Aptiv Q1 2023 Earnings Call Transcript

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May 15, 2023

There are 7 speakers on the call.

Operator

Day and thank

Speaker 1

you for standing by. Welcome to the AST SpaceMobile First 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 AST SpaceMobile. 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, 2022 with the Securities and Exchange Commission and other documents filed by AST SpaceMobile with the SEC from time to time. Leaders 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 Slide 3, for those of you who may be new to our company and our mission at AST SpaceMobile, there are over 5 1,000,000,000 mobile phones in use today around the world. And yet, many of us still experience gaps in coverage as we live, work and travel.

Speaker 2

On top of this, there are billions of people without cellular broadband who remain unconnected to the global economy. The market opportunity for us is large 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 this is supported by our extensive IP and patent portfolio. Over the last few weeks, we have made significant steps to confirm our technology, opening new business opportunities. It is now my pleasure to introduce Chairman and CEO, Abel Avelon, who will summarize what we've been up to since our last public update 6 weeks ago. We will be providing important context for what these activities mean to our company, our partners and our shareholders.

Operator

Welcome to our Q1 2023 key highlights. We had an important quarter here to report. To get us started, we wanted to hit on the key messages for our update today. Number 1, we have made history We successfully completed the first ever direct voice connection from our BlueWalker 3 test satellite to everyday smartphones, Certifying our leading position in the market we invented. This was not just a major achievement, it significantly derisks our business and create new important opportunities for us.

Operator

The success of this first call validate our technology. We now know that we can move forward with our 16 approach confirming the ability to potentially access the over 5,000,000,000 mobile devices in circulation. Lastly, The first call expands our potential opportunities to fund our business, including new options that we are always exploring. In short time since we last spoke, STS-three Mobile made history. We successfully completed the first ever Direct voice call from our BlueWalker 3 test satellite to everyday smartphones, utilizing AT and T spectrum and using a Samsung Galaxy X22 smartphone and other phones.

Operator

This was a major technical achievement and the result years of R and D, 100 of 1,000,000 in investments and backed by an extensive patent portfolio covering over 2,600 Patent and patent pending claims. We are proud to have AT and T, One of our close network partners, as you see in this graphic on page 5, AT and T have put us in significant Historical context comparing our achievement with the first ever phone call, 1st television transmission, We continue strong momentum with the wireless industry. This achievement has allowed for continued strong momentum with the largest Margarita, the CEO of Vodafone, also put our achievement in important historical context At this point, we had approximately 40 MNOs, mobile network operators, around the globe under preliminary agreement, Representing the top leaders in the wireless industry. Some of these relationships are deep with a strong executive support. They are truly in the room with us helping to bring this technology to reality.

Operator

And this technical milestone we have just achieved will accelerate our relationships. Implications of this historical technical milestone. So what does this technology milestone means? It validates our system architecture. There is no need for us to change our approach or redesign our satellites.

Operator

Specifically, we confirm that no major changes are needed to the design of our Block 1 Bluebird or our technology roadmap. Accordingly, We're ramping manufacturing and material sourcing at our Midland facilities. The successful first call also confirmed that our technology works with everyday smartphones, the phone that you have in your pocket. We also confirm our ability to integrate with existing wireless ecosystem, including Spectrum. The big question for BlueWalker 3 is what come next and that is demonstration of 4 gs and 5 gs capabilities for download speeds, which were ramping towards and demonstrated that we can support signal strength in line with 4 gs and 5 gs space.

Operator

Testing confirms technology ability to work with everyday smartphone and devices. While other architectures will potentially target SOS or text only features or require additional hardware to potentially work, We're building the 1st and only system that will use low earth orbits, satellites to connect to cell phones you use today at broadband Our technology is designed to work with the over 5,000,000,000 funds in circulation on carrier spectrum and without any modification to the phones, without requiring any special frequencies, App or chipsets. Our plan is that you can simply download or dial without any intermediate steps. This give us access to the 1,100,000,000,000 wireless industry. This is truly game changer in a market We believe we had a very significant first mover advantage.

