Q1 2024 AST SpaceMobile Inc Earnings Call

Participants

Scott Wisniewski; Executive Vice President and Chief Strategy Officer; AST SpaceMobile Inc

Abel Avellan; Chairman of the Board, Chief Executive Officer; AST SpaceMobile Inc

Sean Wallace; Chief Financial Officer, Executive Vice President; AST SpaceMobile Inc

Mike Crawford; Analyst; B. Riley Securities

Bryan Kraft; Analyst; Deutsche Bank

Andres Coello; Analyst; Scotiabank

Chris Schoell; Analyst; UBS Securities LLC

Chris Quilty; Analyst; Quilty Analytics

Presentation

Operator

Good day, and thank you for standing by, welcome to the AST SpaceMobile first quarter 2024 business update call. Please be advised that today's conference is being recorded.
I would now like to hand the conference over to your host today. Scott Wisniewski, Chief Strategy Officer of AST SpaceMobile. Please go ahead.

Scott Wisniewski

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 is 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 annual report on Form 10-K for the year that ended December 31, 2023, filed with the Securities and Exchange Commission and other documents filed by AST SpaceMobile, the SEC from time to time. Also after our initial remarks, we will be starting our Q&A session with questions submitted in advance by our shareholders.
Welcome, everyone, for those of you who may be new to our company and mission there are over 5 billion mobile phones in use today around the world for many of us still experienced gaps in coverage as we live work and travel. Additionally, there are billions of people without cellular broadband remain unconnected to the global economy.
The markets we are pursuing are massive and the problem we are solving is important and touches nearly all of us. In this backdrop, AST SpaceMobile is building the first and only global cellular broadband network and space to operate directly with everyday unmodified mobile devices, supported by our extensive IP and patent portfolio.
It is now my pleasure to pass it over to Chairman and CEO of Abel Avellan, who will go through our activities since the last public company.

Abel Avellan

Thank you, Scott. We're happy to be back again with you after six weeks since our last business update call, our most important update to chair since our last call is the executions of our first definitive commercial agreement with AT&T. We have signed an agreement with AT&T through 2030 to provide a space-based satellite broadband to AT&T and their end users through our revenue share model.
This is a major milestones and we look forward for the commercial service with Block 1 and beyond. As these specifically outline the product and pricing models, we will go to market with, we expect to replicate variation of these models in various markets around the world. While each may have a slightly different features, this is the spirit in which our core customers' offerings is built upon.
AT&T has been an incredible partner to us over the last few years, and we look forward to the next stage of our relationship. And in case you didn't see in the master gold broadcast a few weeks ago, you should check out the commercial that AT&T around with Ben Stiller and Jordan Speed join the benefit of our space-based cellular broadband technology.
We're incredibly BC here in Texas as we complete our first 5 commercial satellites. These 5 blue Versado will mark the beginning of our commercial operations. All necessary parts are at our facilities and being integrated into the satellite. This includes the part from the two suppliers which we discussed on the last call, but has since been resolved. Our micro completions way on their way.
So based on this current time line, we want to reiterate our guidance from six weeks ago that we are on target for July or August delivery of our 5 Block 1 satellites to the Cape Canaveral launch back. With our orbit and logic scheduled shortly thereafter. Of course, launch timing, subject to many factors, including several outside of our control.
But as of today, everything is moving according to the updated schedule. We will share additional progress update as we approach the launch. We did first by satellite, we will have the ability to offer US nationwide non-container service with over 5,600 individual sales using premium low-band spectrum.
Let me spend a moment discussing our Block 1 satellites and the importance of their size and power. These first 5satellite will be the largest commercial satellites in load at orbit alongside Blue Walker three. That combine it with the processing capacity of each of them has allowed us to achieve our commercial goals with less than 100 satellites.
They will enable central broadband everywhere for the fund you have in your pocket. Thanks to the technology we invented and that is on the way to become the standard the mobile network operators plan to deploy.
On the regulatory front, we're working closely with the FCC to secure market access approval in United States. This will, of course, be a major milestone for us. We are encouraged by the agency's recent actions to prioritize satellite-based telecommunications as evidenced by our reflagging to the United States. And the other new ruling making activities.
I would be that application public notice period recently closed, which was a major milestone in the process we will continue to work closely with the FCC to advance this critical approval process. Additionally, I am very excited and we continue to advance discussions with new strategic partners using commercial prepayments alongside new commercial agreements.
We currently have no plans for the remainder of this year to pursue an underwritten public security offerings to supplement our existing capital facilities. We also established our first government contract, one that generated motive revenue for ST in the first quarter. Our first commercial revenue and again, these represent a framework which we can utilize for future government agreements.
Simultaneously, we're continuing talks with our first government customers negotiating additional services we could potentially provide to expand our existing relationships. While the core focus of our strategy is consumer cellular broadband. We do think that the government opportunity is a natural extension of our capabilities and can be very meaningful to our company over time.
In summary, we're making progress in all fronts operationally, commercially and regulatory, we said the foundations of enabling broadband connectivity everywhere for the fund you have in your pocket. And with that, I will pass it to Sean for the financial update.

