AST SpaceMobile Inc (ASTS) 2021 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the AST SpaceMobile Third Quarter 2021 Business Update Call.

(Operator Instructions) As a reminder, this conference call is being recorded.

I would like to turn today's call over to Scott for the company.

Thank you.

Please go ahead.

Thank you, and good afternoon, everyone.

This is Scott Wisniewski, Chief Strategy Officer of AST SpaceMobile.

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.

For more information about these risks and uncertainties, please refer to the Risk Factors section of AST SpaceMobile's Form S-1 filed in June with the Securities and Exchange Commission as well as Form 10-Q for the third quarter of 2021, and other documents filed by AST SpaceMobile with the SEC from time to time.

Readers are cautioned not to put undue reliance on forward-looking statements.

And the company specifically disclaims any obligation to update the forward-looking statements that may be discussed during this call.

With that, I would like to introduce Chairman and CEO, Abel Avellan; and Chief Financial Officer, Tom Severson, to the call as well.

Abel, over to you.

Thank you, Scott.

I'm really happy to be back with all of you again for our quarterly business update.

But before I take you through our technology progress and industrialization, I wanted to spend a few minutes to explain the market opportunity we detect for those that are new to the AST SpaceMobile.

Starting with the market opportunity on Page 3. As I said before, we're chasing a huge market opportunity to connect people everywhere at air, land and sea.

There are over 5.2 billion mobile phones worldwide, and approximately half of the world population do not have cellular broadband on their phones.

Turning to Page 4. Here at AST SpaceMobile, we're building a space-based cellular broadband network that will allow you to connect your regular cellphone, the one that you have in your pocket, directly to space.

We're not building this alone.

We're building this with industry-leading strategic partners like Vodafone, American Tower and Rakuten.

And our service is designed for use by nearly all cellular subscribers as an add-on or as their main service from their existing wireless plans.

Now I want to move to an update on the industrialization of our technology and also on how we're doing with BlueWalker 3. There are a lot of exciting things going on with our company, and I'm eager to take you through our progress on both BlueWalker 3 and on the industrialization of our technology.

I also want to present to you how we're targeting 6 satellites per month by mid-2023.

Today, for the first time, we're going to take you through detailed photos of our technology and BlueWalker 3.

Starting with our headquarter, we're very proud to be in Midland.

We had invested a lot of time and money in preparing our facilities to be ready for the production of BlueWalker 3 and our production satellites.

Our headquarter is an 85,000 square foot facility located in Midland, Texas, where we do engineering, testing and manufacturing for our space products.

With all the investments that we have done and the head count that we have placed at this facility, we expect this facility to be able to produce up to 2 satellites per month.

And with the expansion of a new facility, we will be able to hit our target of 6 satellites per month.

So turning to Page 7. I want to introduce our new extension facility, a second facility in Midland, Texas, which is under contract.

And with this facility, we will have the capability to produce 6 satellites per month on a highly automated process for satellite manufacturing.

So today we're pleased to announce that we have entered into an agreement to purchase an additional 100,000 square foot facility in Midland.

In addition to the added capacity, we also have a plan to make the facility highly automated.

With additional investment, the facility will provide us the potential capacity to reach our production goal of 6 spacecrafts per month, and this is a big, big deal for us.

The 2 facilities are a couple of miles apart, both connected by train to provide us a lot of options for ground transportation of components of the assembled satellites.

Altogether, the 2 facilities will provide us access to 185,000 total square footage of manufacturing capacity in Texas.

I want to show you a picture of our final assembly integration and testing where we are actually building our BlueWalker 3. And also, we plan to use it as a facility to build our BB1.

Here is a recent photo of our main clean room in Midland, where we will do our final assembly, integration and testing of our satellites.

Currently, this facility is used for integration and test of BlueWalker 3. And then next year, we will use it for BlueBird 1 (BB1) next year.

On Page 9, you would see final assembly, integration, testing and delivery of our satellites.

In addition to the main clean room, there's a lot of other interesting activities going on at our manufacturing facilities.

Starting from the top left, you will see the LVA, launch vehicle adapter, that hold the satellite during launch prior to deployment in space.

This is the equipment that holds the microns, which is the modular system that we use to build our phased array and then deploy into space to unfold the service.

Middle top of the page is preparing for the assembly line.

Top right where we do full satellite radio frequency testing.

On the bottom left, it is the satellite STM, STM means system thermal mechanical, basically being tested and verified.

And on the bottom right, that is satellite shipping container arriving to Midland, which we will take the satellite to Cape Canaveral for a launch with SpaceX on Falcon 9.

