NextNav Q4 2023 Earnings Call Transcript

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March 13, 2024

There are 7 speakers on the call.

Operator

And I'll be your conference operator today.

Operator

At this time, I would like to welcome everyone to Nexnab's 4th Quarter and Full Year 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Thank you. I would now like to turn the conference over to Erica Bartch.

Operator

Erica, you may begin your conference.

Speaker 1

Good afternoon, everyone, and welcome to NextNav's 4th quarter and full year 2023 results earnings conference call. Participating on today's call are Miriam Sarond, NextNav's CEO Gary Parsons, NextNav's Chairman and Chris Gates, Nexnab'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. In particular, such forward looking statements may include statements about NextNav's business plans, objectives, expectations and intentions to drive growth in its 3 d geolocation businesses and expansion of its next generation GPS platform to maximize the value of its IP portfolio and spectrum, its international business as well as NEXNOV's partnerships and the potential success thereof. NEXNAS estimated and future business strategies, competitive position, industry environment and other potential growth opportunities.

Speaker 1

These statements are based on current expectations or beliefs. However, such forward looking statements are subject to known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside of NEXMAD's control that could cause actual results to differ materially from the results discussed in the forward looking statements. These statements may relate to, but are not limited to, expectations regarding our strategies and future financial performance, including future business plans or objectives, expected functionality of our geolocation services, anticipated timing and level of deployment of our services, anticipated demand and acceptance of our services, prospective performance and commercial opportunities and competitors, the timing of obtaining regulatory approvals, commercial partnership acquisition and retention, products and services, pricing, market plans and our ability to realize the anticipated technical and business benefits associated with acquisitions and any subsequent mergers, acquisitions or other transactions, factors relating to our future operations projected capital resources and financial position estimated revenue and losses projected costs and capital expenditures and expectations about international markets, projections of market growth and size, including the level of market acceptance for our services, our ability to adequately protect key intellectual property rights or proprietary technology, our ability to maintain our location and monitoring service licenses and obtain additional LMS licenses as necessary our ability to maintain adequate operational financial resources, including for research and development or raise additional capital or generate sufficient cash flows our ability to develop and maintain effective internal controls, our success in recruiting and or retaining officers, key employees or directors, expansion plans and opportunities, costs related to the public company, our ability to maintain the listing of our securities on NASDAQ, macroeconomic factors and their effects on our operations and the outcome of any known and unknown litigation and regulatory proceedings, as well as assumptions relating to the foregoing.

Speaker 1

Accordingly, forward looking statements should not be relied upon as representing our views of any subsequent date, and we do not undertake any obligation to update or revise any forward looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. 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. Please go ahead.

Speaker 2

Well, thanks very much, and good afternoon, everyone, and welcome to NextNav's Q4 and full year 2023 earnings call. Joining me on today's call are Marion Seron, Nxnab's Chief Executive Officer and Chris Gates, Nxnab's Executive Vice President and CFO. 2023 proved to be a year of major progress for NextNav. We furthered our physician navigation and timing or PNT technology, increased our financial flexibility with $70,000,000 in additional funding providing a multi year liquidity profile, We expanded our wireless carrier and handset customer base or E9113d location and first responder situational awareness. Landed P and T contracts with government agencies and Tier 1 chipset manufacturers.

Speaker 2

And most significantly from my viewpoint, we recruited an extraordinary Chief Executive Officer to lead us to the next stage of NextNav's evolution. As you know, Mariam brings over 3 decades of technology, spectrum and product leadership across wireless, wireline, satellite and cloud companies. She is renowned for her technical and regulatory expertise and has hit the ground running during her first 100 days at the helm. So now let me turn it over to Mariam to introduce herself, tell you what attracted her to this opportunity and give you a preview of her vision for NextNav's technology, products and spectrum assets. Marion?

Speaker 3

Thank you, Gary, and good afternoon, everyone. It is a pleasure to be on my first earnings call as the CEO of NextMath. Having the chance to take over the reins of the company is truly an exciting opportunity. For years, I've built my career in technology powered by Spectrum and have seen various companies and technologies come and go, witnessing both what has worked and what hasn't. Having now been with NextMap for just over 100 days, I can easily say that this opportunity is truly unique.

Speaker 3

What ultimately attracted me to this role was the potential of the Nexnab portfolio. 1st and foremost, Nexnab is a growing company with an impressive set of assets and solutions, specifically PMT solutions that span both the private and public sectors and are powered by a valuable spectrum asset. Positioned in the lower 900 megahertz band with excellent propagation characteristics, Nexnap's existing spectrum is ideally positioned to unleash opportunities to develop next generation solutions. That said, I believe the value potential of this asset has long been underappreciated. Today, the need for PNT solutions powered by low band spectrum with optimized use is a powerful opportunity.