Sean Wallace

Thanks, Abel. And good afternoon, everyone. Let's review the key operating metrics for the first quarter that are displayed on slide 6. On the first chart, we see for the first quarter of 2024, we had non-GAAP adjusted cash operating expenses of $31.1 million versus $38.6 million in the fourth quarter. Non-GAAP adjusted operating expenses exclude certain noncash operating costs, including depreciation and amortization and stock-based compensation.
In line with our guidance our first quarter non-GAAP adjusted operating expenses fell by $7.5 million versus the fourth quarter. Our research and development expenses fell by $6.5 million this quarter due to the continued completion of important R&D projects. Our R&D expenses consist primarily of nonrecurring development activities for which we typically engage third-party vendors and payments are based on the completion of milestones.
Our engineering services expenses also fell by $0.6 million, and our general and administrative expenses decreased by $0.4 million in the first quarter as compared to the fourth quarter. We have made a series of cost adjustments to capture about $1 million in engineering services and G&A cost savings.
Turning towards the second chart in this page, our capital expenditures for the first quarter were $26.7 million versus $33.9 million for the fourth quarter. The figure was made up of some modest launch payments, capitalized direct materials for the Block 1 satellites and additional facility and production equipment for our assembly integration and test facility in Midland.
Capital expenditures trended down as we again move towards the completion of the Block 1 satellite construction. As of the end of the first quarter, we have spent over 95% of the expected amounts for the 5 Block 1 satellites. We are still projecting total spend of approximately $150 million for the 5 BB 1 satellites.
And on the final chart on the slide, we ended the first quarter with $212.4 million in cash. We are continuing to pursue using the balance of our senior credit facility, which has a gross amount of $51.5 million available.
As I mentioned at the end of the of March, efforts around raising strategic capital may take precedence over the senior credit facility. And at a minimum, the continued deferment has reduced a bit of the negative carry we would have incurred if we had accessed the facility earlier. Our ability to access the facilities subject to certain conditions and approvals.
As we stated in our 10-Q. We believe this cash as well as our ability to raise capital through our existing facilities is sufficient to support our expenditures for at least the next 12 months. As we have also discussed in our 10-Q, our cost positions and capital plans are quite modular, and this characteristic provides us the flexibility to increase or decrease our rate of expenditures, depending upon changes in our build-out plans and availability of capital.
This flexibility provides us comfort that we can manage our liquidity profile dynamically depending on our rate of raising capital. In March, we provided guidance on our expected operating expense levels. As we discussed earlier, we have been supporting the development efforts of our two critical satellite designs, Block 1 and Block 2 are ASIC chip design and the construction of 5 BB 1 satellites.
The completion of the BB 1 work and a significant portion of the BB 2 and ASIC design work is expected to result in a material reduction in our adjusted operating expenses and future capital expenditures. This reduction in cash expenditures will be done without a material reduction in our employee headcount as most of these reductions are related to the completion of third-party work.
As I mentioned during the fourth quarter earnings call, we now project that our cash adjusted cash operating expenses will come in at around an average of $30 million per quarter for 2024 as the Block 1 design is completed and the Block 2 design approaches completion. These figures will vary depending upon manufacturing activity in each period.
This guidance does not include the expected costs of approximately $15 million related to the tapeout and initial production of our ASIC chip. These ASIC related costs will be recognized as an R&D expense in subsequent quarters in 2024, as the milestones are completed. We also plan to reduce our outlook for capital expenditures as we reach the final investments for BB 1.
For the next two quarters, we expect to spend in the aggregate approximately $25 million to $40 million in capital expenditures. Any increase beyond these levels will be in conjunction with the timing of the deployment of our Block 2 satellites, which could be either in late 2024 or the first quarter of 2025. Timing of the changes in our adjusted operating expenditures and capital expenditures, as I've just described, could be delayed or may not be realized due to a variety of factors.
As I discussed in our last earnings call, we continue to work with our advisers on developing a financing package from quasi-government sources, including export credit agencies. Satellite and other infrastructure providers have historically utilized these agencies to source cost-effective long-term debt funding of large projects.
The key underpinning of these funding structures has been proven technology and the sale of significant capacity through long-term agreements to large creditworthy entities. We remain focused on developing a structure and creating an information package that will support our potential financings. We are encouraged by the progress we are making, but we are still in very early stages and there can be no assurance that we'll be successful in the pursuit of this type of funding.
And with that, this completes the presentation component of our earnings call, and I pass it back to Scott.

