Q1 2024 NextNav Inc Earnings Call

Participants

Erica Bartsch; IR; Sloane & Company

Mariam Sorond; Chief Executive Officer; NextNav Inc

Christian Gates; Chief Financial Officer; NextNav Inc

Griffin Boss; Analyst; B. Riley Securities

Jaime Perez; Analyst; RF Lafferty & Co., Inc

Rosemary Sisson; Analyst; Odeon Capital Group

Presentation

Operator

Thank you for standing by. My name is Eric and I will be your conference operator today. At this time, I would like to welcome everyone to the next number of first quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, press star one again Thank you. I would now like to turn the call over to Erica. Bart. Please go ahead.

Erica Bartsch

Good afternoon, everyone, and welcome to NetScout's First Quarter 2024 earnings conference call. Participating on today's call are Marijn surround net-net, Chief Executive Officer, and Chris gates, NEXTMap Chief Financial Officer.
Before we begin, let me remind everyone that this call will include certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as may, anticipate believe, expect, intend, may, plan, possible, potential, Aames, thrive, predict, project should, could would will and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Such forward-looking statements, which may relate to NexCen as forecasts of future results, future prospects, developments and business strategies are subject to known and unknown risks, uncertainties assumptions and other important factors, many of which are outside our control that could cause actual results to differ materially from the results discussed in the forward-looking statements.
You are cautioned not to place undue reliance upon any forward-looking statements, which speak only as of the date made. And next, NAB undertakes no commitment to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise for additional information regarding risk factors in Part two, Item 1A, Risk Factors of the Company's quarterly reports on Form 10 Q and Part one Item 1A. risk factors, our next annual report on Form 10 K for the year ended December 31st, 2023, as well as those otherwise described, are updated from time to time in our other filings with the Securities and Exchange Commission.
Following our prepared remarks, the Company will host an operator LED question and answer session. In addition, at the conclusion of today's call. A replay of our discussion will be posted to the Company's Investor Relations website.
I'd now like to turn the call over to Ms. Miriam surround Chief Executive Officer of NEXTMap. Please go ahead.

