AST SpaceMobile Inc (ASTS) 2022 Q2 法說會逐字稿

Good day, and thank you for standing by. Welcome to the AST SpaceMobile Second Quarter 2022 Business Update Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Scott Wisniewski, Chief Strategy Officer of AST SpaceMobile. Please go ahead.

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. For more information about these risks and uncertainties, please refer to the Risk Factors section of AST SpaceMobile's annual report on Form 10-K for the year that ended December 31, 2021, with the Securities and Exchange Commission and other documents filed by AST SpaceMobile with 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.

Also, after our initial remarks, we will be starting our Q&A session 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, there are over 5 billion mobile phones in use today around the world, but many of us still experience gaps in coverage as we live, work and travel. In this backdrop, AST SpaceMobile is building the first and only global cellular broadband network in space to operate directly with standard unmodified mobile devices based on our extensive IP and patent portfolio. Our engineers and space scientists are on a mission to eliminate the connectivity gaps based by today's 5 billion mobile subscribers and finally bring broadband to the billions who remain unconnected.

Since our last quarterly business update, we have made strong progress, and it is my pleasure to now pass it over to Chairman and CEO, Abel Avellan, who will take you through that now.

Thank you, Scott. I would like to do a quick technology and industrialization update. Let me start with BlueWalker 3. BlueWalker 3 has been delivered to Cape Canaveral and it is planned to be launched on a launch window that started early to mid-September. In parallel to construction of BlueWalker 3, we are building the next 5 satellites that are under initial construction phase using designs and part similar to what we have in BlueWalker 3, including FPGA, reaction wheels and antennas, and they are planned to be launched in late 2023. And prior to that, we also have substantially completed the commercial agreements with partners and vendors in order to get access to the component that we will need for the next 5 Block 1 satellites and the next-generation satellites.

Also, we are on target with our extension facility, Site 2, to support our scheduled plan of launches. A little more detail what happened when we launch BlueWalker 3, where we've been in launch and testing time line. In July '19, we transported BlueWalker 3 to California for testing, environmental testing. That was successfully completed in California. On August 9, we reported BlueWalker 3 to Cape Canaveral, where we continue testing. We'll continue testing here in the Cape, while at the same time we completed preparation for the launch. Then the launch is planned for a window between early September to mid-September on a Falcon 9 from Cape Canaveral.

T+2, so 2 months after the launch -- approximately 2 months after the launch, we will have locative placed into its orbit. We will initiate initial in-orbit testing. We will unfold the array and we'll deploy QV antenna for re-sharing communication [into the RAM]. And then from T -- from launch, all the work in initial 6 months, we will start a campaign to testing our broadband direct-to-cell phone system in cooperation with participating MNOs on 6 continents. We will also be testing BlueWalker 3 satellite using Nokia and Rakuten infrastructure to interconnect with the local operators. And that's kind of what we have as a plan for BlueWalker 3 from now to launch.

Continued in the business momentum, continues to be strong. We have added 3 new operators included a memorandum of understanding with Smartfren Telecom in Indonesia, which is a large and important market. With them, we had reached more than 1.8 billion subscribers that we can access through the agreements or memorandum of understanding that we have with operators around the globe. We had increased our patent portfolio to more than 2,400 patent and patent-pending claims to support our strong and expanding competitive advantage.

We also have achieved an agreement to sell a majority ownership of NanoAvionika on an enterprise value of $65 million, and the company expects to receive approximately $27 million in net proceeds at closing. And just recently, we have completed an agreement with Nokia for the 4G and 5G technology to be integrated into our space network. The technology that we'll be using for them is the AirScale System, which is planned to be offered as the interconnection infrastructure between our satellite infrastructure and the MNO infrastructure.

And with that, I would like to hand it over to Sean, our Chief Financial Officer.

Thanks, Abel. Good afternoon, everyone. These are exciting times for AST, and I want to thank the entire AST team for their efforts in getting the BlueWalker 3 test satellite to Cape Canaveral. There has been an incredible amount of hard work and dedication for this to happen and it has truly been a team effort.