Question and Answer Session

Scott Wisniewski

Thank you, Sean. Before we go to the queue of analyst questions. I would like to address a few of the questions submitted by our investors.
Operator, could you please start us off with the first question.

Operator

[Linden] from New Zealand asks what milestones should investors look out for?

Abel Avellan

Thank you. Linden, looking ahead to the remainder of 2024, I think the biggest milestones to look out for the launch and successful operation of our Block 1 satellites, market access, regulatory approval in the United States, commercial agreements with additional MNO partners and then further progress on our government program.
We're really set up for an exciting summer here, and we look forward to sharing updates on these milestones with you as they occur.

Operator

Jordan from North Carolina asked we reported that the FCC will be publishing the official reports in order for SCS services. Can you please explain if this rule and the FCC approval for QV spectrum backhaul or required conditions for the completion of definitive agreements with AT&T, FirstNet or other MNOs?

Abel Avellan

Thank you, Jordan. This is certainly not a requirement for commercial agreements as demonstrated by the commercial agreement we announced today with AT&T. And when we go to the FCC or really any regulatory regulators globally, we go with our in-country partner and they further support the technology and validate the case that we're making.
The FCC has been moving incredibly fast here and establishing rules for direct to device. And we've been working with them for a long time on that. And we believe that this is going to ensure that our technology can be utilized once it's available commercially. And our MNO partners fully understand the process of the regulator and are even much closer to them than us. And they're comfortable that our system will be regulated and usable.

Operator

Linden from New Zealand, asked is a ASCs focusing on fundraising from past partners or new partners?

Sean Wallace

Linden simple the question. First of all, we're very proud of the shareholder support that we have. We have Vodafone that invested three times in our company, Rakuten American Tower twice, AT&T, Google and Bell Canada have all invested. We reinforce the notion as the industry leader of this technology that we invented direct to the rise on a global basis.
We are super excited about where we are with new on all the partners. We have around 50 operators on a global basis that we have MOUs and agreements of understandings and relationships. And there's a lot of excitement from them in what do we need for the plans and for provide universal connectivity to every regular cell phone.
So we're excited we are bullish about where we are in the process with them, and we are turning more into operational agreements, a similar to what we did with AT&T that are more definitive commercial agreements and the commercial agreements, our goal, our plan to include prepayments, that's going to be fundamental for the continued build-out of our network.

Scott Wisniewski

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

(Operator Instructions)
Mike Crawford, B. Riley Securities.

Mike Crawford

Thank you. I'm glad to hear you're on track on these launch milestones. Can you provide us any additional color on how you expect to fly the first 5 bluebirds? Would that be like a string of pearls formation are more spread out? And what would it potentially enable access in, say, Bell Canada, the service area or just in the US?

Abel Avellan

Thank you, Michael. We are facing them in a way that will prioritize United States on also some government obligations that we have the configuration when we initially have we deployed out of the launchers in and is to look barrels, there certain configurations of data.
We are a tailoring for if the users of these satellites. And then as we move on time after the launch, we will spread them evenly as part of the net launches that will complement the Constellation where we're prioritizing the 53 degree inclination that give us access to a 59 degrees latitude all the way to the equator and from the equator to minus 59 degree of latitude with these configurations.

Mike Crawford

Okay. Thank you, Abel. And then how I see the first Block 2 satellite will just be a single satellite that launches and then after that may be there in groups of four, perhaps depending on large vehicle used?

Abel Avellan

Yes, there will be the launch in group of four or five. We're in the process of working on that for the next batch in Block 2 or larger, I mean Block 1 already largest in objects in space in the US that will really fuel them from. I think the only thing bigger, the analysis, the ISS in Leo. So we're launching five in the summer and then we move, we're moving blocks of four on the bond to be a configuration these studies. That is the second version on the upgraded version for Block 2.

Mike Crawford

Excellent. Thank you. And then final one for me is, can you just remind us what levels of service you envision being able to provide at different quantities of satellites in your space mobile constellation?