Operator

Now moving to the update on industrialization of our patented technology. First, I'm glad to report that our production For our next five Block 1 satellites are on target for a Q1 2024 launch. When it comes to the manufacturing of our satellites, we have production up and running at our facilities in Midland, Texas. The pictures on this page are Site 2, our 2nd production site and represent a look at some of the initial manufacturing underway for Block We remain on track for the planned launch of 5 Block 1 satellites in Q1, 2024. Now let's talk about our technology roadmap, which is designed to be a stage And as we build and design new advanced satellite architecture, We continuously improve in both our unit cost per gigabit delivered to end user, but also we improve the capacity that we're able to deliver into the network.

Operator

So With BlueWalker 3, we have demonstrated using our current architecture the ability to connect directly to handsets. With Block 1, there is an improvement of 10 times capacity being able to be delivered Compared with Voca 3 and then there's another 10 times capacity improvement with the Block 2s. So what we see, we're not only improving our unitary costs, we continue to improve our technology, But we're also improving our capacity and our network capacity as we add more satellites. This is thanks to Our patented technology, our integrated our vertically integrated approach to build and design our satellites And also the fact that we're on our own software, firmware and custom ASICs in order to get to this point. And with that, I'll move it to Sean to do the financial overview.

Speaker 3

Thanks, Abel. Good afternoon, everyone. Since our last earnings call, AST has made history with the first voice calls connecting everyday smartphones to our BlueWalker 3 satellite. I want to I congratulate our team on this groundbreaking milestone, and it's great to see such a feat to be supported and confirmed by Some of the most sophisticated wireless companies in the world, including AT and T and Vodafone. Beyond making wireless history, We also continue to drive our plan of execution.

Speaker 3

We made continued progress around our manufacturing milestones and we are excited about the next 12 months, which should see the launch of 5 Block 1 satellites and progress towards the initiation of commercial service. Let's spend some time discussing a couple of our key operating metrics for the Q1 that are displayed on Slide 11. Looking at the first chart, We see for the Q1 of 2023, we had non GAAP adjusted operating expenses of $40,300,000 versus $39,100,000 in the Q4 of 2022. Non GAAP adjusted operating expenses Exclude non cash operating costs, including depreciation and amortization and stock based compensation, which totaled $3,500,000 and $4,300,000 for the 4th and 1st quarters respectively. Our first quarter non GAAP adjusted operating expenses increased by $1,200,000 versus the Q4 of 2022.

Speaker 3

Our research and development expenses climbed by $1,700,000 primarily as a result of increased activity with Nokia, where we are developing our gateway infrastructure. Our engineering services expenses rose by $600,000 Our G and A expenses fell $1,100,000 primarily as a result of cost controls and discipline. We currently expect That the level of non GAAP adjusted operating expenses will remain in the high 30s for at least 2 more quarters as we continue to pursue Important R and D projects for our Bluebird satellites and pursue the construction and planned launch of 5 Block 1 Bluebird satellites in the Q1 of 2024. Turning towards the second chart, our capital expenditures for the Q1 Were $13,000,000 versus $10,400,000 for the 4th quarter. This increase in capital expenditures was directly related to our focus on building the 5 Block 1 satellites and this figure includes materials which are capitalized and the continued investment in our satellite assembly Our capital expenditures, which have been averaging around $10,000,000 to $13,000,000 per quarter, will begin to increase to fund the development of our Block 1 satellites, which we currently expect to launch in the Q1 of 2024.

Speaker 3

Overall, we continue to expect our total capital expenditures For our 5 Block I satellites to be between $100,000,000 to $110,000,000 As of the end of the first quarter, We have already expended $40,000,000 of those projected amounts. In previous quarters, we had provided estimates for the capital cost of each of our Block II satellites, which includes materials and launch costs. In the last quarter, we estimated that the cost would be $16,000,000 to $18,000,000 Going forward, we expect to provide these estimates once a year unless there are material changes as we believe annual reviews provide more meaningful views on the trends of these long lived assets.