As I reflect in my first 3 months at AST, I continue to be impressed by the significant progress our company has made over the past few years. This progress has been recognized through the interest from large, important third-parties, including MNOs with whom we have agreements, and understandings representing over 1.8 billion subscribers. And through our recent announcement with Nokia, where one of the leading mobile equipment providers in the world has recognized the potential of our system and is willing to invest significant time and resources to support our efforts.

Let me move on to a discussion about some of our key operating metrics that are presented on Slide 7. Looking at the first chart, we see for the second quarter of 2022, we had non-GAAP adjusted operating expenses of $31.8 million versus $29.4 million in the first quarter. Non-GAAP adjusted operating expenses exclude noncash operating costs, including depreciation and amortization and stock-based compensation totaling $3.6 million and $3.4 million in the second and first quarter, respectively. We expect to continue to expand that level of operating expenses for the next 2 quarters. The $2.4 million increase in adjusted operating expenses compared to the first quarter was related to increased employee costs and other research and development and engineering expenses as we ramp up the development and infrastructure investments to support the BlueBird program.

In the second chart on the page, you can see that our total property plant and equipment increased by $9.4 million in the second quarter. This compares to an increase of $19 million in the first quarter. The $9.4 million and $19 million represent our capital expenditures for those periods. A payment to our launch provider in the first quarter was the reason for the larger capital expenditures in the first quarter.

And on the final chart on the slide, we ended the second quarter with $202.4 million in cash. We believe this cash is sufficient to support our cash expenditures for more than the next 12 months. In addition to this cash on hand, we have been working hard to develop other sources of cash and liquidity to supplement our activities. We understand the capital-intensive nature of our project and we are highly focused on exploring a wide range of options in order to efficiently fund our efforts.

As our BlueWalker 3 satellite now resides in Cape Canaveral, we are now focusing our investments towards the production of our BlueBird satellites. We believe a key advantage of the SpaceMobile system is its ability to be deployed in a phased manner, where we can target a modest number of satellites to provide limited coverage to specific countries. We believe this ability to phase in our coverage will provide us a first-to-market advantage and enable us to work with MNOs to introduce services and develop the market.

We currently estimate the capital expenditures required for the design, assembly and launch of our first 20 commercial satellites to be approximately $300 million to $340 million. This is an increase from a midpoint of $14 million per satellite to $16 million per satellite or a little over 14%. The estimated capital cost to complete the satellite configurations has increased from our prior estimates due to a number of factors. The initial 5 satellites which we expect to launch in late 2023, will now use existing components from our BlueWalker 3 test satellite design, including certain integrated circuit components, navigation controls and antennas. We benefit from this change in mix of satellites as it will enable AST to construct and launch these satellites sooner. But this will also result in an increase in cost per satellite due to the current higher cost of these first-generation components.

In addition to this change in the mix of our first 20 satellites, a number of factors, including inflation, supply chain disruptions, design changes and increases in the cost of electronic components, assembly equipment, launch costs, salaries and other aspects of our satellite design and assembly activities has increased the cost to design, assemble, and launch our satellites. These estimated cost trends are preliminary estimates and based on certain assumptions and information currently available to us and are subject to change based on numerous factors described earlier as well as delays in the development of components and materials, launch costs and other factors.

I am encouraged by the progress that the team has made, and I'm excited about the company's future as we transition from the development phase to commercial satellite production. Thank you for your continued support of the SpaceMobile mission.

And with that, I'll turn it back to Scott.

Thanks, Sean. Before we go to the queue of analyst questions, I would 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 first question?

Terry from Georgia asked, what is the ramp-up plan for BlueBird launches and deployments post production?

Thank you, Terry, for the question. Our plan is to use our 2 production facilities in Midland, Texas, one which is the production facility that we used to build BlueWalker 3, Site 2, which is the production facility, where combined Site 1, we have to scale up, up to 6 satellites per month's production. So we're taking a phased approach. We are first building our next block of satellites using similar technologies and a combination of our current facility on Site 2 in order to launch -- to support the launches that we have next year and then to follow up and extend our Site 2 in order to support the 6 satellites per month production capability.

