AST SpaceMobile, Inc. (NASDAQ:ASTS) Q3 2023 Earnings Name Transcript November 14, 2023 5:00 PM ET
Scott Wisniewski – Chief Technique Officer
Abel Avellan – Chairman and CEO
Sean Wallace – CFO
Convention Name Contributors
Benjamin Soff – Deutsche Financial institution
Griffin Boss – B. Riley Securities
Good day, and thanks for standing by. Welcome to the AST SpaceMobile Third Quarter 2023 Enterprise Replace Name. Please be suggested that as we speak’s convention is being recorded.
I’d now like handy the convention over to your host as we speak, Scott Wisniewski, Chief Technique Officer of AST SpaceMobile. Please go forward.
Thanks, and good afternoon, everybody. Let me refer you to Web page 2 of the presentation, which accommodates our secure harbor disclaimer. Throughout as we speak’s name, we could make sure forward-looking statements. These statements are primarily based on present expectations and assumptions, and consequently, are topic to dangers and uncertainties. Many components may trigger precise occasions to vary materially from the forward-looking statements on this name.
For extra details about these dangers and uncertainties, please confer with the Threat Components part of AST SpaceMobile’s annual report on Type 10-Ok for the yr that ended December 31, 2022, filed with the Securities and Alternate Fee and different paperwork filed by AST SpaceMobile with the SEC now and again. Readers are cautioned to not put undue reliance on forward-looking statements, and the corporate particularly disclaims any obligation to replace the forward-looking statements which may be mentioned throughout this name.
Additionally, after our preliminary remarks, we will likely be beginning our Q&A piece with questions submitted upfront by our shareholders. Now referring to Web page 3. For these of you who could also be new to our firm and our mission, there are over 5 billion cell phones in use as we speak around the globe, however many people nonetheless expertise gaps in protection as we reside, work, and journey. Moreover, there are billions of individuals with out mobile broadband who stay unconnected to the worldwide economic system. The markets we’re pursuing are huge, and the issue we’re fixing is vital and touches practically all of us.
On this backdrop, AST House Cell is constructing the primary and solely world mobile broadband community in house to function immediately with on a regular basis unmodified cell gadgets and supported by our intensive IP and patent portfolio.
It’s now my pleasure to go it over to Chairman and CEO, Abel Avellan, who will take you thru our actions because the final public replace.
Thanks, Scott. I want to welcome everyone to our Q3 2023 earnings name. Turning to Web page 4. I want to begin off with our key highlights and updates. We recorded one other historic first on the earth of connectivity. The employee [indiscernible] demonstrated the primary and solely space-based 5G capabilities and 40 megabit per second information charges. This caps a extremely profitable testing program that embrace 2G, 4G, and 5G, with participation from companions, Vodafone, AT&T, Rakuten, and Nokia, validating AST SpaceMobile’s satellite-design patented expertise and manufacturing technique. We are also transferring full velocity forward with our plans to launch the primary 5 satellites in Q1 2024. Manufacturing is at a full velocity and progressing effectively in Midland.
As a measure of progress to this point, we now have already incurred roughly 85% of the deliberate capital expenditure for these satellites, together with launch prices. Transition to our price profile, as we full sure nonrecurring R&D initiatives and the primary 5 business satellite tv for pc, we count on adjusted working bills to be between $25 million to $30 million per quarter, starting from Q1 2024 versus historic run price of roughly $37 million to $40 million per quarter. And lastly, fundraising efforts with a number of strategic companions proceed to advance and progress and the timing is consistent with what we disclosed to you a couple of weeks in the past in our interim enterprise replace press launch.
And let’s flip to Web page 5, I can present some extra element on how that is progressing. We’re transferring ahead on definitive documentation and completion of diligence with a number of strategic companions. The strategic funding course of is meant to lead to new capital and set up new and incremental monetary, business, and strategic relationship throughout the wi-fi ecosystem. This new funding is meant to fund the manufacturing, launch, and operation of extra BlueBird satellites past our first 5 business satellites.