Mariam Sorond

Thank you, Erica, and good afternoon, everyone. I am pleased to have you join us for our first quarter call. On today's call. I would like to run through some of the recent strategic update on the business and will then turn things over to Chris for a review of our financials.
While this is only my second earnings call as Nexans' CEO. I am particularly excited to be speaking with you today, given the activity over the last few weeks. As I noted on our last call, I have been working closely with the team since I arrived to develop my strategic vision for the future of Nexstar today, I am thrilled to be able to share in greater detail what we have been working on and our strategy for moving forward to get right to the point, the team and I are focused on presenting a new vision for complement and backup to GPS with additional spectrum for broadband services.
Conscious principal P. and TGPS. is foundational to national security, the US economy and power and critical infrastructure. Berry has coverage limitations, indoors and in urban canyons and is vulnerable to jamming and spoofing. We see our vision as an innovative solution that enables next-gen terrestrial P&C by leveraging 5G broadband, our goal is single digit accuracy everywhere, creating a terrestrial PMC solution that provides three B location and timing that is highly accurate is available indoors as well as outdoors and in urban canyons on April 16th.
Many of you know that we filed the petition for rulemaking asking the FCC to enable this innovative spectrum solution in the lower 900 megahertz band. This was a significant milestone for the business and a big step forward in advancing our strategic vision. This action follows the March 28th court approval for our previously announced agreement to acquire spectrum licenses covering an additional four megahertz in the lower 900 megahertz band in receiving court approval. We then had the green light to move forward with obtaining SEC approval in mid April.
In terms of our petition at a high level, we are asking the FCC to reconfigure the band plan and update the lead to one enable a high-quality terrestrial PNT complement and backup to GPS on which the nation relies for essential PNT services and to provide 15 megahertz of low-band spectrum for use by 5G broadband network. We believe this new vision for the lower 900 megahertz band will only spectrum for essential P and T solutions as well as 5G broadband, while ensuring the incumbent operations are appropriately protected More importantly, our proposal does not require taxpayer money or legislation.
I will offer more on that in a moment. As many of you know, next five is already the main geographic licensee in the door at 900 megahertz band for existing licenses are being used to develop industry leading P&C expertise and products. However, the lower 900 megahertz band is underutilized primarily due to better fragmentation and legacy tactical and service rules that limit use of the band as part of our proposal.
Next, I would commit to enabling a terrestrial three DPNT. service as a necessary backup and complement to GPS today, GTS plays a pivotal role in US P&C. Architectured. Qps is an incredible technology that powers much of our nation's critical infrastructure, including electricity, telecommunications, public safety and banking in a moment, but the jamming and spoofing look no further than issues happening internationally. Satellite-based system like GPS have coverage limitations, indoor in an urban canyon.
Current GPS technology can be helpful for emergency services as accurate geo location can be the difference between life and death. However, without GPS, essential functions would be significantly impaired or inoperable. More importantly, spectrum is also a finite resource and we will need more spectrum to power all the wireless services that fueled the economy.
As a result, both public and private sector experts have determined that the US urgently needs a robust terrestrial to VTPNT. solution to complement and backup GPS. Additionally, there is broad consensus that making additional spectrum available for wireless networks would be advantageous to the U.S. economy and overall global competitiveness. We believe a terrestrial three DT. and C. backup and complement to GPS. We'll mitigate the risks to the country, unleash commercial opportunities and help public safety by providing location information and situational awareness indoors, multistory buildings. However, it has historically not been economically feasible to deploy a stand-alone wide-scale terrestrial three DPNT. network.
The reasons for this are twofold. One, GPS is free limiting potential revenue for other PMC offerings into it is difficult to drive adoption of P & T's specific protocols into consumer devices, thus limiting subscribers by reconfiguring the band, we see a direct path to a wide-scale terrestrial three DPNT. network, leveraging the lower 900 megahertz band in terrestrial 5G network created unique economically viable opportunity to help address the urgent need for widespread complementary and backup PNT services.
The proposed rebanding and mutated rule modifications would establish 15 megahertz of low-band spectrum to support terrestrial three DPNT. and 5G broadband. This would include the eight megahertz of spectrum that's not already own the additional four megahertz flex now seeking to acquire pending FCC approval. And three drivers have largely followed factored much of which is an SEC inventory next, not next, Gen technology will be a 5G-based solutions.
So it is more easily integrated into the existing ecosystem for both deployment and adoption. The revised bill would enable next now connection to onshore three DPNT. network to use 5G technology to extend the reach in areas where GP, as we've looked at and supplement the country's 5G broadband capacity advanced next now expects to partner with network operators or other interested in commercial deployment in the band for 5G, leveraging a 10 megahertz downlink spectrum block in five others uplink next enough reliably supply integrated, highly accurate and consistent 3D positioning indoors and outdoors, along with precision timing.
More importantly, our next-gen P and T solution will only use a small portion of the capacity, allowing the network providers to use the vast majority for broadband. We are already in active discussions with various potential partners and are also focused on ensuring that incumbent operations are appropriately protected. Overall, we believe this unique path forward addresses the coverage, cost and user device issues that have previously prevented broad terrestrial three DPNT. adoption. This is a full commercial solution with no need for government funding for legislation, an attractive proposition with P. and T. resiliency already receiving broad bipartisan support. We anticipate continued support from both sides of the aisle as we move forward.
In terms of next steps, on April 24th, the Federal Communications Commission, including its weekly public notice of agency actions on the wireless license transactions, the application to assign the A. block licenses that Max now agreed to acquire from Telesites. This is specific to the transaction we announced on March 11th, 2024, approval of the license application is also contingent on SEC grant of a waiver request, and that request has not yet been placed on public notice.
April 24th. Public notice is a routine SEC action that does not indicate how the Commission will act In-Stat initiates a 14-day period during which parties may file a petition on the assignment applications. The commission then has seven additional days in which it must either grant or deny or defer action on the application. Ultimately, the exact timing of next steps are in the hands of the FCC however, we believe we have presented a petition that explain the urgency to the FCC and provides an economically viable solution to an issue of great importance as we move forward. We will continue taking this process one step at a time. We believe this is a unique vision that will provide an innovative spectrum solution in the lower 900 megahertz band. We look forward to continuing to provide an update on our progress as we move forward with the FCC and beyond.
Finally, before I turn things over to Chris, I want to highlight a new addition to the Nexstar team. Yesterday, we announced that Dr. Sanyal due to a change. Some dark is joining next NAB as Chief Operating Officer effective May ninth standard gear was recently the Head of IT network infrastructure at Google and prior to that spent several years at Verizon and various will including serving as the VP of Product Strategy and Operations where she led early 5G network technology development and trials. We are thrilled to have someone of standard due to caliber join the team, and I look forward to her contributions as we continue to advance our strategic vision.
With that, I will turn things over to Chris for a review of our financials. Chris?