So a lot of pieces are coming together nicely, and there have been a lot of lessons learned as we are prepared in parallel for our production satellites, and as we build our capacity to produce 6 satellites every month.

Page 10, shifting to assembly of the microns.

The microns, it is the building block of our satellites that represent approximately 90% of the cost of them.

And this is where the magic of connectivity to cellular phones happens.

These are identical parts that form the phased array and are the modular components that make the large phased array of BlueWalker 3 and our production satellites.

Importantly, we have all components now on hand, either are all purchased or manufactured by us.

The picture on the top page shows components coming into the micron assembly line and several staging areas.

We are vertically integrated with nearly all components assembled by us.

This is a very, very significant competitive advantage as we control the technology with 1,600 patent and patent claims, but we also control our costs by being able to assemble completely our technology by ourselves.

Moving to Page 11, BlueWalker 3 micron testing.

So testing and automation of our facilities is extremely important.

So the ability to verify on the ground that BlueWalker 3 will be able to connect directly to handset is a prerequisite for us to launch, and it's something that we have passed.

We will be launching BlueWalker 3 on a Falcon 9 from Cape Canaveral.

And then after the satellite launch, it will be followed by a Tesla.

The first part of the plan is the deployment, basically to demonstrate that we have deployed something that we have tested on the ground for over 1.5 years.

We will also have the ability to record the deployment and verify that all the testing that we have done on the ground match with what we see in the space.

Lastly, after the deployment is exercised and recorded by the cameras on board, we will be doing network integration testing with our network operators.

The first thing will be to calibrate the array to transmit to the ground and then interconnect to our operators in the U.S., Europe, Japan, Africa over a period that will be approximately 6 months, not only to interconnect our network to theirs, but also to test the service for voice, text, data, and high-speed connectivity at 4G and 5G speed.

The size of BlueWalker 3 is 693 square foot phased array.

We believe that we will be one of the largest phased array antennas deployed into orbit ever.

The satellite will be located at 400 kilometers.

It is in an orbital inclination of 53 degrees.

It will move on a speed of 17,000 miles per hour and will circle the Earth in less than 90 minutes.

BlueWalker 3 is the finalization of our R&D and basically demonstrates everything that we already have tested and verified on the ground: The ability to deploy a phased array of this size, the ability to connect directly to a handset, and the ability to perform broadband connectivity at 4G/5G speeds directly from space on timing for BlueWalker 3.

We had discussed we're using SpaceX as a launch provider for BlueWalker 3. And the current launch window with SpaceX runs from March 2022 through April 2022.

We have the option to pick an alternate launch window if we give SpaceX notice by December 1, 2021, and pay a rebooking fee.

We have not yet determined if we will rebook.

If we determine that we are going to exercise our right to rebook the launch, which is likely, we plan the target of BlueWalker 3 launch within a month of the original launch window.

However, any alternative launch will be subject to mutual agreement and coordination with SpaceX.

We have made some significant progress on BlueWalker 3, and our team has invested years and effort to get to this point.

And we want to make sure that we have fully completed our test program for BlueWalker 3 before we go to the launch site.

Then let's talk about with who we would partner to launch our satellite.

For BlueWalker 3, we are planning to launch on Falcon 9 out of Cape Canaveral, but we are designing BB1 and all our satellites to be multi-launch.

In other words, we can use many of the leading launch providers to accommodate our satellites, up to 15 of them, in a single launch.

Before I pass it to Scott, I want to talk about the business.

I want to basically remind everybody, especially for those that are new to SpaceMobile, the difference between our approach and any other approach to space.

The first one is the way we launch, build and use satellites.

We are the only satellite system that connects directly to handsets or regular cellphones.

And that is a very, very large opportunity.

As I explained before, 90% of the air surfers do not have access to cellular connectivity.

In that 90% of the air surfers, there is 5 billion people that move in and out of connectivity.

There is half of the world population that don't have broadband into their phone.

And there's approximately 0.25 billion people that do not have any access whatsoever.

So we are the only space system that has direct connectivity to regular cellphones.

That makes us very different than other approaches.

Other approaches are very valid, but they are different.

You have direct to proprietary mobile phones.

These are systems that require a special phone.

The phone is typically very expensive and low capacity.

And despite all those impairments, those systems generate approximately $2 billion of annual revenue.

And then you have also broadband connectivity into an antenna, which is also something more similar to WiFi or broadband connectivity to a terminal.

So if we were talking about a planet where everything comes from space, the connection to antennas is likely what you have in your home.

And we will be equivalent to the cellular service that we have today with your cellular providers, but everywhere in the planet.

So with this, I want to pass it to Scott.