Steve from Arizona asked, will the proceeds from the sale of AST's stake in Nano and equity sold under the B. Riley facility generate enough proceeds to complete Phase 1 of the SpaceMobile constellation? Or will other actions such as tapping into the mixed shelf offering be needed?

Steve, thanks for that. As we disclosed in our filings, we look to manage our business with liquidity for at least the next 12 months. And as I stated earlier, we believe we have enough cash and resources to fund our activities for the next 12 months. Having said that, we will need to raise additional capital before entering into Phase 1 commercial service with 20 satellites. As part of this capital raising effort, we have been working on a number of fronts, including the filing of a $500 million shelf for debt, equity and preferred. We sold Nano, which will provide us $28 million in gross proceeds. And we are in advanced stages in securing an equipment facility, which will help us purchase equipment in our manufacturing facility. We will be opportunistic in raising this capital and strategic and continue to raise capital in a variety of sources in order to fund out our plan.

Rick from the Netherlands asked, can you please explain the expected average cost of the BlueBird satellites compared to the cost of BlueWalker 3?

Yes, Rick. The BlueWalker 3 costs are a result of onetime research and development, building out supplier relationship, seeing what works and doesn't. And a lot of that expenditure will be done once but not again. Our Block 1 BlueBirds will benefit from these learnings, design and manufacturing and material selection as well as scale economics and prior upfront investment. As I mentioned earlier, the increase in our capital cost estimates for the first 20 satellites was a result of the use of older generation BlueWalker 3 parts in the first 5 satellites and the impact of general inflation and supply chain issues. This has increased our estimated for satellite costs to go up about 14%.

[Astrid] from Toronto asked, can you stress test BlueWalker 3 in Ukraine? Starlink is already in heavy use there and SpaceMobile would definitely add value by connecting emergency services and the Eastern Southern parts of the country to broadband Internet.

Thank you, [Astrid]. Our technology architecture, which does not require a user terminal and is designed to connect directly with unmodified handsets. This is really ideal to when terrestrial networks are not available. For the Ukraine, we would love for our solution to someday support humanitarian missions and save lives. And this applies to natural disasters, outages or other emergencies. But we do not currently plan to test BlueWalker 3 in the Ukraine.

Andrew from Pennsylvania asked, what do you anticipate being the biggest challenge for the launch and deployment of BW3?

Thank you, Andrew. Well, we'll be continuously testing BlueWalker 3 all the way until we get encapsulated to the launch vehicle. That is planned for a launch that is scheduled early to mid-September. Between now and then we'll continue a significant amount of testing, and we also continue preparing to be ready to launch by that date. All of that has been performed in the Cape in the lab facility where this satellite will be launched.

After that is completed, we launch, we would be getting into space. We will be running an in-orbit test, basically to make sure that everything continues to work as we get into space and then we get it to our orbit. Then we deploy. And then we continue, as I explained earlier, continue our test campaign together with our network partners around the globe.

So that's a very significant logistics. We have test plan in every single continent where there is population. Many test facilities and locations have been lined up for that. These are our logistics required for that in order to do all the testing in a timely manner.

And with that, I'd like to thank our shareholders for submitting these questions. Operator, let's open the call to analyst questions now.

(Operator Instructions) Our first question is from Griffin Boss with B. Riley.

First off, we've obviously seen some [shrink] in the stock recently. I'm not going to try to speculate on the exact drivers there, but it seems like the significant rally on the 11th came on the heels of the FCC announcement that SpaceX wouldn't be awarded the $900 million from the RDOF fund. Whether or not that contributed to the rally is anyone's guess. But at the end of the day, you're not competing directly against Starlink and the RDOF is unrelated to AST given that it's focused on fixed broadband. But I did want to come back to that topic of government funding in general. We know you're buying for a piece of the 5G fund in the U.S. I just was curious if you guys could provide any other color. If there are other government programs already out there internationally that you're looking to participate in or if you expect to see many of those opportunities like that outside the U.S. in the future.

