NextNav Inc. (NASDAQ:NN) Q1 2024 Earnings Call Transcript

NextNav Inc. (NASDAQ:NN) Q1 2024 Earnings Call Transcript May 12, 2024

NextNav Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Thank you for standing by. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the NextNav First Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session [Operator Instructions]. I would now like to turn the call over to Erica Bartsch. Please go ahead.

Erica Bartsch: Good afternoon, everyone, and welcome to NextNav’s First Quarter 2024 Earnings Conference Call. Participating on today’s call are Mariam Sorond, NextNav’s Chief Executive Officer; and Chris Gates, NextNav’s Chief Financial Officer. Before we begin, let me remind everyone that this call will include certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as may, anticipate, believe, expect, intend, might, plan, possible potential, aim, drive, predict, project, should, could, would, will and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.

Such forward-looking statements, which may relate to NextNav’s forecasts of future results, future prospects, developments and business strategies are subject to known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside NextNav’s control that could cause actual results to differ materially from the results discussed in the forward-looking statements. You are cautioned not to place undue reliance upon any forward-looking statements, which speak only as of the date made, and NextNav undertakes no commitment to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise. For additional information regarding risk factors, see Part 2 Item 1A Risk Factors of the company’s quarterly reports on Form 10-Q and Part 1 Item 1A, Risk Factors of NextNav’s annual report on Form 10-K for the year ended December 31, 2023, as well as those otherwise described or updated from time to time in our other filings with the Securities and Exchange Commission.

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. I’d now like to turn the call over to Ms. Mariam Sorond, Chief Executive Officer of NextNav. Please go ahead.

Mariam Sorond: Thank you, Erica, and good afternoon, everyone. I am pleased to have you join us for our first quarter call. On today’s call, I would like to run through some of the recent strategic updates on the business and will then turn things over to Chris for a review of our financials. While this is only my second earnings call as NextNav’s CEO, I am particularly excited to be speaking with you today given the activity over the last few weeks. As I noted on our last call, I have been working closely with the team since I arrived to develop my strategic vision for the future of NextNav. Today, I am thrilled to be able to share in greater detail what we have been working on and our strategy for moving forward. To get right to the point, the team and I are focused on preventing a new vision for complement and back up to GPS with additional spectrum for broadband services.

The country’s principal PNT system, GPS, is foundational to National Security, the U.S. economy and powering critical infrastructure, but has coverage limitations indoors and an urban canyon and is vulnerable to jamming and spoofing. We see our vision as an innovative solution that enables next-gen terrestrial PNT by leveraging 5G broadband. Our goal is single-digit accuracy everywhere, creating a terrestrial PNT solution that provides 3D location and timing that is highly accurate, is available indoors as long as outboard and in Urban Canyon. On April 16, many of you knows that we filed with deficient for role making asking the FCC to enable this innovative spectrum solution in the lower 900 megahertz spend. This was a significant milestone for the business and a big step forward in advancing our strategic vision.

This action follows the March 28 court approval for our previously announced agreement to acquire spectrum licenses covering an additional 4-megahertz in the lower 900 megahertz band. In receiving court approval, we then have the green light to move forward with obtaining SEC approval in mid-April. In terms of our petition at a high level, we are asking the FCC to reconfigure the bill plan and update the rules to: one, enable a high-quality terrestrial PNT complement and back up the GPS on which the nation realized for essential PNT services; and two, provide 15 megahertz of low-band spectrum reduced by 5G broadband networks. We believe this new vision for the lower 900 megahertz band will unleash spectrum for essential PNT solutions as well as 5G broadband while ensuring incumbent operations are appropriately protected.

More importantly, our proposal does not require taxpayer money or legislation. I will offer more on that in a moment. As many of you know, NextNav already the main geographic licensee in the door 900-megahertz band. Our existing licenses are being used to develop industry-leading PNC expertise and products. However, the lower 900 megahertz band is underutilized, primarily due to band fragmentation and legacy technical and service rules that limit use of the band. As part of our proposal, NextNav would commit to enabling a terrestrial 3D PNT service as a necessary backup and complement to GPS. Today, GPS plays a pivotal role in U.S. PNC in our culture. GPS is an incredible technology that powers much of our nation’s critical infrastructure, including electricity, telecommunications, public safety and banking.

But it is vulnerable to jamming and spoofing, look no further than issues happening internationally. Satellite-based systems like GPS, hop coverage limitations in boring an urban Canyon. Current GPS technology can be helpful for emergency services as accurate your location can be the difference between life and death. However, without GPS, essential functions would be significantly impaired or inoperable. More importantly, spectrum is also a finite resource, and we will need more Spectrum to power all the wireless services that fuels the economy. As a result, both public and private sector experts have determined that the U.S. urgent removal terrestrial PNT solutions complement and backup GPS. Additionally, there is broad consensus that making additional spectrum available for wireless networks would be advantaged to the U.S. economy and overall global competitiveness.