Operator

As of the end of the

Speaker 3

Q1, we had capitalized costs totaling $92,500,000 for BlueWalker 3. Based on the successful testing regimen, including the voice call I mentioned earlier, we have determined that the BlueWalker III is now operational for accounting purposes and we will begin to depreciate this asset over the next 16 months. This depreciation will increase our non cash depreciation charges by over $17,000,000 per quarter until this asset is fully depreciated. And on the final chart on the slide, we ended the 4th quarter just shy of $185,700,000 and 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 It's sufficient to support our expenditures for at least the next 12 months.

Speaker 3

We have also received numerous questions about where we maintain our and invest our cash. Our cash investment policy implemented last year Has 3 investment objectives and I list them in order of priority: principal protection, liquidity and lastly, returns. We currently invest most of our cash in On the next slide, I wanted to provide some history and context on our capital raising efforts to date. In total, Since our founding, we have raised over $700,000,000 in capital to help fund our development. I would like to point out several aspects of these capital raising efforts.

Speaker 3

In the first column, you will see that our Founder and CEO, Abel, invested the initial risk capital to fund the business. He remains the largest shareholder in the company and does not draw a salary. Abel's future returns and most of his management teams will be driven by the performance of AST, which means he is highly aligned with his shareholders. The next part of the chart I would highlight is our list of strategic investors and partners. Vodafone, American Tower, the Cisneros Group and Rakuten are sophisticated world class operators.

Speaker 3

They all have representatives that sit on our Board of Directors and they all have made 2 investments in AST. The next column I would highlight is our sale of our stake in Nano. We identified, Invested in and helped grow this space company. When we determined this company was no longer strategic to AST, we decided to sell this asset, recognizing a 9 times return on invested capital. And finally, on the fundraising chart, I would highlight that we tend to target our fundraising efforts as we derisk our business through the successful completion of milestones.

Speaker 3

Our recent equity raise in the Q4 was completed following the successful launch of BlueWalker 3 and the subsequent unfolding of its large scale array. We believe that investors will continue to see our milestone achievements as good times to consider new or additional investments As we contemplate raising additional capital for AST, we are working very hard to explore a wide variety of sources of capital designed to fund our operations in an efficient manner. And while these efforts are preliminary and there can be no assurance That additional funds will be available to us on favorable terms or at all. We are encouraged by these initial efforts. On the debt side, We are exploring raising capital with export import agencies, structured debt providers and over time potentially accessing the debt capital markets or loan markets.

Speaker 3

We believe that the modularity of our business plan creates the potential to reach operating cash flow with a modest portion of our planned Constellation. Producing operating cash flow before completing our Constellation may enable us to access the debt markets to support the build out of our constellation. Another area we are focusing on is raising capital through players in the wireless ecosystem. A key component of our strategy is to develop close relationships with important parts of the wireless industry, including MNOs, electronics manufacturers, base companies and others. We believe we are developing the next growth leg in the wireless industry and we are working with these strategic players to evaluate their interest in helping us commercialize our 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 ahead of the call by our investors. Operator, could you please start us off with the

Speaker 4

Josiah from Michigan asked how does AST SpaceMobile plan to maintain their lead in the D2D market?

Operator

Thank you, Shay for the question. Well, first, we are the 1st and only space based cellular broadband system. 2nd, we invented this new cellular broadband market and hold over 2,600 patent and patent pending claims. 3rd, we are currently operating the largest communication array in low earth orbit for commercial use and have validated our technology In orbit, we're far ahead of any other system with approximately 40 wireless operators around the world on the preliminary agreements and agreements of understanding. These relationships continue to accelerate and we continue to meet our technical milestones.