General, we’re inspired by the place we’re on this course of, I hope to have the ability to share extra at any time throughout November or December. Transitioning again to our expertise on Web page 6. For the third quarter in a row, we now have made telecommunications historical past. In September, we completed one other unprecedented leap in space-based mobile broadband by efficiently making the primary ever 5G connection for voice and information between, and day-after-day we modified a smartphone and a satellite tv for pc in house.
The 5G name was positioned on September 8 from modified Samsung Galaxy S22 situated in Hana, Hawaii in a wi-fi useless zone. The testing was accomplished with our companions, Vodafone, AT&T, and Nokia, chairing our collective success. In a separate tab, we introduced earlier space-based mobile broadband information periods file by attaining a obtain price of roughly 14 megabits per second. I’d additionally encourage you to observe the video of the 5G connection and different testing milestones utilizing BlueWalker 3 on our web site.
Turning to Web page 7. Our historic achievement of 5G mobile broadband immediately from the house comes at a time the place United States has positioned an emphasis on making certain 5G broadband connectivity to all Individuals. Immediately, lower than half of the geographic United States have 5G protection with obtain speeds better than 7 megabits per second.
This tempo cell community is the one space-based community design for mobile broadband, and we can effectively cowl unconnected areas of the nation to convey 5G connectivity to everybody. The SEC reopened feedback to the 5G telephone for rural America room-making course of, which we participated in. We had inspired the fee to make satellite tv for pc community eligible for funding by way of this program and look ahead to monitoring growth within the rule-making course of within the close to time period.
This clear want that we’re assembly is a key a part of how we now have been capable of develop a powerful wi-fi operator, companions over time. On Web page 8, I need to provide you with a couple of examples of how our collaboration has been highlighted by our MNO companions. First, with a fast overview from how Vodafone is considering providing our service to seamlessly amend their market-leading terrestrial community. They may use us the primary and solely phase-based mobile broadband community to supply voice calls, SMS checks, video calls, Web searching, e-mail, music streaming, social media wherever the place the Vodafone subscriber could also be situated.
And with AT&T for the second quarter in a row, they’ve highlighted us from entrance to enter as a key milestone of their historical past, and on our earnings name, we’re taking concerning the assist from the work for Direct 5G voice name. The high-profile public assist seriousness and the depth of those relationships. After all, AT&T and Vodafone are key companions for us, however they don’t seem to be the one ones.
Turning to Web page 8, 9. We’re proud to have MOUs an settlement with over 40 of the biggest cell community operators around the globe. represented over 2 billion subscribers that may develop into accessible to us as we deploy our community. These MNOs embrace Vodafone, Rakuten, AT&T, Bell, Canada, [indiscernible], Indosat, Liberty Latin America, LTC, MAXs, Micon, MTN, Muni, NISA, Optus, Orange, Salam, Safran, Good, Smile Suntel FTC, Telecom Argentina, Telefonica, Telkomsel, Tetra workforce, Uganda Telecom, Jazz, San and others. Earlier than I present an replace on our manufacturing progress, I need to take a minute to spotlight the power of our mental property on Web page 10.
Our IP portfolio continues to develop, now accounting to over 3,100 patents and patent-pending claims, over 30 patent households over 25 U.S. patent functions, and over 10 extra patents around the globe.
Our technique since funding has been to patent key features of direct-to-device worth chain on an end-to-end foundation in addition to key features of our manufacturing course of. Turning to Web page 11. We’re happy to report nice progress on the manufacturing of our first 5 business satellites at our amenities in Midland, Texas, the place in superior phases of the manufacturing of key subsystems of the satellites and have a excessive degree of vertical integration over the complete course of. All key elements manufacturing have been introduced in-house, we’re operating three shifts at our Midland amenities and had ramped to roughly 160 manufacturing staff with over 100 of them within the image above.
To the date, we now have incurred 85% of deliberate capital expenditures, together with launch prices. Lets flip to Web page 12. I wished to provide you an replace on manufacturing of our first 5 business satellites, that are that are in superior phases in Midland, Texas. It is very important perceive the excessive degree of vertical integration in our manufacturing course of. Being vertically built-in is essential for us because it permits us to take care of the unprecedented price per unit delivered for our satellites with the ability and functionality to ship broadband on to on a regular basis smartphones.