We believe a terrestrial 3D PNC backup and complement to GPS will mitigate the risk to the country unleash commercial opportunities and help public safety by providing location information and situational awareness indoors and in multistory buildings. However, it has historically not been economically feasible to deploy a stand-alone wide-scale terrestrial 3D PNT network. The reason for this are twofold: one, GPS is free, limiting potential revenue for other PNT offerings. And two, it is difficult to drive adoption of PNT specific protocols into consumer devices thus limiting subscribers. By reconfiguring the band, we see a direct path to a wide-scale terrestrial 3D PNT network, leveraging the lower 900-megahertz band in terrestrial 5G that was created unique economically viable opportunity to help address the urgent neutral widespread complementary and backup PNT services.

The proposed rebranding and related road modification with established 15 megahertz of low-band spectrum to support terrestrial 3G PNT and 5G broadband. This would include the 8-megawatt of Spectrum NextNav already owned.The additional 4-micro vessels seeking to acquire pending FCC approval and 3-megahertz of largely solid spectrum, much of which is in FCC inventory. NextNav’s NextGen technology will be a 5G-based solution. So, it is more easily integrated into the existing ecosystem for both deployment and adoption. The revised rule would enable NextNav terrestrial 3D PNT network to use 5G technology to extend PT recent areas where GPS Olympic and supplement the country’s 5G broadband capacity. To advance this, NextNav expects to partner with network operators or other interest in commercial deployment in the band for 5G, leveraging a 10 megahertz downlink spectrum block in 5 megahertz uplink.

NextNav can reliably supply integrated, highly accurate and consistent 3D positioning in dorms and outdoors along with precision timing. More importantly, our next-gen PNT solution will only use a small portion of the capacity, allowing the network providers to use the vast majority for broadband. We are already in active discussions with various potential partners and are also focused on ensuring that incumbent operations are appropriately protected. Overall, we believe this unique path forward addresses the coverage, cost and user device issues that have previously prevented broad terrestrial 3D PNT adoption. This is a full commercial solution with no need for government funding real life situation an attractive proposition. With PNC resiliency already receiving broad bipartisan support, we anticipate continued support from both sides of the aisle as we move forward.

In terms of next steps, on April 24, the Federal Communications Commission, included in its weekly public notice of agency actions on wireless license transactions, the application to assign the ABO licenses that NextNav agreed to acquire from TelePoiNT. This is specific to the transaction we announced on March 11, 2024. Approval of the license application is also contingent on FCC grant of a waiver request, and that request has not yet been placed on public notice. The April 24 public notice is a routine FCC action that does not indicate how the commission will act. Instead, it initiated the four period during which parties may file petitions on the assignment applications. The commission then has seven additional days in which it must either grant final or defer action on the application.

Ultimately, the exact timing of NextNav’s are in the hands of the FCC. However, we believe we have presented a petition that explains the urgency to the FCC and provides an economically viable solution to an issue of great importance. As we move forward, we will continue taking this process one step at a time. We believe this is a unique vision that will provide an innovative spectrum solution in the lower 900 megahertz plan. We look forward to continuing to provide an update on our progress as we move forward with the FCC and beyond. Finally, before I turn things over to Chris, I want to highlight a new addition to the NextNav’s team. Yesterday, we announced that Dr. Sano Gita Shamsundar, is joining NextNav as Chief Operating Officer, effective May 9.

Sano Gita was recently the Head of Edge Network Infrastructure at Google and prior to that, some several years at Verizon in various roles, including serving as the VP of Product Strategy and Operations, where she led early 5G network technology development and trials. We are thrilled to have someone of standing Gilas Caliber joining the team, and I look forward to her contributions as we continue to advance our strategic vision. With that, I will turn things over to Chris for a review of our financials. Chris?

Christian Gates: Thanks, Mariam, and good afternoon, everyone. First quarter revenue was $1 million, a $200,000 increase compared to $830,000 in the prior year period. The year-over-year increase was driven by an increase in recurring service revenue from technology and services contracts with commercial customers. Operating expenses for the quarter were $17.2 million, up from $14.8 million in the same period last year. Operating expenses included $1.3 million in depreciation and amortization and $4.2 million in equity compensation expense compared to $1.1 million in depreciation and amortization and $3.9 million in equity compensation in the first quarter of 2023. Net loss for the first quarter of 2024 was $31.6 million, which included a $13.2 million loss associated to a change in the fair value of warrants compared to a loss of $16.3 million in the first quarter of 2023, which included a $2.8 million loss on change in the fair value of warrants.

From a balance sheet perspective, we finished the quarter with $79.2 million in cash, cash equivalents and short-term investments. Our balance sheet showed $49.9 million in debt, net of unamortized discount attributed to transaction costs and the issuance of loans with a gross value of $70 million. After the close of the quarter, following the approval of the A-Block transaction by the Alameda Court on March 28 and per the terms of the asset purchase agreement, we made the $2.5 million cash payment under the contract. As a reminder, any future payments under this agreement will be satisfied with shares of our common stock with the number of shares based on the price of our stock at the time of the tin. Finally, in the past, I’ve mentioned that the warrants we issued in conjunction with our debt financing may be a source of additional liquidity.