Operator

4th, we have a system that works with the phone in your pocket to support access to Over 5,000,000,000 forms in circulation today. And 5th, we are deeply invested in vertical integration. We own our own ASIC development software and literally we start with metal and composite and manufacture the majority of our satellite parts. We believe all these points provide us with a strong lead in this market for years to come. Thank you.

Speaker 4

Hey, Leiden from New Zealand asked what are some upcoming FCC milestones that investors should look out that are relevant to AST.

Speaker 2

Thank you. I'll take that one. We have been in front of the SEC for several years now talking about the potential for cellular connectivity from space and also the unique capabilities that our technology is designed to support. More recently, over the last 6 months, the SEC has taken a handful of steps that we support, including starting a rulemaking process, Specifically for cellular connectivity from space and they've also dedicated more resources to reviewing space applications by putting in place a standalone Space Bureau. And then just last week, we took important steps on 2 different regulatory processes with the SEC.

Speaker 2

First, we and AT and T made filings regarding Spectrum lease agreement between us, one that covers the vast majority of AT and T's low band spectrum assets. This filing requested a waiver to lease AT and And second, we and AT and T and others also submitted comments to the ongoing rulemaking process for supplemental coverage from space.

Speaker 4

Brian from Connecticut asked, there is some concern about finding confirming launch dates End cost, can you provide details of the ongoing discussions with launch service providers?

Speaker 3

Scott, I'll take this. Thanks, Brian. We signed an agreement in February of this year to launch our Block 1 satellites on a dedicated SpaceX Falcon 9 Rocket in the Q1 of 2024. In terms of future launches for Block 2, We are in active discussions with a variety of operators who we feel have enough capacity and manifest openings to support our plans. In order to increase our flexibility, we have also developed a configuration which makes our Block II design compatible with multiple launch vehicles.

Speaker 3

And look, as the launch market evolves, we believe we are a very interesting customer to launch providers who are looking for anchor customers who have the volume and cadence to drive their business.

Speaker 4

Leiden from New Zealand have, how many months post launch are BB-1s expected to need before they begin commercial service.

Operator

Thank you, Leland. After all the learnings that we have had with BlueWalker 3, which including the initial deployment, initial flight optimization and then the initial route of We estimate that it will take 3 to 4 months to activate for commercial service post launch separation. That includes the in orbit acceptance test of the spacecraft and the initial fine tune of the system And with that, I'd like

Speaker 2

to thank our shareholders for submitting these questions. Operator, let's open the call to analysts questions now.

Speaker 1

Thank B. Riley, please proceed with your questions.

Speaker 5

Thank you. With BLUE LOCK03, I know you started the optimization Processed by turning on kind of 1 micron of the array at a time until doing those first calls. But With a fully integrated array, how would you characterize the capacity that you Now expect to achieve with that satellite and what you maybe theoretically thought you would get out of that

Operator

Basically separate, deploy, fly it, point in Nader to the earth and test our end to end And we start the process turning up area array from Two elements to the full type of elements. As before, we have completed all that process, culminating into an end to end Connectivity directly to Samsung and the devices, but others as well. And at this point also, we have Complete measurements of signal strength at the full array level where we are getting around 3 bps per hertz Sufficient to support 4 gs and 5 gs data by the space, which was the intended

Speaker 5

Okay. Thank you, Abel. And just to clarify, the order of magnitude Improvement in capacity you expect with the Block 1 Bluebirds, is that per satellite or is that for the Block of 5?

Operator

No, that is per satellite. I mean, each satellite in Block 1, it will have 10 times capacity of what we can get with Google Opera 3. Block 2, we have another 10 times, so 100 times A capacity improvement compared to Google Play 3. This allowed us to really continue Adding significant conference option per unit cost delivered to the cell phone. And that is thanks to our vertical integration.