These capabilities a really distinctive within the trade and can permit us to run the manufacturing capability of six satellites per 30 days and 72 satellites per yr. This web page outlines the important thing subsystems which are a part of our microns, that are the constructing block of our face array. Our markets are designed to — for mass manufacturing and are all similar. Our means to mass-produce them is crucial to the misplaced price of our satellites. With a view to mass produce microns successfully, we now have vertically built-in methods of the micron, energy system, energy storage, electronics, and antennas. We had a photo voltaic panel manufacturing line in Midland and our personal kick strains cowl glass and interconnect gross sales as a provider with a purpose to decrease our prices, prolong life and modified efficiency of photo voltaic panels to outlive in house.
We even have battery pack manufacturing line in Midland, which then we get built-in into the micro. Each the photo voltaic panel and batteries have been introduced in-house after being externally sourced for BlueWalker 3. Our electronics are designed to final seven years to 10 years whereas additionally sustaining low price. We produce our digital for our first 5 using FPGAs, field-programmable gate arrays, and our personal PA LNAs to make sure efficiency within the harsh surroundings of house.
For Block II, the FPGA will likely be upgraded with our personal ASICs. Turning to the following web page, our system consists of a really giant part array, which is constructed out of micron that I defined within the earlier web page, a middle management progress in unit, which is — which we name our controls, which we’ll replace you right here as effectively. The ControlSat can also be made in-house, together with the construction that homes our Avionic flight software program and Centres in beamformer, which is a unit that generate creating that flip into mobile cell for managing direct connectivity to gadgets. That is additionally made in-house.
The important thing part of this has been accomplished and are being built-in in our Midland, Texas facility. The Fly compute is a vital a part of our system and is the place we maintain our added to regulate system to handle a place this spacecraft and likewise the place we run fly software program, which discuss to each sensor and actuator on board to regulate our spacecraft. That is all made in-house, together with the wiring harness. The software program and management system is architected and designed in our U.S. places of work and get built-in and testing our Midland amenities.
On this image, you see the ControlSat part of the Avionics stack, the harness, and all the floor and flight over, which is required to handle and management these satellites. It is very important remind you that each one these methods and this degree of vertical integration is simply doable, due to the truth that we now have BlueWalker 3 working for over a yr efficiently. And that has given us all of the learnings and all of the required heritage so as to have the ability to combine successfully and cheaply all a part of our new construct of satellites. And with that, I want to go over to Sean to offer a monetary replace.
Thanks, Abel, and good afternoon, everybody. It has been a bit over a yr since BlueWalker 3 was lifted into orbit within the evening sky at Cape Canaveral. Since that point, AST continued to attain a collection of accomplishments and make progress in direction of the objective of constructing the AST SpaceMobile Constellation. We at the moment are giving and defining the satellite tv for pc to system trade, which is quickly turning into 1 of probably the most thrilling improvements within the cell phone trade within the final 50 years.
Since our final earnings name, the AST SpaceMobile workforce accomplished extra groundbreaking take a look at outcomes, using BlueWalker 3, made important progress in direction of the anticipated launch of the 5 BB1 satellites and proceed to give attention to elevating capital to fund the AST SpaceMobile Constellation. An thrilling and tangible a part of this development is watching our meeting integration and testing facility in Midland start its manufacturing exercise with dozens of technicians and engineers in addition to extremely specialised processes all contributed to the manufacturing of 5 BB1-1s for the focused launch subsequent yr.
As all the time, I need to acknowledge and thank the hard-working workforce of engineers, technicians, suppliers, and the assist and affirmation by our companions who’re a number of the most refined wi-fi corporations on the earth, together with TNT, Vodafone, Rakuten and Nokia. I need to begin by reviewing our key working metrics for the second quarter which are displayed on Slide 14. On the primary chart, we see that for the third quarter of 2023, we had non-GAAP adjusted money working bills of $37.3 million versus $38.4 million within the second quarter.