Griffin, Scott here. I'll take that one. So I think first off, we continue to believe that we qualify under a prospective 5G for America FCC fund. Details on that have not been released, but still in process, but we continue to believe that we qualify for that based on the rule making from a little while ago, and that's an opportunity for us for sure.

And globally, there are similar types of funding available. We haven't talked about those specifically. But generally speaking, I'd say our message and our story has been pretty well received. And there are -- apart from grants, there's also government-supported debt that's available. And so I think our story continues to resonate well with governments, with regulators. And importantly, as we get closer and closer to a launch, and we delivered a satellite to Cape Canaveral, seeing that satellite, seeing the tangible milestone has been very powerful with a lot of different audiences. But we continue to believe we qualify for that prospective FCC fund, but we're in a wait mode there.

Got it. Okay. Great. And then next is related to the upcoming BlueWalker 3 launch and then subsequent testing. If everything goes according to plan, then there's no issues, obviously, with that technology risk in the rearview mirror, your ability to sign deals becomes much simpler. And I know you guys mentioned a few more in the quarter that was good to see. But as you know, the BlueWalker 1 launch in 2019 was sort of the basis for investment from Vodafone, Rakuten and AMT. And to the extent that you guys can discuss anything around that, have you been in talks with additional MNOs that maybe already have alluded to their willingness to sign MOUs in the event that the BlueWalker 3 testing is successful?

Yes. At this point, we've signed up to an agreement or understanding with quite a lot of the global MNOs. So we're approaching 2 billion of subscribers under some form of agreement or understanding. And the message continues to resonate quite nicely. Again, in the prior question, I referenced the tangibility, the delivery of the satellite. Those are very powerful factors that our customers and regulators are pointing to. There are a few other large MNOs that are out there, over 100 million subscribers that we have not signed. But generally speaking, we're with nearly all the top MNOs who are not, say, in China or not conflict with Vodafone. So really, we've made a lot of the progress there. I think for us, this tangible milestone is very powerful, and we'll continue to accelerate the customer conversations, but we're pretty happy where we are at this stage.

Sure. Okay. Yes, that makes sense. So just along those lines, I know you mentioned the Nokia deal. And I was just hoping if you guys could elaborate a little bit more on that partnership and the role that Nokia is playing in the rollout and commercialization of SpaceMobile and how this agreement is sort of different than the other MNO agreements that we've seen in the past?

Yes, absolutely. So regarding Nokia, they're one of the top 3 global providers of brand network, hardware and software globally. So these are companies that sell to the same customers that are same customers. They sell equipment and software to the wireless companies, who then use it to build out their network. It's a technology that sits on the top of the tower, on the base of the tower and then back at the network core. So they are a leader here. And they together with Rakuten, who's a new entrant and one of our top investors, they are 2 providers of this equipment that will sit back at the gateway, a couple of locations within each country and be part of the network, the MNO network for connecting to our backhaul. So I think that's a real powerful indicator that we have someone like that working with us. And their off-the-shelf hardware and customized software will be very valuable for our MNOs and allow them to scale up very quickly.

All right. Great. I appreciate that, Scott. And again, looking forward to the launch in September.

Our next question is from Bryan Kraft with Deutsche Bank.

Great to see the progress of BlueWalker 3 and the launch coming in September. I wanted to ask you, though, about the announcement around the timing of the 5 BlueBirds that will launch in late 2023. And I think it represents roughly 2-quarter postponement from your disclosure in May. Assuming that's right, can you just talk about the factors behind the change in the time line for the launches and also at this point what your overall time line is for commercializing -- starting to commercialize the BlueBirds and generating revenue from the satellites?

Bryan, the plan is to launch these 5 satellites in a single launcher, also on Falcon 9. And the idea is to actually to start monetizing these initial satellites with a service that is not continuous, but a service that allowed us to start monetizing these satellites earlier rather than waiting for the complete block of satellites to be in place. This launch is planned for later in 2023.