He will talk a little bit more in detail the differentiation of our product and some of the packages that we're expecting to offer in conjunction with our network partners and operators.

Great.

Thank you, Abel.

Starting on Page 16, I'm really excited to cover a few topics with everyone today.

First, like many of you, we have watched a steady increase in activity, public attention and investment in the space tech over the past year.

With this backdrop, AST SpaceMobile is the only pure play for investors in LEO broadband.

And as Abel highlighted, but it's worth repeating, we are playing in a very large market with a solution that is applicable to over 5 billion mobile phones and a related $1 trillion addressable market.

We're jointly going to market with industry giants.

These are leading mobile network operators who have hundreds of millions of subscribers.

And importantly, we're not competing with them.

We have a revenue share business model designed to allow users to sign up with a simple text message.

And we have approximately $360 million in cash on hand to fund business operations in the first phase of our production satellite.

With that basis, we'll spend a moment on how we plan to go to market on Page 17.

To recall, our customers will be the mobile network operators, who will make our services available to their subscribers under a revenue share business model.

Based on country and subscriber mix, we have a lot of flexibility on how to modify their service.

The framework options you see on this page are some of the packages we're discussing with the mobile network operators and are designed to not only provide a highly valuable service to their subscribers but also limit friction of adoption.

First, you can see our Day Pass option illustrated on the phone on the right side of the page.

When a subscriber is out of coverage, that moment when they've lost connectivity and need it most, that's precisely when they would receive a text on their phone.

You may have experienced something like this from your current operator when you travel abroad.

This is a very low friction customer acquisition process linked to an immediate payment.

It's a very efficient way to drive adoption of our service, and it's also great marketing.

Over time, we expect that many subscribers will see through the useful service and want to have it as a monthly add-on to their plan.

This would create a recurring revenue stream on a monthly add-on basis.

And enterprise packages for corporate or power users may also have a lot of interest in some markets.

Lastly, we think a stand-alone plan can make sense, particularly in areas where there's no real cellular coverage today.

We see these use cases as the biggest opportunities.

But given the flexibility of our technology, there are a lot of other services that can be built around the SpaceMobile network, including emergency connectivity during natural disasters when ground networks are overwhelmed.

Now before I hand it off to Tom, on Page 18, I want to take you through a handful of other business updates.

On the commercial side, we are happy to announce the signing of 3 additional MOUs this quarter, including MTN Group, YTL in Malaysia, and Somcable in Somaliland.

For those of you who don't know, MTN Group is one of the top 10 mobile network operators globally with nearly 300 million subscribers, including a #1 position in Nigeria, a country with a population of over 200 million.

With many of our other mobile network operator partners, we are focused on test plans to use BlueWalker 3 to configure their infrastructure for commercial-grade interconnection with our network.

On the organizational side, a few further updates building on what Abel took you through in Midland.

We've also signed a lease to expand our technology center in Maryland.

This site has 16,000 square feet for engineering offices and will be the future home of our Satellite Operations Center and Network Operations Center.

In terms of people, we continue to grow, and our employee hiring plan to support scaled production and network operations added 40 new full-time employees in the third quarter.

This brings the total AST SpaceMobile team to over 500 people.

This includes 301 full-time employees as well as other full-time contractors and third-party engineering service providers.

Lastly, as Abel mentioned, we remain active safeguarding our technology advantage, increasing our patent and patent pending claims to over 1,600.

This represents the competitive moat around our tech.

Now with that, it is my pleasure to hand it off to Tom.

Thank you, Scott.

First, I would like to also welcome everyone to our third quarter business update call.

As a reminder, we became a public company on April 6 of this year and raised $416 million from new investors and our pre-transaction investors, including Rakuten, Vodafone, American Tower and Cisneros.

We ended the quarter with $360.4 million in cash, and the company is currently debt free.

Okay, now to turn to the financial highlights for the third quarter.

As you may recall, we compare our operating results on a sequential quarter-over-quarter basis.

It allows us to better discuss current trends and provide a baseline for future trends.

During the third quarter, our cash operating expenses, including engineering services, R&D, and G&A decreased to $22.2 million, a decrease of $2.3 million compared to the prior quarter.

This decrease was primarily due to R&D expenses, which decreased $4.7 million compared to the prior quarter.

Our R&D costs primarily relate to our agreements with third-party technology partners and will fluctuate quarter-to-quarter as milestones are achieved.

We expect our future quarterly R&D costs to be on average in the $9 million to $10 million range through the end of 2022.

During the third quarter, our G&A costs were $9.3 million and remained relatively flat compared to the prior quarter.