Speaker 3

It can address many of the problems we face in both the public and private sectors, including in areas like national security and public safety. As a result, I am confident that there is significant potential in Nxnap's ability to explore various options to enhance next generation PNT technology through spectrum. This is why I'm excited by our recent acquisition of additional spectrum licenses covering 4 megahertz of noncontiguous spectrum. Announced earlier this week, the licenses are in the same lower 900 megahertz band as our current spectrum and were acquired after a recent opportunity to buy them from receiver. We moved quickly and as we move forward to take advantage of our full spectrum portfolio, all of these licenses will be part of the mix.

Speaker 3

What has me even more excited about this opportunity is just how well it dovetails with my background. As Gary mentioned, I have devoted my career to advancing and commercializing innovation and technology. I spent several years working at DISH where I oversaw spectrum technology, Standards Development and Negotiation of Agreements across government agencies and industry partnerships, I created Spectrum Band Plans towards the 5 gs Open RAN cloud native architecture design, which is currently deployed at DISH. I also led technology and strategy efforts for telco cloud platforms, mobile and wired convergence and satellite technologies at other companies. In short, this type of work is embedded in my DNA.

Speaker 3

Moving forward, my priority is on ensuring that the entire organization is laser focused on advancing our path forward. Specifically, we are committed to developing next generation technology for PMT that will take advantage of 5 gs. Our primary goal is single digit accuracy everywhere. This means creating a 3 d positioning solution that provides location that is highly accurate and is available indoors as well as outdoors and in urban corridors. It also means wireless distribution of timing everywhere.

Speaker 3

It's within this framework that we will be looking to advance next gen PNT in a timely and efficient manner. As part of this process, I want to stress that we plan to take a fresh look at all components of the business with an eye toward taking full advantage of our spectrum assets. To do this, I have assembled a top team combining in house technical talent with consultant expertise in PNT and spectrum based services to help advance our vision. This group nicely complements the existing NEXnow team of experts and will be invaluable to us and our management as we chart our path forward. As part of this effort, we will be looking at how best to leverage our spectrum, including the recently acquired licenses I referred to earlier.

Speaker 3

As a reminder, NEXMASS currently owns licenses covering the contiguous 8 megahertz of valuable low BaaS spectrum covering 2,400,000,000 megahertz PoPs. With the addition of new licenses, NextNet's full spectrum portfolio will total 3,500,000,000 megahertz pops of low band spectrum, an impressive portfolio of assets. In terms of next steps, we need the court to approve the transaction and assuming that happens, we will promptly seek FCC approval. Until that time, our primary focus remains on developing next generation technology for PNT that will take advantage of 5 gs. We expect all of NextNAP's licenses will be a part of the mix as we consider how best to take advantage of our spectrum.

Speaker 3

We have an exciting path ahead and I look forward to providing additional updates as we progress over the coming months. Finally, before handing things over to Chris, I want to quickly provide an update on our P and C activities. Accurate P and C continues to be necessary for the functioning of critical infrastructure in civil, commercial and military use, all sectors that rely on accurate PNT data to provide their services. More importantly, PNT is a national security topic and resiliency needs to be considered. We are currently in discussions with several agencies on this exact topic.

Speaker 3

Specifically, we are planning to respond to a Department of Transportation RFQ that was released last month to test complementary P and T solutions in an operational environment, including testing against GPS disruptions. This follows the DoT's complementary P and C action plan that was issued this past fall. As you can see, it's quite a busy and exciting time at NextMap. We have an incredible path ahead and I can't wait to share more with you over the coming months. I also want to make clear that as CEO, I plan to be very engaged with our shareholders and the financial community.

Speaker 3

My goal is to ensure that all of you have a clear understanding of our pathways to growth and the milestones we need to achieve along the way. As you know, our company is engaged in numerous conversations with government officials as we lay the groundwork for our future. And there is a sensitive nature to many of these discussions. As I am able, I look forward to sharing information and providing you with regular updates. Though this is a process that will take time, we are committed to seeing you through and hope all of you will join us on this exciting journey.

Speaker 3

With that, I will turn the call over to Chris to run through our financials. Chris?

Speaker 4

Thank you, Mary Anne, and good afternoon, everyone. Let me begin with a review of the terms of the Spectrum transaction. As noted in our press release on March 11, we signed an asset purchase agreement to acquire additional lower 900 megahertz spectrum licenses in our band for a total purchase price of up to $50,000,000 $2,500,000 at the purchase price is to be paid in cash, due within 30 days of the court approving the transaction. The remainder is expected to be paid for with NextNav common stock at the then current stock price, based on the achievement of certain milestones including appropriate regulatory approvals. I'd refer you to our 8 ks filing for specific transaction details.