And it's a couple of things that we have done with them. So we are reusing a significant part of the [foreign] design on BlueWalker 3, (inaudible). In order to review that as at the same time, we're also having the next-generation satellites in design and to start strategically the production of the certain components for them. So the rationale of that is basically to get to service with these initial satellites. It will not be continued service as we need more to have continued service, but it will allow us to basically start monetizing with those initial satellites earlier than having the complete fleet.

So it sounds like early 2024? Is that the right way to interpret your statements at all?

Yes. I mean late -- very late '23, early 2024, yes.

Okay. Great. And just your confidence level in that time line for late in 2023 on the launches, it sounds like you've got a lot of the pieces in place now. So it sounds like you're fairly confident in that.

Yes. We announced earlier, we have a reservation for the launch. We are basically taking advantage of everything that we have learned and built for BlueWalker 3. There is many, many, many lessons learned. We did build the first. And we're obviously applying them to our processes to build. And yes, I mean, as we continue to repeat the production of these satellites, the pace will be accelerating. So that's -- so we -- that's why we have taken this approach.

Our next question is from Caleb Henry with Quilty Analytics.

A few questions from me. The first 5 satellites, can you give any detail on how those will be different from the remainder of Block 1 satellites, the other 15?

Yes, the main difference is the FPGA based. They are -- There are 2 differences. One is their size and mass. And then the other relevant difference is the usage of ASICs versus FPGAs. Those are the 2 distinct differences between the 2 satellites.

Okay. How much of a size difference are you looking at between the 2 different designs?

They're roughly around half between one and the other.

Okay. And so the latter ones, the ones that the ASICs will be the smaller spacecraft?

No, they will be the larger.

They will be larger. Okay. So they'll be about twice as big. Okay. You mentioned that you guys have testing for the satellites in California, whereas manufacturing is in Texas and the launch for the time being is in Florida. Just wondering if there are any plans to try and consolidate testing to a location that's either closer to manufacturing or launch? Or it's not really an issue having it in California?

No, that was really a onetime event for all the subsequent satellites, both the environmental testing, which is one of many testing that we did. We have done over 800 tests in this spacecraft. And as I said earlier, we will be testing until we are encapsulated into the launch vehicle. Going forward, also will be fully -- we will not need to transport the BlueBird ones outside our facility.

Okay. And then just last question. So in terms of launching the remainder of the Block 1 satellites and then going beyond that, do you have any time line planned for the announcement of additional launch orders? Or do you have additional launch capacity already secured with SpaceX beyond those first 5.

This is Scott here. I'll take that one. So we have a multi-launch agreement with SpaceX. And so we did do some prepayments for additional launch. So that is -- that has been made and that would go potentially for a second launch. In terms of components, we've put in place component suppliers for first 5 satellites and for the next generation beyond that, many components are already contracted as well. So we've got the planning in place. We try to be smart around long lead items and seeing into the future because, obviously, there's disruptions in the supply chain to manage that everyone is dealing with.

So we've been planning actively for the satellites to come after the first 5. But at this time, we're not going to announce when, but those are ones that we're obviously very focused on, and we want to be building satellites as fast as we can. But we've taken these first 5 satellites as a single launch, as Abel said, kind of a chunky way to make a dent in the constellation, and that's one that we're doing is the first move, but we plan to have satellites behind that very closely.

Our next question is from Landon Park with Morgan Stanley.

Great. Just on the BlueWalker 3 testing, can you, Abel, talk about what are the main issues that you think could arise during testing? What do you view as the biggest hurdles to sort of overcome? And what type of disclosure should we expect throughout the sort of that 6-month process of testing?

Okay. Well, I think in order to answer that, I will have to split this in phases. So the first test that get performed is after we launch and get into orbit, we will perform an in-orbit testing, which basically will be to verify that all the components and the satellites itself arrive properly into this orbit and all the components are functioning as expected. That will be the first phase. And we believe that, that would be in the first 2 weeks after launch.

Then after that, there will be a phase where when we decide to deploy basically to release the array. And basically, we had a phased array of approximately 8-meter by 8-meter that get deployed. We have cameras. We have potentially other satellites taking picture of that event and where that is closed, that basically prove the mechanisms and the ability to open the satellite.