I’m pleased to report that since the end of the first quarter and as of May 4, $7.7 million of those warrants were exercised for an aggregate of $16.6 million in cash. With that, I’ll turn the call over to the operator for questions. Operator?

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Q&A Session

Operator: [Operator Instructions] Your first question comes from the line of Griffin Boss with Riley Securities.

Griffin Boss: So, first off, there was a time not too long ago where the CapEx expectations for NextNav were a lot higher than they are now when you were contemplating deploying TerraPointe and Pinnacle. Can you give us a better sense of what your expectations are today for the CapEx requirements of the business going forward given this new vision you’re beginning to lay out?

Mariam Sorond: Thanks Griffin for the question. Currently, our task is to partner, and we believe that what we’re presenting is the SVP and upon approval, will actually unleash 15 megahertz of broadband spectrum for 5G build. And we believe that this is attractive to potential partners who can incorporate this platform into their networks. So, yes, you are correct that the CapEx is very different than what we have previously mentioned about a stand-alone PNT network, which we have highlighted that it is not feasible earlier in our comments.

Griffin Boss: And then just on the FCC, you received court approval. That’s obviously great to see. Did I hear you correctly that you said on April 24, that kicked off that 14-day period for comments on the assignment of the licenses, which would imply that ended today and then opens up to have additional days?

Mariam Sorond: That is correct. Today is the deadline for the 14-day comment period and the parties to file comments for petitions in response to that and deadline would be tonight.

Griffin Boss: And so, the FCC would have seven additional days to make a decision? Is that correct?

Mariam Sorond: That is correct. So, they have the seven days in which the grant deny or defer action on the application.

Griffin Boss: And then, Chris, I missed it when you were just talking about the initial $2.5 million payment. Was that made subsequent to the end of the first quarter?

Christian Gates: Correct. Yes, the terms of the asset purchase agreement or that payment to be made within 30 days of the court approval, which is on March 28. And so, we made that payment consistent with the terms of the contract.

Griffin Boss: And then the next milestone on that, I know it’s the earlier of either the SEC approval of the transfer or November. So, I guess, theoretically, my question is that next $7.5 million payment in stock could either come this quarter if the SEC approves it or next quarter or I guess, fourth quarter?

Christian Gates: That’s correct. It will be the earlier of November 15 or FCC action.

Operator: Your next question comes from the line of Jaime Perez with RF Lafferty.

Jaime Perez: The $1 million of revenue. I know it’s not clever point, but I mean, is it all Pinnacle? I know it seems like this change of strategy going away from the commercial initiative when you first came out at. Could you give a little bit more color on any further commercial initiatives you have?

Mariam Sorond: So, basically, we have only recently filed with the FCC, and are taking this process or a step at a time. And as we move through the process, we’ll keep the market updated as the timeline and the key milestones or any revenues associated with it. It would be premature to talk about it right now, we are focusing on the plan, and we’re looking at a situation where the FCC has an opportunity to deliver an innovative special solution in the lower 900 megahertz spend, right? So, we’re focused on the plan. We’re very optimistic around our goals and path forward, and we will take this a step at a time.

Jaime Perez: And my next question, any update on the executive order that’s sort of spending?

Mariam Sorond: I think there’s been a lot of action in the federal government, including the executive order that are all demonstrating the need for a backup and complement to GPS, whether that’s through the executive order with talking about federal agencies, having a solution or whether it’s a country to have a solution. So, all of these are good examples and good initiatives by the government that demonstrate the need, and that’s why we have proposed this plan, which actually puts a really solid solution that doesn’t require government funding. It doesn’t require legislation to solve and address the problem on the country’s principal PNT system.

Operator: Your next question comes from the line of Rosemary Sisson with Odeon Capital.

Rosemary Sisson: I had a question on liquidity and kind of how you see that working out over the course of the next year or so. Your cash burn during the quarter was close with $8.5 million to $9 million, and then you spent another $2.5 million in cash after the end of the quarter. So, just kind of how do you look at that? Is that the right burn rate to think about on a quarterly basis going forward in the near term?

Christian Gates: Yes, I’ll go ahead and address that question. Yes, historically, we haven’t provided forward-looking guidance. However, I can offer a few remarks about, number one, the strength of our balance sheet. As we’ve seen, we’ve attempted to structure transactions that have a favorable liquidity profile for us. For example, our A block transaction is intended to be paid substantially in stock. We’ve made the cash payment associated with that. And with respect to our operating expenses, we’re constantly looking at the ability to refine those expenses in line with the achievement of our objectives. I think if you look at last year in terms of what our OpEx and kind of cash burn looks like for that year, I think that’s a reasonable place to start. But in terms of forward guidance on expenses, again, that’s something that’s something that we haven’t historically provided.

Operator: I will now turn the call back over to CEO, Mariam Sorond for closing remarks. Please go ahead.