We expect that our quarterly G&A costs will remain in this range through the end of 2022.

Engineering Services increased by $2.2 million during the third quarter.

And we expect to continue to see our quarterly engineering costs increase as we ramp up our assembly, integration and testing team in preparation for full-scale manufacturing at our facilities in Midland, Texas.

The head count of our engineering and AIT employees and full-time consultants grew from 193 at the end of Q2 to 241 at the end of Q3.

And we expect this to grow to approximately 300 by the end of 2022 as we near the completion of the R&D phase and prepare for full-scale manufacturing of our production satellites.

In terms of our CapEx, to date we've invested $56.7 million in the construction of the BlueWalker 3 satellite.

And we expect to incur an additional $10 million to $12 million to bring the project to completion.

A significant portion of the total cost of BlueWalker 3 is largely comprised of nonrecurring engineering development, and to a lesser extent, satellite componentry and launch costs.

Total investments in our property and equipment were $19.9 million through the end of the third quarter.

And we're happy to report that the build-out of our AIT facility in Midland, Texas, is complete.

Now with 35,000 square feet of production-ready ISO 8 clean room, we're currently utilizing our Midland, Texas facility to assemble, integrate and test the BlueWalker 3 satellite.

In addition, in October we entered into an agreement to purchase an additional facility located just a few miles from our existing facility in Midland.

This new facility has an ideal footprint to accommodate the assembly and integration of our production satellites and will provide an additional 75,000 square feet of ISO 8 clean room manufacturing capacity.

The new facility purchase is $8 million, and we expect to close on the purchase in Q4.

We estimate that we will invest an additional $3 million to $4 million to get the facility production-ready, and we plan to complete this build-out during the first half of 2022.

Once completed, we will have a total of 110,000 square feet of ISO 8 clean room space in Midland, Texas.

We believe these facilities will be sufficient to support our manufacturing goal to complete 6 production satellites per month by mid-2023.

Finally, we continue to ramp up the procurement process for our BlueBird 1 production satellites.

As we progress in the procurement process, we reaffirm our cost estimates to build and launch the first 20 satellites with an average cost in the $13 million to $15 million range per satellite.

And for the full constellation of 168 satellites, our average cost per satellite is currently expected to be in the $10 million to $11.5 million range per satellite.

As we prepare the company for full-scale manufacturing over the next few quarters, we remain ever confident in the ability of our amazing team to execute our plan and deliver our technology.

And with that, operator, let's open the call to questions.

(Operator Instructions) Your first question comes from the line of Bryan Kraft from Deutsche Bank.

This is Ben on for Bryan.

Just wondering if you could provide a little bit more color on the construction and development process for BlueWalker 3 relative to your expectations?

And just curious if there's anything that changed this quarter around how you think about the timing for that build-out and eventual launch?

And then I've got a follow-up.

We basically are progressing as per expectations.

We are in the final stage of building, assembling and testing BlueWalker 3. We have all parts on hand.

We have an ability to rebook the launch in December.

We have not made a determination if we will do that.

However, we think if we do an exercise of that option, it'll be within a few months or a month of the original date.

However, that is contingent to agreement with SpaceX and in coordination with SpaceX.

But the satellite, we have spent a significant amount of time testing the satellite, in particular the deployment.

We're very, very confident at this point on the deployment mechanism for the satellite.

And we're working very hard to be on time.

However, we will not launch until we have full confidence that we have passed all tests.

The major test, which is, do we know if the satellite will connect directly to a handset, has been passed.

And in terms of the main modules, which we call microns, are they going to be performing as expected?

Yes, they are.

We are in the middle to follow that as we speak.

Got it.

And then just around the testing, can you give us a little bit more detail around the timing for when those tests will take place and when we'll receive them?

And how much cushion do you guys need between receiving those test results and then finalizing the commercial satellites and then launching them?

You're referring to BlueWalker 3 or you're talking in general?

Well, I'm staying for the BlueWalker 3 test.

When can we expect to get updates on that?

And then when you're building in the test results from BlueWalker 3 for the commercial satellite, I assume that there's a certain amount of time you need to build in the results from the tests and to tweak that.

Sure.

Well, if you're referring to when we launch, the first thing that will happen is we will verify the deployment of basically the satellite deploy.

That will happen within weeks of the launch.

We have to determine the appropriate time to do the deployment.

But when we initiate the deployment, that will be very quick, and that will be recorded in our cameras.

After that, we start a testing campaign with our network operators in the Americas, Africa, Europe and Japan, where we test and integrate the satellite capability with their networks.

And that is a process that takes approximately 6 months.