Non-GAAP adjusted working bills excludes sure noncash working prices together with depreciation and amortization and stock-based compensation, which totaled $21.6 million and $19.6 million for the third and second quarters, respectively. Our third quarter non-GAAP adjusted working bills decreased by $1.1 million versus the second quarter. Our analysis and growth bills fell this quarter because of diminished expenditures related to our ASIC chip design as we proceed to get nearer to the completion of that work.
Our R&D bills consist principally of nonrecurring growth actions for which we usually interact third-party distributors and funds are primarily based on the completion of milestones. Our engineering providers bills fell and our common and administration bills rose modestly within the third quarter. Turning in direction of the second chart, our capital expenditures for the third quarter have been $71.7 million versus $26.8 million for the second quarter. As we had indicated on our final name, we anticipated our degree of capital expenditures to extend considerably as we targeted our efforts on procuring components, supplies, and methods for the BB1-1 satellites in addition to to make funds to our supplier of launch providers.
As to the tip of the third quarter, we now have spent over 85% of the anticipated quantities for these satellites. We at the moment are projecting to spend roughly $150 million — $115 million, that is 1-1-5 for the 5 BB1-1 satellite tv for pc, up from our final estimate of $110 million. On a constructive word, portion of the rise in price was a results of a possible buyer requesting a change within the inclination of the orbit in order that our constellation may present higher protection for his or her subscriber base. This alteration to the orbital location required an extra cost to our launch supplier.
And on the ultimate chart on the slide, we ended the quarter with about $135 million in money available. As we acknowledged in our 10-Q, we consider this money in addition to our means to lift capital by way of our present amenities is enough to assist our expenditures for no less than the following 12 months. As we now have additionally mentioned in our 10-Q, our price positions and capital plans are fairly modular. And this attribute offers us the flexibleness to extend or lower our price of expenditures relying upon adjustments in our build-out plans and availability of capital.
This flexibility offers us consolation that we are able to handle our liquidity profile dynamically relying on our price of elevating capital. As we head in direction of the following fiscal yr, I wished to offer steering on our anticipated working expense ranges and capital expenditures as we flip in direction of Web page 15. We have now been supporting the event efforts of our 2 [indiscernible] satellite tv for pc designs, Block 1 and Block 2, our ASIC chip design, and the development of 5 BB1-1 satellites. The completion of this BB1-1 work and a good portion of the BB1-2 and ASIC design work is predicted to lead to a cloth discount in our adjusted working bills and future capital expenditures.
This discount in money expenditures will likely be performed with out a materials discount in our worker headcount as most of those reductions are associated to the completion of third-party work. General, our adjusted working bills ought to decline from a variety of $37 million to $40 million per quarter to a variety of $25 million to $30 million per quarter, with the complete impact beginning within the first quarter of 2024.
We additionally plan to scale back our degree of capital expenditures as we attain the ultimate investments for BB1-1 and the fabric investments for BB1-2. Timing of the adjustments in our adjusted working expenditures and capital expenditures, as I’ve simply described, could possibly be delayed or is probably not realized to quite a lot of components.
And with that, this whole presentation part of our earnings name, and I go it again to Scott.
Thanks, Sean. Earlier than we go to the queue of analyst questions, we might like to deal with a couple of of the questions submitted forward of the decision by our buyers. Operator, may you please begin us off with the primary query?
Rolando from Paris Ask, can the corporate focus on the aggressive panorama for DTV and differentiate the totally different choices which are within the works.
Thanks, Rolando. There have been an amazing in about direct-to-device providers. Over the previous yr, we now have seen different corporations pull their palms up on a me-too providing. However clearly, while you get into their particulars, they don’t seem to be broadband scalable or appropriate with as we speak’s smartphones. This can be a arduous drawback, which has quite a lot of totally different parts for fulfillment. And we now have been completely targeted on growth of those methods because the funding of our firm in 2017.