Abel Avellan

Yeah, the type of service that we actually can enable regardless of the number of satellite is the same. So what why it changes? How often you have an evolved view that you can use it. So we this is a broadband services, a full data service. We are working with our partners to enable voice data, Internet download. I don't know you see it, we would just where streaming videos directly from the satellite to the regular phone.
So this is a full broadband experience what a change we are satellite for how long you can enjoy during the day. But now with this by satellites, we would. And so across all United States, of course, there will not be available all the time, there will be no continuous service only with five satellites, but now we are more side like that, that persistence of the service keep increasing that we launch more.

Mike Crawford

Okay. Thank you very much.

Operator

Bryan Kraft, Deutsche Bank.

Bryan Kraft

Hey, good afternoon, guys. I just wanted to ask you on the AT&T agreement. Can you talk about what the key elements of the agreement structure are on that consistent with the 50 50 revenue share model you've talked about historically, is this just formalizing the end of the year you already had or the terms any different? And is there any impact on the $20 million in prepaid revenue that you'll be getting from AT&T later this year? In other words, will there be additional prepaid revenue that maybe is coming as part of this agreement? Thank you?

Abel Avellan

Yeah. Well, first of all, super, super happy with having and to complete a definitive agreement with AT&T. This is a long comment. A project for us is the conclusion of all the test pricing discovery and understanding of the usage. We believe there is a significant part of the population that will be willing to pay for the service and they move in and out of connectivity in the US.
And so we are a multitude of packages. We are disclosing that together with AT&T. So I'm not going to be able to disclose the packages, but their packages, we'll get that for you to a revenue share we historically have this because these packages allow users to get text, voice, a full broadband Internet and is priced accordingly, depending on the amount of service that the user is willing to pay.
It is designed to be used everywhere in North America and to offer a broadband experience, it's on how much would otherwise be independent of the use of the space. It's friction less so the user doesn't need any special phone. It doesn't need any special, a package. It will be all what all what you will see is a different thing, same symbol in the 5G icon with NS something similar that indicate that you're on satellite.
But other than that, the user doesn't need to do anything. So we're very excited about these AT&T had on significant amount of market stories of how to price it together with us on how to position it in order to maximize the take on the service.

Bryan Kraft

Thanks, Abel. anything on the prepaid revenue, is it still just the $20 million? Or I just was curious if there is any incremental financing coming from this. And then I guess the other follow-up I had is just on, can you give us a sense as to when you think this service will actually be available? What will that be sometime next year, how you're thinking about that?

Sean Wallace

Sure. I'll jump in. First on the deal structure, I think about walk through some of the finer points, but this is a term through 2030. This is the definitive agreement, which means that it's a document that's the legal vehicle through which revenue will be brought in with all the detailed SLAs and other legal requirements and a real commercial agreement. So it's very powerful from that perspective because it means that both companies have aligned around how this offering will occur in many ways. So that's the key element.
In terms of prepayments, we reiterated the prepayment that came in in January, right. So there's no new economics or disagreement right now, other than laying out the vehicle through which we'll be able to generate revenue on our services is available, and I'll I'll refer back to Abel's comments on the go to market strategy and doing that jointly with our customer.
We're not prepared to announce a timeline, but as we've said, these five satellites going up, our commercial satellites. They have 10 times the capabilities of Blue Walker 3. And after several months of preparations, you know, they will be commercial ready. So this is something for us. It's technology driven, and we want to get this up as fast as possible.

Abel Avellan

Yeah, while using these buy-side later, we are already seeing the starting zone initial revenue with the government with Blue Walker 3, and they will continue on AT&T and others, hopefully will disclose soon. We'll start using this size chart as a commercial operating satellites and of course, that revenue plan to increase significantly as we add more centers.
But we will start monetizing these satellites commercially in the US and in all key regions, as we continue progressing on signing a definitive agreements with the operators. On those different agreements we expect them to do our prepayment features that are a key part of how we keep continue financing the constellation.

Bryan Kraft

Yes. Thanks very much.

Operator

Andres Coello, Scotiabank.

Andres Coello

Yeah, thank you for taking my question. You just mentioned other regions, I guess that is in the 5 satellites will cover the United States. They can also cover parts of Europe and perhaps Japan, perhaps part of Northern Mexico. So I'm just wondering if that is covering the US also gives you capabilities in other parts of the world for these 5 satellites. Thank you.