The last event, we start basically, we had a lot of these preplanned. And obviously, I agree with the network operators when we start doing broadband direct to the cell phone with BlueWalker 3. So for that, we will have multiple opportunities to test with leading operators the satellite together with the Nokia and Rakuten equipment on the ground. And we'll basically -- we'll be able to demonstrate broadband directly to the handset. That's kind of the last phase.

Which of these do you view as the biggest hurdle for you to overcome?

Well, that's difficult to say. I mean we had spent over a year testing and verifying that all these states will function as planned. So at this moment, our view on our -- is -- when we launch is because we are all -- the evidence that we think that everything will operate as planned -- that the -- and that's also what we have phased it, in-orbit testing, deployment and then actual broadband to the cell phones.

And can you remind me what type of throughput per device you're expecting with the BlueWalker 3?

We're expecting 5G and 4G data rates. Of course, it's a test satellite. And we will be fine-tuning the network together with the operators. We believe that we will be in compliance with the 5G specifications of the FCC for the 5G rural phone starting even with BlueWalker 3. Of course, as we launch -- we launched the additional satellites and we had additional improvement to them, we expect that to increase.

Okay. So just to make sure I understood, with the BlueWalker, the service throughput will be more limited to the expectation? Is that because your -- the testing is in such a narrow band or...

No. We had -- that is in our experimental license, we had a 10 megahertz block to do testing. We have facilities in -- locations in Texas to perform the test; also in Hawaii. These are 10 megahertz spectrum allocated to us. And we expect roughly 1.5 bits per hertz on the uplink, 2 to 3 bits per hertz in the downlink. And that's -- we have spectrum located. We had approval from the FCC to do this testing.

So that's 10 megahertz of TDD, I guess.

FDD, 10 megahertz...

Sorry, FDD. Okay. Okay. So it sounds like double-digit downlink in terms of data rates.

Yes.

Okay. And what is the -- have you talked about the type of throughput per satellite you're expecting for BlueWalker 3 and what the ratio then is to the BlueBirds?

Yes. I mean the amount of capacity per satellite is around 1.9 million gigabytes per month per satellite. That number will increase. We have satellites that we will be able to enable MIMO into the network. But the approximate capacity -- tonnage or capacity that we plan to support with this type of spacecraft is around that number.

Can you unpack that number in terms of what the assumptions are in terms of gross throughput and usable throughput are or...

That is a usable throughput into handsets. That's billable.

Yes, understood. I'm just wondering what are the underlying -- What is the -- in terms of gigabits per second, what is the throughput of the satellite?

Well, we had approximately 9 to 13 gigabytes -- gigabit per second of trunking capacity back to ground that we can bring down into an area of approximately [20,00] kilometers of diameter, that moves around the air. And that, when you take in consideration, as the satellite move between area where there are phones and area where there are no phones, and all of that, that's how you basically can get an estimation of the amount of tonnage of gigabytes that you can transmit into the handset.

Just to make sure I'm understanding, you said 9 to 13 gigs per satellite in terms of throughput?

Yes. Yes.

Okay. And that's BlueWalker 3 or that's BlueBird, the initial BlueBird?

No. BlueWalker 3 -- sorry, those are the production satellites, it's Bluebird.

Perfect. Great. That's all very helpful. And then Sean, just 1 question for you. Did you size the funding gap that you're expecting?

We don't disclose that as yet. What we have been doing is giving guidance on how we're funded for the next 12 months. And we've also given guidance on a 20-satellite configuration.

And it sounds like -- so your quarterly burn rate shouldn't exceed $50 million, it sounds like, over the next year on average. Is that what you were saying?

We're expecting cash operating expenses around $30 million. CapEx will go up or down, but it could be in that range, yes.

We have reached the end of the question-and-answer session. And I will now turn the call over to Scott Wisniewski for closing remarks.

Thank you, operator. Our company is building a space-based cellular broadband network designed for use of the phone in your pocket today. We want to thank all of our shareholders for joining the call and their continued strong support of the AST SpaceMobile mission. Thank you.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.