We had invested over $700 million to this point on this effort, leading to over 3,100 patent and patent-pending claims and our personal vertically prepared manufacturing capabilities for our satellites. AST SpaceMobile crucial differentiation is that we’re the primary and solely system designed for 5G mobile broadband.
We have now proven the power to attain 5G information charges as effectively 4G and 2G. Different methods as we speak are distant from having the ability to obtain what we now have and are primarily narrowband techs and emergency service providing. Our very giant part array antenna, mixed with our personal ASICs is exclusive on this house and is crucial for attaining 5G on to present on a regular basis smartphone to scale as much as serve the wants of the 5 billion telephones in circulation in partnership with the main and largest MNOs on the planet.
Anne from California requested how lengthy from finalizing the ASIC design the place you get the chip.
Santander, the event of the ASIC was a four-year course of with a value in extra of $40 million that’s principally at this level behind us. The design is considerably full. We count on we can begin getting the primary models round three months to 4 months after the tape out, which is within the course of the place — which is the method the place the design will get produced by our foundry accomplice, TSMC.
I need to remind everybody that the primary 5 business aspect can be flying us in our present FPGAs, which is actually the programmable model of the ASIC. The ASIC is predicted to provide us a ten occasions enchancment in processing bandwidth of 1 gigahertz to 10 gigahertz of obtainable spectrum per suite, whereas lowering the ability and consumption, and value of those satellites. We consider that this important barrier of entry for space-based mobile broadband, together with our giant 2,400 sq. toes part array.
Wedin from New Zealand how a lot out-of-factory testing is AST reliant on? Can every thing be examined at this level?
Thanks, Wedin, and I will take this one. You might recall with BlueWalker 3 that we needed to transfer the satellite tv for pc off-site a number of occasions. This included vibration and different testing. And proper earlier than we ship the satellite tv for pc to maintain Cape Canaveral, we truly had to return to California testing, which, after all, is inefficient and launched additional time to our schedule.
Now for our first 5 business satellites, we can conduct all of our out of manufacturing unit testing in-house at our Website two facility in Midland, Texas. This testing contains part degree and satellite tv for pc degree thermal vibration and RF testing. That is one other nice functionality that we have introduced in-house alongside the vertical integration that Abel mentioned earlier. Because of this, we count on to considerably shorten manufacturing occasions and enhance our management of our course of in comparison with BlueWalker 3.
[indiscernible] from New Zealand requested, do you count on to enter into business agreements with MNOs prior or publish launch as the corporate selected which inclinations they attend to initially serve?
As we mentioned earlier, we have been persevering with to develop the listing of MNOs that we now have MOUs and agreements with, and we’re now at over 40 operators globally who collectively cowl over 2 billion subscribers. Our plan is to signal a few of these agreements previous to launch. And actually, we lately modified the inclination for our first 5 satellites primarily based on buyer suggestions. We will be at a 53-degree inclination and this orbit permits our satellites to cowl wherever within the globe as much as 59-degrees latitude for each the Northern and Southern hemispheres. And with that, I might prefer to thank our shareholders for submitting these questions. Operator, let’s open up the decision to analyst questions now.
[Operator Instructions]. Our first query is from Benjamin Soff with Deutsche Financial institution. Please proceed along with your query.
A pair for me. The primary one is, is there any extra colour you guys can share on the strategic funding course of. What it’s you are on the lookout for and what form you suppose these partnerships may take? Thanks.
Ben, I admire the query. I believe we have put many of the newest data on this presentation already. This is a vital part for us as a result of it lays out not funding but additionally business and strategic relationships that will likely be vital for us. So, we’re very inspired the place we’re proper now, and we look ahead to extra particulars throughout November and December.
Received it. And now that you have achieved 5G connectivity, what is the subsequent main testing milestone you’re on the lookout for, if any?
Nicely, we’re turning our consideration — we’re turning our consideration to the construct of the following 5 satellites. We proceed testing with BlueWalker 3. However the main milestone required out of BlueWalker 3 have accomplished.
Okay. Received it. After which — is there any extra colour you guys may give on the CapEx trajectory going ahead? I heard the remark that it would decline, however simply questioning at what tempo and type of to what magnitude? And that is it for me.