Abel Avellan

Yeah, that is correct. I mean the 5 satellite have there included a 53 real inclination. What they mean is they pass the circle deal there on constantly and they cover everything plus minus 59 degrees latitude from Canada, all the way to Argentina in the Americas from a cover of South Africa all the way to Northern Europe and Japan.
So yes, these are they have lower coverage and we're starting with five. We are you know, we're very careful of where we are initiating services with a customer. We're prioritizing customers that are signing definitive agreements with prepayments on, but we have the ability to do that globally in the US, Europe, in Africa, in Asia and thus our prioritizing the usage of these very valuable assets.

Andres Coello

Understood and just confirming it already a string of parallels, correct that the configuration is going to be a string of parallels?

Abel Avellan

At the beginning, yes, we are more satellite. We're going to we want to be facing them out in the plants where we're putting them up.

Andres Coello

Okay. Thank you.

Operator

Chris Schoell, UBS.

Chris Schoell

Great. Thank you for taking the questions. Just a few follow-ups. As you think about measuring success on the first 5 Block 1 satellites. Any guardrails you can give in terms of expected revenue generation and over what time frame?
And then second question, historically, we've seen the wireless carriers bundled value added services into their premium offerings. Do you think a similar hard bundle approach can be taken with your service Or do you still expect that customers will need to opt in?

Abel Avellan

We are basing our offerings and us up on our own service to the user. Of course, every country every operator has their own plan under the old methodology of how to monetize the service or how to differentiate it in each of the respective markets. But fundamentally, this is an add-on service with a very low friction to opt in and start paying for it.
The customer side, as I said earlier, there's a need to basically not anything in order that is auto connectivity and that is willing to pay for getting that connectivity. And so when you think about it, you get your monthly bill, it's a line item you monthly. We have that it will be a space model. And as you move from around the years and in places where there is no connectivity or the connectivity is not good enough.

Chris Schoell

And then just a follow-up, maybe just on the first 5 satellites. Any sort of guardrails you're thinking of in terms of the revenue generation and how quickly that can scale into end of this year?

Sean Wallace

Hey Chris, we're not only providing revenue guidance at this time, but these first 5 satellites are commercial ready. We've talked about our government customer. Obviously, we announced a commercial agreement today, there's revenue potential that's real on this for aside satellites. But again, it's not our focus, right? We believe that the big opportunity that as we scale the system so to a certain extent, are not focused on the revenue opportunity for the first five, but you'll start to see it come in, but you'll see our focus beyond what is service look like with more satellites.
And that's I'll point you back to the agreement today is all about how do you provide a mass market solution to a broad consumer base, right and that's where the focus will be. That's where the big revenue opportunity is for us. And so we won't be as focused on just the first five will be focused on continuing to build out the constellation.

Chris Schoell

Okay, great. Thank you.

Operator

Chris Quilty, Quilty Space.

Chris Quilty

Morning, gentlemen, I was hoping you could give an update on your [FX] developments?

Abel Avellan

Yeah, Chris, I mean, we are in we have been tape-out for four if Montana have already caught up with the process will run three months, three to four months on a we are ready to receive our chip and this chip will have another 10 times increase in the processing capacity of our satellites.
As a reminder, Blue Walker 3 had a hundred megahertz processing bandwidth, a Block 1 satellites that we have now and we're planning to launch very quickly here are they out of 10 times dock capacity using FPGAs on the next-generation of the Block 2, we had another 10 times increase a 10 gigahertz approximately bandwidth per satellite.
And so they're very significant in step up on it. But we're using, you know, we have the ability to keep using our FPGAs for long as needed it. But we are in the tail end process of receiving our chip.

Chris Quilty

Great. And on the operating expenses, it looks like you've made some nice reductions in the current quarter, a good run rate or some of the cost cutting effects going to accrue as the year plays out?

Sean Wallace

I'll take that. Yeah.

Abel Avellan

Yeah, Sean, what do you think.
Yeah, as Abel mentioned in March, we are going to probably average somewhere around $30 million. We came in a little over $31 million a quarter. I guess the one caveat is there's $15 million of expenses that cannot be paid for, but hadn't been run through the income statement on an effect. But we have targeted these two R&D engineering services and GA and keep it around a $30 million run rate probably through the end of the year.

Chris Quilty

Great. And Abel that you get a picture with Ben Stiller?

Abel Avellan

Well, we want to do invite our investors to launch. Let's say, he's available.

Chris Quilty

Thank you, gentlemen.

Operator

Thank you. At this time, I'm showing no further questions out. I'd like to turn the call back over to management for closing.

Scott Wisniewski

Thank you, operator. Our company is building a space-based cellular broadband network designed for the use of the phone in your pocket today. I want to thank everyone for joining both the shareholders and the analysts for their questions and hope everybody has a great rest of the week. Thank you.

Operator

This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.