But at that point, we are verifying not only the functionality of the satellite, but we're also integrating our satellite architecture to the network operators.

And that's kind of the process that we follow after we launch for testing of the spacecraft.

Your next question comes from the line of Chris Quilty from Quilty Analytics.

Abel, I wanted to follow up on the test schedule.

I believe BlueWalker 3 is using FPGAs.

And I think the testing data eventually gets fed into the development of an ASIC, which would come -- I'm assuming, is that at the end of the 6-month testing campaign?

And if you can verify that.

And then what would be your expectations for how long it would take to begin manufacturing those ASICs in volume?

And I guess given current supply chain issues, how sure are you or assured of your supply chain?

Yes.

Chris, so BlueWalker 3 is based on an FPGA.

That allowed us to incorporate the learnings of the operation of BlueWalker 3 into our subsequent satellites.

Our first initial subsequent satellites are going to be also based on an FPGA, even though that we run in parallel the 2 programs, the FPGA program and the ASIC program.

We are very advanced on the ASIC.

However, we're not dependent on it for our initial satellites.

And the reason on the FPGA is basically to be able to reprogram the technology even when the satellites are flying, obviously something that you cannot do with the ASIC.

So we're taking our time with the ASIC.

The gain of the ASIC will be obviously the cost of the particular component and also power.

But we will be initially operating based on the FPGA's architecture that we are using, or a very similar architecture to the FPGA architecture that we are using on BlueWalker 3.

Got it.

And that would presumably account for why the early satellites cost more in addition to learning curve for latter satellites?

Absolutely.

So if you see our business plan, the initial satellite cost more than the later part of the satellites, but the functionality will be equivalent.

Great.

And sticking with the supply chain issues and the setup of the new facility, are there any specialized machine tools or equipment that you might need for the facility that would slow your ability to bring it into operation?

Or are you dealing with primarily standardized equipment?

Primarily standardized equipment.

We are automating a lot of the production line.

So BlueWalker 3, you see the way of assembly and testing is very manual, as it is our first experimental satellite.

The subsequent satellites are all fully automated -- and we'll not say fully automated with every step, but the main steps of the assembly are automated.

We are in the process.

We just closed on the facility.

We're in the process of basically sourcing those equipment.

We will be able to report on those in the next quarter or 2. But we don't see any major problem with that.

And regarding the supply chain, I mean, as I said before, we have all parts on hand at this point for BlueWalker 3. And we're already purchasing the long lead items for BB1 as part of the process of launching the first production satellite.

Great.

And I guess for Scott, I think you mentioned 3 new MOUs, and I just wanted to confirm that's now up to 22.

And I think you gave last time also a sense of what sort of population is covered by that as well as how many licenses you hold and population covered?

Sure.

So by way of update, we're not giving the exact number, but that's the general area.

Adding these 3 new MNOs does continue to grow our subscriber accounts with MNOs we have agreements with.

So that number is now 1.5 billion.

And in terms of regulatory approvals, we continue to work approvals globally.

And that stands at 6 countries fully approved with 360 million pop covered.

Great.

And what does the pipeline look like?

Or what sort of activity are you doing internally in terms of number of people our reaching out to potential new MNOs?

I mean how does that process look like?

I mean how aggressively do you have to reach out to those customers?

And are you growing the actual staff to do that?

Or do you wait until you get further down the demonstration and operation path?

Yes.

Chris, I mean 1.5 billion subscribers represent roughly 20% of the addressable market, which is addressed through agreements of MOUs that we have.

So ourselves, I mean we're mostly scientists and engineers building satellites.

It's not that we need a battalion of people to continue to increase the numbers of MNOs.

I mean this is a service when one MNO in a country has it, the other MNO needs to get it, as it's something that greatly differentiates one MNO from another.

So the way that we have approached it is cover the large ones in each of the regions, partnering with them to test our service and integrated to our service, start discussion with them when appropriate about the packages that they will be using to promote the services to the end users.

We believe in low friction to getting access to our service.

So for that, it's something very important that the MNOs get committed to basically advertise our service through a text message when people get out of service and make it part of their packages.

So that's where we're concentrating.

We're concentrating more in quality rather than quantity.

And we believe that we have taken a significant part of the market very early on in our life cycle.

(Operator Instructions) There are no further questions at this time.

I would now like to turn the call over to the company.

Thank you, operator.

Our company is building a space-based cellular broadband network designed for use with the phone in your pocket today, extending cellular coverage beyond what was ever thought possible.

I want to thank everyone for joining today, and I hope you have a great rest of the week.

Bye.

This concludes today's conference call.

You may all disconnect.