Speaker 4

I should also note that we structured this transaction consistent with our conscious efforts to manage the use of capital in our business. Recall that we executed a debt financing of senior secured notes last year that yielded gross proceeds of approximately $70,000,000 along with warrants with an aggregate strike price of $56,000,000 We were pleased by the positive market reception to this financing, which was a testament to the potential value to be unlocked in our assets and business. Now turning to our financials. 4th quarter revenue increased 50% to $1,200,000 compared to $803,000 in the prior year period, primarily due to increased recurring services revenue in the current period from technology and service contracts with commercial customers. For full year 2023, revenue was $3,900,000 flat versus the prior period.

Speaker 4

Our revenue was driven by an increase in recurring service revenue from technology and service contracts to commercial customers offset by a decline in integration revenue from the prior year period. Our operating expenses were $21,100,000 in the quarter, up from $15,300,000 in the same period last year, due primarily to an increase in equity based compensation expense, a full period of Nexa France operations and CEO transition costs. Excluding stock based compensation and depreciation and amortization, operating expenses were $10,700,000 compared to $8,400,000 in the prior period. For the full year, operating expenses were $67,400,000 down from $69,500,000 in the prior year, with the reduction driven by a decrease in SG and A partially offset by increases in depreciation and amortization as well as R and D expenses, primarily related to a full year of Mexnat France operations. Excluding stock based compensation and depreciation and amortization, full year operating expenses were $40,700,000 in the current period and $39,300,000 in the prior year.

Speaker 4

Net loss in the Q4 was $16,400,000 compared to a loss of $12,500,000 in the prior year. The primary drivers for the increase were net interest expense of $2,000,000 higher stock based compensation expenses and higher payroll costs, partially offset by a gain from the change in the fair value of our warrants of $5,700,000 compared to net interest income of $456,000 and a gain in the change of the fair value of our warrant liability of $1,500,000 in the prior year. For full year 2023, net loss of $71,700,000 as compared to a loss of $40,100,000 in the prior year period. Here again, the primary drivers were net interest expense of $3,700,000 and a loss associated with the change in fair value of our warrant liability of $4,100,000 compared to net interest income of $901,000 and a gain associated with the change in fair value of our warrant liability of $24,700,000 in the prior year. Looking at our balance sheet, we closed out the year with $81,900,000 in cash and cash equivalents and $4,000,000 in short term investments.

Speaker 4

The company ended the year with $48,400,000 in debt net of unamortized discount attributed to transaction costs and the issuance of warrants with a gross value of $70,000,000 As a quick reminder, the warrants issued as part of our debt financing are exercisable for cash and become partially callable beginning in 2025. Whether called or exercised otherwise, these warrants may provide a source of additional liquidity as they did in the Q3 of 2023. Thank you. And with that, I will turn things over to the operator to open the call for questions. Operator?

Operator

Thank Your first question comes from the line of Griffin Baugh from B. Riley Securities. Please go ahead.

Speaker 5

Hi. Thanks for taking my question. And first off, welcome to the team, Maryam. Can you just give some color on your thoughts specifically, just high level, the value you saw in these additional 900 megahertz spectrum licenses that the NextNav announced they were acquiring a couple of days ago and what that means for the company going forward and just the overall value proposition of the company?

Speaker 3

Yes, absolutely. So as you know that the AVOX spectrum has been out there for some time and we were focused on our existing licenses. One of the reasons I was so excited to join NEX NAV was the potential of the technology portfolio in the interesting spectrum asset, right? This transaction gives us the opportunity to build on this portfolio. Specifically, NextNet already has a valuable spectrum position in the lower 900 megahertz band.

Speaker 3

Following the close of this new agreement, NextNet's full spectrum portfolio, as I noted earlier, is going to be 3.5 1,000,000,000 megahertz PoPs of low band spectrum. And just layer on top of that, the need for PNT that is powered by low band spectrum is a great opportunity and it can address many of the problems inherent across both the public and private sectors.

Speaker 5

Got it. Great. Thanks for that color. And then maybe either for Gary or Miriam, is there anything you can share regarding progress with testing and where you're at with the FCC process at this point?

Speaker 3

Yes. I mean, let me take that and Gary, you wanted to add. But first of all, with the testing, we've actually the results of the limited testing that we did in the Bay Area were positive. Now that we have a larger spectrum portfolio to work with, there will be additional testing and we will be working to include all the licenses in this process as we move forward, right. As a reminder, their internal tests that we conduct as part of the optimization and development of our next generation systems.

