st anniversary of the initial issuance.

Speaker 3

In conjunction with the sale of the notes, we are also issuing warrants to purchase our common stock with an aggregate strike price of $40,000,000 which will result in approximately 12.5 percent ownership on a fully diluted basis. The warrants are exercisable for cash and are partially callable beginning in 2025. The warrants will expire on June 1, 2027. As Gary and Ganesh both mentioned, this note issuance substantially extends our operational funding and we believe especially in this market, is a strong endorsement of the opportunity presented by Nexnet's unique asset platform. And now I'll turn to our Q1 results.

Speaker 3

Q1 2023 top line revenue was approximately $830,000 compared to approximately $1,200,000 in the Q1 of 2022. The year over year decrease was driven by a decline in one time integration revenue, partially offset by an increase in recurring revenue from commercial customers and represents sequential growth from the Q4. Operating expenses for the Q1 of 2023 were approximately 14,800,000 down from $17,200,000 in the same period last year. Operating expenses included $1,100,000 in depreciation and amortization as well as $3,900,000 in equity compensation expense compared to $900,000 in depreciation and amortization and $7,200,000 in equity compensation expense in the Q1 of 2022. Net loss for the Q1 of 2023 was 16,300,000 which included a $2,800,000 loss associated with fair value or warrants, compared to $9,700,000 in the Q1 of 2022, which included a gain on the fair value of warrants of $6,400,000 From a balance sheet perspective, we finished the quarter with $46,800,000 in cash, which does not include the benefit of the financing we recently closed.

Speaker 3

As Gary mentioned, I'd like to reiterate while we continue to see opportunities for new P and T customers and revenue expansion in this financing, provides us with multiple years of runway even without material revenue growth. As we've indicated in the past, we're continuously working to refine our expenses. And as we bring new customers into service, we remain focused on success based capital. With that, I'll turn the call over to the operator for questions. Operator?

Operator

The floor is now open for your questions. Will now take a moment to compile our roster. Securities. Your line is open.

Speaker 4

Thank you. It's nice to see you get that cash on your balance sheet 1 quarter ahead of 1 we've been modeling. And also thanks for the update in Europe. What can you tell us about progress in Japan with Pinnacle and TerraPoint?

Speaker 1

Yes. Ganesh, do you want to hit that? Yes.

Speaker 2

So we continue to make good progress in Japan. As we noted, Mike, earlier in Japan, Metcom, our partner, launched the service in Tokyo and Osaka for the Pinnacle service. They are right now in several commercial or several of their trials are now converging to a point where we expect commercial activities to begin in later this year. And we are also continuing to work with them and the Japanese government as they've finalized and established their Resilient PNT Strategy, along with folks like JAKSA who are the NASA equivalent organization responsible for a lot of their TNT strategy. And They were especially hardened to see some much of the findings from the European GRC report, especially on the spectrum piece that reinforce their views on the desire to establish Spectrum capability for P and T Services in Japan, and that is now still progressing within the MIC as they evaluate the next steps to get bear fruit there.

Speaker 4

Okay. Thank you. And then Can you elaborate on the Access data carrying capacity you have given the spectral efficiency achieved with the way that you're implementing Your PNT signal now or intend to be doing so. And then maybe extend beyond that what would be inappropriate ask to the FCC and or others in other jurisdictions to maybe enable you to capitalize on excess spectrum in addition to what you're able to achieve for timing and location.

Speaker 1

Thanks very much, Mike. Let me hit some of that. I mean, actually the NestWave acquisition and the integration of the technologies that as I indicated, we actually have deployed some in the Bay Area and are testing there right now to ensure that the accuracy, time to fix, all of the other elements that are part of our overall services can be accomplished through this combined technology, which just as a reminder, combines our atomic clocks from our signals and our server system with the other 4 gs, 5 gs signals from various carriers and corrects the timing of their signals such that you get an accurate fix and the timing capability off of it. That's what the combined technology does. So as I mentioned before, that in and of itself dramatically drives down the cost of any deployment for P and T services or physician navigation and timing.