Clearly, this final quarter, we have seen a reasonably large bump up in our CapEx because of some closing funds on BB1-1 and another BB1-2 expenditures. We count on the quantity to return materially down from there. We do not give steering on that, however it is going to be considerably decrease than what we have seen within the final two quarters.
Our subsequent query is Griffin Boss with B. Riley Securities.
So first for me is, are there any extra insights you’ll be able to share that you just might need discovered over the previous three months relating to capability and talent to course of a number of calls concurrently inside a sure beam or so?
Sure. I imply we now have already given preliminary steering of what the capability per satellite tv for pc is — and what’s the processing bandwidth that we are able to assist. For Block 1 with the FPGA-based system is about 1 gigahertz of processing bandwidth. With the ASIC that may be a 10-fold increment to 10 gigahertz processing bandwidths, and our testing assist these assumptions.
Okay. Received it. After which so — however simply with BlueWalker 3, have you ever — have you ever been testing with a number of calls without delay? I do not know that I’ve seen any take a look at information operating a number of calls at a single time or a number of video objectives.
Sure. We have now performed a number of and simultaneous. We even have opened up the pipes to let a whole bunch [indiscernible] of font ratching connecting to the system. In order that additionally has been verified throughout the testing.
Okay. Nice. Respect that. After which stepping again, simply relating to the U.S. nationwide spectrum safety that was launched yesterday. Simply curious if there was something in that, that caught your eye as notable because it pertains to supplemental protection house? Or if there’s something in there that implies to you that the FCC would possibly now quicker on creating such a framework?
Sure. Nicely, as you realize, we invented direct-to-device. And we’re the primary one to show it at a broadband, and we now have the one system that assist it. So, we’re tremendous inspired by having a presidential discover the place the primary merchandise, it’s principally a system that replicates what we now have invented. So sure, that caught our eyes. We’re very completely happy. We’re very inspired about that. I believe this can facilitate sooner or later how our service will likely be regulated in notably in america.
United States can also be a reference for different nations. Along with our strategic buyers, present strategic buyers, we had achieved important progress in around the globe in getting this method regulated and to be variable for use and we resolve an enormous drawback. So sure, we’re very happy with being talked about and be a part of presidential methods for spectrum, which is principally and count on use to assist a system that we invented and the place we’re the one one that may present broadband connectivity on to common gadgets. So, we’re very completely happy, we’re inspired by that.
Received it. Nice. After which if I may simply sneak yet one more in. There was a query earlier on the aggressive panorama. I used to be questioning in case you may share any of your opinions if in case you have any as to why you suppose Qualcomm walked away from Iridium lately?
Sure. Hear, I imply, there’s 5 billion telephones in circulation. After we launched this design of this method, there was a prerequisite that’s that you do not want any particular chip and particular frequency the place particularly nothing in your system as a result of the second that you just do this, you’re taking that 5 billion telephones in circulation to a distinct segment play. And something that have been to alter or it is an SOS take a look at, we consider that’s restricted and with a restricted market alternative in contrast with broadband on to day-after-day smartphone with the fund that you’ve in UC. So, we’re not stunned by this. And I do consider — we do consider that any resolution that requires particular terminal as we develop into a actuality as we begin launching our satellites as early as subsequent quarter, subsequent yr, all these options develop into much less and fewer related.
So, we’re not stunned by it. And — and I believe if something, it helps our imaginative and prescient that — these methods must assist any telephone, each telephone, in every single place, with out relating to any change, any chip, any particular ASIC or any particular chipset or something that’s proprietary to the telephone with a purpose to make it out there for all 5 billion telephones in circulation.
At the moment, I am exhibiting no additional questions. I want to flip the decision again over to administration for closing remarks.
Nice. Thanks, operator. Our firm is constructing a space-based mobile broadband community design to be used of the telephone in your pocket as we speak. I need to thank everybody for becoming a member of each the shareholders and the analysis analysts for the questions. Have an ideal night.
This concludes as we speak’s convention. You might disconnect your strains right now. Thanks to your participation.