Speaker 3

And I should note, we will not be publishing that data unless it becomes a part of the FCC filing. There is a process at the FCC and we will work through that process diligently. Having just announced this transaction, we are working on a plan, but it would be premature for us to discuss our efforts at this juncture.

Speaker 5

Okay, great. Well, that's good news. Glad to hear that. And then just last one for me, if I could. And Marion, obviously, you mentioned you're going to be taking a fresh look at all components of the business regarding future opportunities.

Speaker 5

That makes sense. The company in the past has discussed a certain agreement a Tier 1 global chip manufacturer for GPS IoT applications. Just wanted to get some more color on whether that opportunity is still progressing with anticipated revenue starting to ramp up in the back half of this year?

Speaker 3

Look, PNT continues to be one of our focuses and advancing our next generation technology in PNT would be a focus. We're talking to multiple industry entities. We're talking to the government agencies and we are taking a fresh look at how we can advance focusing our portfolio of spectrum as it powers this technology. So it's all in the mix with a fresh look.

Speaker 5

Okay, fair enough. Thanks for taking my questions. I appreciate it.

Operator

Your next question comes from the line of Timothy Horan from Oppenheimer. Please go ahead.

Speaker 6

Hey, thanks guys and thanks Mariam. Could you talk a little bit more about the spectrum you just acquired, maybe the geographic coverage? And exactly is it contiguous to you guys? Or is it in the same exact band? And are there other bands you think in this range that you could potentially acquire?

Speaker 6

And then well, yes, that's a lot of questions.

Speaker 3

Okay. Thanks for the question, Tim. So our current portfolio, the 8 megahertz of contiguous spectrum and it covers 2,400,000,000 megahertz pop, right? And the A block is non contiguous spectrum that brings our total portfolio up to 3,500,000,000 megahertz tops. So that's what the spectrum and they're both located in the lower 900 megahertz.

Speaker 3

As far as other spectrum, right now we're very laser focused on our current licenses and once approved and once we have discussions at the FCC with the future licenses that we just acquired and that's where our focus will be. But of course, we'll take a look at everything that's going out there as well.

Speaker 6

So are they covering this 4 megahertz? Is it covering like 200,000,000 or 250,000,000 PoPs? Is that what you're saying? And it's not in the same exact spectrum band as yours, it's adjacent?

Speaker 3

It isn't the same. So the range is between 902 to 928 megahertz. The a block falls on the lower portion of that spectrum and our print 8 megahertz licenses fall in the upper portion of that same spectrum. So they're all in the same spectrum band. Got it.

Speaker 6

And yes. And the geographic or the PoP coverage that they have?

Speaker 3

So the PoP coverage for the 8 megahertz is 2,400,000,000 megahertz PoPs and then the A block would give us an additional 1.1 that brings us up to 3,500,000,000 megahertz PoPs.

Speaker 2

Hey, and Tim, this is Gary. So as you appropriately noted, you do the math on that, yes, their actual top coverage is something like $270,000,000 versus like $3,000,000,000 So yes, that's how you get to the numbers.

Speaker 6

And does it become a lot more valuable by combining their spectrum with your spectrum? Is it an exponential increase instead of just 1 plus 1 being 2, 1 plus 1 being 5 or any color around that what you can do with it would be great?

Speaker 3

Look, we can share more, but we have to wait for our SEC process. At this point, I can tell you that we need to work with the SEC for the approval and talking about how this would look in the future is a little bit premature until we go through that process. But it is exciting combination of assets and technology that we're talking about over here. So but we will we are going to be diligent in the FCC process and we actually don't want to prematurely be discussing what that looks like.

Speaker 6

Got it. And so do you have a rough idea when the transaction might close? And do you are there any collars on your stock at all for paying the remainder of the for the $50,000,000 of the company?

Speaker 3

So in terms of timing, the court must approve the transaction. And assuming that happens, we will also need the FCC approval, okay? But right now, our primary focus is on developing the next generation technology while that's going on that will take advantage of 5 gs. Great. Thanks a lot guys.

Speaker 3

Sure.

Operator

And we have no further questions in our queue at this time. I will now turn the call back over to Imran for closing remarks.

Speaker 3

Thank you, everyone, for joining us today. I want to reiterate how excited I am about the technology and the opportunity I see at NextNav. As we advance forward, we'll have more to share on our progress. And I look forward to speaking with all of you again on our Q1 earnings call. Thank you.

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NextNav Q4 2023
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