Speaker 1

And it also would speed it because you have far fewer beacons that you have to put out there in order to achieve it. So that's the first element of integration and what we get from that. The second element that I think would be useful is, with our experimental license that we have in the Bay Area as well, we'll be developing both 4 gs, but more particularly 5 gs waveforms that we can test to determine whether or not those meet the characteristics that we believe they will meet as well too. The key to that factor is if we converted our waveforms, the current waveforms that we have from a GPS oriented base over to a 5 gs waveform base, then it's not so much a matter of having surplus spectrum that that creates. It's the fact that your spectrum and your waveform and support simultaneously both your physician navigation and timing services, all of the E911 and backup GPS capabilities that are so attractive to the federal government and the first responders, but it simultaneously carries the full data payload that a 5 gs signal would normally carry as any carrier that deployed 5 gs would gain out of that.

Speaker 1

Who is that combined capability that reinforces and actually improves the P and T capability because of the number of beacons that you would have access to, combined with the data carrying capability that obviously has significant commercial value that we think is again in the public interest promoting the public interest and the needs of the public safety community, while simultaneously providing a significant commercial value. So relative to what flexibilities we would request from the D. C, I think obviously it's just the ability to do both of those simultaneously with what we would be looking for. So is that does that respond to your question?

Speaker 4

Yes. Thanks, Gary. And then last one from me is, I know you are reluctant to provide guidance given the early Stage of your revenue opportunities, but to any extent you could opine on what vertical markets might be most promising for near to midterm revenue and when We might expect to see some upward trajectory and or magnitude thereof would be quite helpful.

Speaker 1

Yes, let me let Chris address that or Ganesh potentially for what possible consumers or customer potential would be I mean, I think obviously it's pretty clear that the various government agencies have a significant interest in these P and T capabilities, whether that manifests itself in initial trials, NRE for deployment of those trials or eventual purchase of the capabilities versus whether it comes from people bidding on government contracts and needing to respond to RFPs that require backup GPS or resilient P and T as part of those procurements. It's not clear how much of that will come directly from the government versus parties who are bidding on government contracts. But I think those are significant elements. And I think the other element you can initially see from the announcements we're currently making and announcements that we think will continue to rollout quarter after quarter this year is expansion of the E911 capabilities, not only with Verizon as the anchor carrier direct contract, but other ones that we're in the process of putting in place and announcing as we go along there. I guess, Chris, you can decline to provide a projection or I can decline to provide whichever one.

Speaker 3

Yes. Go right ahead, Gary. But I think you captured

Speaker 5

the key

Speaker 3

verticals You know very nicely there.

Speaker 1

And obviously Mike, I think you can see the one other point that I would make is you'll see from like when you look at quarter over quarter sequential going forward versus past year, last year's Q1 was a bit distorted because of the integration, one time NRE integration funding that we got from Verizon to pull the things together for their network. The revenue from Verizon this quarter is all recurring revenue. So I think we're migrating more and more towards a fully recurring revenue type of standpoint. And while we'll still have NRE that may come with other carriers or other handset providers that pay us for that portion. I think it will flow more into an ongoing recurring revenue mode, at least in the United States.

Speaker 1

I think it's quite possible in international, either deployments or joint ventures that we do, that some of that could in fact take the place as it has in Metcom with payments for services or capabilities that we provide to them to integrate or turn up their networks. Is that helpful at all?

Speaker 4

Yes. Thanks very much. Yes.

Operator

Our final question comes from the line of Jamie Perez from RF Lafferty. Your line is open.

Speaker 5

Good day everybody. Thanks for taking my question. Now that we have the JLC before what's the next step? I mean, what's it going to take for you guys to start deploying equipment? I know it's a long term question, but maybe Give us some idea of what's the what are the process to lead into that point.

Speaker 1

Yes. Ganesh, you want to address that one both I guess domestically and internationally.

Speaker 2

Yes. So to be clear, Jamie, the JRC report was focused primarily on the European Union and the activities that's driven by the European Commission. Obviously, this is very similar to the Department of U. S. Department of Transportation report that came out in 2021 and had a set of recommendations that the U.

Speaker 2

S. Federal government is now trying to follow through the Executive Order 13,905 and some of the federal and state initiatives that are already in place. So in the U. S, the framework exists and we see the government starting to move towards the implementation phase. In Europe, the JRC report is the first report that captures sort of the recommendations from a technology perspective.

Speaker 2

We expect that to then be reflected in the European radio navigation plan, which we expect to be released imminently that would have the policy recommendations for the European Union on what they want to do, to in terms from a policy perspective to implement the recommendations. And I think the individual governments and countries will obviously pay close attention to the recommendations. And as we noted, the technical report recommended allocation of spectrum for instance, and we were one of the technologies that were tested to demonstrate P and T capabilities on an extensive basis. So we think it will follow it has a very good footing and follow similar to the framework that's been established in the U. S.