Operator

So we're fully vertically integrated. We don't know the software or the hardware or the custom ASICs That allowed to get to these points. Also that combined with the size of our rate that allowed us to basically scale Significantly, the capacity as we continue to develop our technology from Log 1 to Log 2.

Speaker 5

Okay. Thank you. And the last question for me just relates to beamforming. So you can dynamically point where you want to put the power down to make And I'm wondering if you could share how accurate you're able to do that versus expectations and then Signal strength, say, in the center of a beam versus on the edge once you're trying to support multiple

Operator

Yes. So one of the key Features of our technology, the ability to reuse the rectal spectrum. So basically, the ability to direct very precisely We signal into particular directions where there is no terrestrial signals. That allowed us to basically use spectrum From the global terrestrial operators in areas where they don't have it deployed or where it doesn't work properly. So that has been demonstrated With Walker 3, we recently have leased we have filed an agreement with the commission with the SEC Actually our usage of Spectrum in combination with AT and T, which is actually end use of this feature, allowing us to basically Precisely point is the signals into the directions where the direct footprint It's not in use or it's not working properly.

Operator

So the precision of that is within 1.5 degree to 2.5 degree depending on the size of the array And it is designed to dynamically reallocate the spectrum as our It's a software defined system that allowed us to turn on and off and actually point capacity

Speaker 1

Thank you. Our next question is from the line of Caleb Henry with Quality Space. Please proceed with your questions.

Speaker 6

Hi, guys. A few questions from me. I noticed in your 10 Q last quarter and this quarter that the Description of the total constellation size is now 95 satellites, not 110.

Operator

So I was wondering if you could walk As through some

Speaker 6

of the changes to the architecture that are now based on a slightly smaller constellation.

Operator

But we have now confirmation on the signal strength by Elevation. And We want to service some margins on how to do this. Also, we feel that we signal strength by elevation, which is basically What relates to the number of satellites that you need for continued service on a global basis, now we're confirming that we need around 90 satellites Global broadband connectivity directed to handsets on a global basis. Okay.

Speaker 6

And can you also kind of share, It looks like there's 25 BlueWalker III kind of clones before the transition to The Bluebirds, is there a reason why that transition was made as well?

Operator

No, there is 5 which are in construction, They had a 10 times capacity improvement even though that they are the same size of the Walker 3. The follow on next batch of satellites 25 Block 2, they are larger The reason for being larger In combination with our custom ASICs is the ability to have another 10 time capacity improvement in terms of Total amount of user total amount of gigabytes that each of the satellites will support as we continue To add them into the constellation.

Speaker 6

Okay. And does that mean between the slightly larger satellites and the It gets better than expected quality of the spectrum usage. Does that mean that you're going to get more than 9 to 13 15 gigabits per satellite, I think that was the previous benchmark.

Operator

We're not providing guidance, but we took to the new capacity, but we feel we need the range that we have provided before.

Speaker 6

Okay. And then my last question is just if you could provide an update on the ASICs. I think during the last call you said those were nearing completion.

Operator

Do you

Speaker 6

have a sense of are those done, are those finalized today? Or if not, how far away do you expect that to be?

Operator

Yes. We are at the very last end of the development nearing entering to the phase where you go to tape out, which is the last phase of development. This system has been validated. The AC basically is a very similar approach And use the background of what we have done on BlueWalker 3 on SPGAs. That allowed us to basically confirm Our way of implementing our calibration and our beam forming in the worker tree and then hard core in the ASICs that were in development.

Operator

So we're in the last stage of the ASIC. We've got been on them for our block tools, which are going to be larger without thoughts on ASICs. And that again, that give us a 10 time capacity improvement

Speaker 1

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

Speaker 2

Thank you, operator. As Abel discussed, this was a historic quarter for us, completing the first ever space based Voice calls using everyday unmodified smartphones. We really appreciate everyone for joining the call and we appreciate your support and questions. Thank you.

Speaker 1

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

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