Speaker 2

And we do see the European governments wanting to act more quickly just given the nature of the disruption that they're experiencing on a daily basis today in the Russian Ukrainian conflict in much of Eastern Europe with Poland and the Baltic States. And therefore we do see several activities that the European Union has already started to fast track or implement for instance they launched low earth orbit PNT constellation just recently to start experimenting with the LEO system and seeing the impact of that on P and T capability. Similar to the U. S, the European Commission and European Governments also believe it's a multi technology approach to solving the P and T resilience problem. And so the terrestrial component is going to be a strong feature in that framework.

Speaker 2

And so we're having continue to have a lot of discussions with the European Uniting folks and some of the policymakers there and we see once the radio navigation plan come out, the sort concrete next steps that will lead towards implementation of the recommendations.

Speaker 1

Hey, Jamie, I'd also note though that the PAWS, our capability is viewed more as a platform. It's kind of a foundational technology that has to be in place with a lot of the activity may well take place in advance of actual revenues. In other words, whether we're partnering with other companies over there to license the technology or to jointly develop the technology or jointly bid on the spectrum or apply for the Spectrum allocation. I think those are things that could be reasonable next steps that will occur before you actually have a situation where France or Germany is doing something like the United There is a lot of interest there. It's not as formalized as the European Commission's efforts have been with the JRC, safe but an intense interest from individual countries there.

Speaker 5

All right. So basically you're working on it It seems like it's working both the European and American front. And so, yes, so since you're basically licensed out your technology, you pretty much developed the platform, you're pretty much going to be working with developers. And I mean how The developer is going to pay you a fee. How is the fee structure working?

Speaker 1

Well, it's a question. And whether it's a JV or I wouldn't certainly say a developer, but because it quite potentially may be a telecom entity or a carrier of some sort that may want to put that together, but I think Japan is a pretty good precedent for what can take place that way. And yes, we have gotten revenues from them for purchase of equipment or for licensing fees. We've also, in that case, gotten a carried interest in the company. So it is truly a joint venture from that standpoint.

Speaker 1

So it's unclear right now exactly what the one of those relationships will be. I think the part that we feel most comfortable with is It's very clear whether it's tested in Japan, in Europe, in the United States, We are viewed as the leader in the P and T capabilities, in fact deriving this desire to allocate spectrum for that purpose across the EU. So all of those things establishing a pretty good platform for us.

Speaker 5

All right. Well, I can't wait till next step go global.

Speaker 2

No, no, no, that's not It's unreasonable. I mean that is part of our strategic plan. But I do want to clarify one thing, Jamie, is that in the U. S, obviously, we are the service provider that is providing the service in Japan and in Europe potentially. We may partner with other companies and partners to provide service capability in that local market and they would license the technology and the equipment from us similar to what Metcom has done in Japan.

Speaker 2

But in the U. S. Market, We are working with the governments, we're working with the end users of the service who may potentially benefit from the capability, Right. So that's what you see for instance with our Pinnacle service where we've got several of the Tier 1 wireless operators leveraging or buying service from us to meet certain of their requirements on geolocation purposes.

Speaker 5

All right. Sounds great. That's all the questions I have. Thanks for taking my question and have a good day.

Speaker 1

Thanks a lot, Jamie. Thanks.

Speaker 2

All right. Thanks, Jim.

Operator

I would now like to turn the call over to Gary Parsons for closing remarks.

Speaker 1

Well, thank you very much, operator. And once again, thanks to everybody for calling in and listening to the report. We feel very good about the progress that we've made and the number of substantial, let's call it achievements that we've had over the last number of months that I mentioned. And most particularly, this financing, let's face it, it's a challenging marketplace out there, particularly when you're looking at debt financing as well too. We did not want to do a highly diluted equity deal.

Speaker 1

We knew from past experience that we would be able to have secured debt because of the asset base that we have, and we feel good about how it's pulled together, which provides us an awful lot of Certainty and stability from a financial standpoint to allow us to drive forward and achieve the milestones operationally, revenue wise and then strategically that we think are important going forward. So we look forward to next quarter's call and thanks very much to everyone for participating.

Operator

Thank you, ladies and gentlemen. This does conclude today's call. Thank you for your participation. You may now

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