Christian Gates

Thanks, Mariam, and good afternoon, everyone. First quarter revenue was $1 million, the $200,000 increase compared to $830,000 in the prior year period. The year-over-year increase was driven by an increase in recurring service revenue from technology and services contracts with commercial customers.
Operating expenses for the quarter were $17.2 million, up from $14.8 million in the same period last year. Operating expenses included $1.3 million in depreciation and amortization and $4.2 million in equity compensation expense compared to $1.1 million in depreciation and amortization and $3.9 million in equity compensation from the first quarter of 2023.
Net loss for the first quarter of 2024 was $31.6 million which included a $13.2 million loss associated with the change in the fair value of warrants compared to a loss of $16.3 million in the first quarter of 2023, which included a $2.8 million loss on change in the fair value of warrant.
From a balance sheet perspective, we finished the quarter with $79.2 million in cash, cash equivalents and short-term investments. Our balance sheet showed [$49.9 million] of debt net of unamortized discount attributed to transaction costs and the issuance of warrants with a gross value of $7 million after the close of the quarter following the approval of the A. block transaction by the Alameda court on March 28th and per the terms of the asset purchase agreement, we made the $2.5 million cash payment under the contract. As a reminder, any future payments under this agreement will be satisfied with shares of our common stock with the number of shares based on the price of our stock at the time of the claim.
Finally, in the past I've mentioned that the warrants we issued in conjunction with our debt financing may be a source of additional liquidity. I'm pleased to report that since the end of the first quarter and as of May 3, $7.7 million of those warrants were exercised for an aggregate of $16.6 million in cash.
And with that, I'll turn the call over to the operator for questions. Operator?

Question and Answer Session

Operator

At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad.
Your first question comes from the line of Griffin Boss with B. Riley Securities. Please go ahead.

Griffin Boss

Hi, good afternoon. Thanks for taking my questions. So first off, there was a time, not too long ago where the CapEx expectations for next nav were a lot higher than they are now when you were contemplating deploying TerraPointe Pinnacle, can you give us a better sense of what your expectations are today for the CapEx requirements of the business going forward, given this new the vision you're beginning to lay out?

Mariam Sorond

Thanks, Kristen, for the question on currently, our path is to partner. And we believe that what we're presenting to the FCC and upon their approval will actually unleash 15 megahertz of broadband spectrum for 5G build and we believe that this is attractive to potential partners who can incorporate the spectrum into their networks. So yes, you are correct that there are CapEx is very different than what we have previously mentioned about a stand-alone P and T network, which we have highlighted that it is not feasible earlier in our comments.

Griffin Boss

Thanks for. Thanks for the color on and then just yes, on the DFCC., um, you received court approval. That's obviously great to see. Did I hear you correctly that you said on April 24th that kicked off that 14 day period for four comments on the on the assignment of the licenses, which would imply that ended today and then opens up to seven additional days?

Mariam Sorond

That is correct today is the deadline for that 14 day comment period and the four parties could file comments or petitions in response to that, and that line would be tonight.

Griffin Boss

Okay, I understand. And so the FCC would have seven additional days to make a decision. Is that correct?

Mariam Sorond

That is correct or they can they have the 7 days in which the grant deny or defer action on the application.

Griffin Boss

Okay. All right. Great. Understood. And then Christa, I just I missed it when you were just talking about the initial $2.5 million payment. Was that made on subsequent to the end of the first quarter?

Christian Gates

It's a correct, yes. The terms of the asset purchase agreement or that payment, it could be made within 30 days of the court approval, which is on March 28th. And so we made we made that payment consistent with the terms of the country.

Mariam Sorond

Okay. Got it. Understood. And then the next milestone on that, I know is if it's the earlier of either the FCC approval of the transfer or November. So I guess theoretically my Yes, my question is that next $7.5 million payment in stock could either come this quarter if the FCC approves it or next quarter for, I guess, [Q4]?

Christian Gates

That is that's correct. And it's the it would like it will be the earlier of November 15th or FTC action.

Operator

Your next question comes from the line of Jami Perez with RF Lafferty. Please go ahead.

Jaime Perez

Thanks for taking my call and good day, everybody. They are $1 million of revenue. I know it's not a point, but I mean is it all Pinnacle, Adam? And I know it seems like this change of strategy going away from a commercial initiative, when you first came out of spec. Could you give a little bit more color on and any further commercial initiatives you have?

Mariam Sorond

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

Jaime Perez

All right. And my next question, any update on the executive order that sort of pending?

Mariam Sorond

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

Operator

Your next question comes from the line of Rosemary Sisson with Odeon Capital. Please go ahead.

Rosemary Sisson

Thank you, and thanks for taking the questions. I had a question on them on liquidity and how you have kind of how you see that working out over the course of the next year or so. And your cash burn during the quarter was about was closed with [$8.5 million, $9 million].
And then you spent another $2.5 million in cash after the end of the quarter. So just kind of how do you look at that? Is that is that the right burn rate to think about on a quarterly basis going forward in the near term?

Christian Gates

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

Operator

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

Mariam Sorond

Thank you. Before we close the call, I wanted to add one important point. We recently received inbound questions from investors regarding our willingness to sell specific company assets, I want to take a moment to directly respond to those inquiries here specifically, we currently have a strategy in place that utilizes our spectrum for both P and T and broadband, which we believe creates tremendous value for our customers and ultimately, our shareholders as the CEO of NEXT now and in coordination with our Board. We have a fiduciary duty to consider any offers that are presented, and we will continue to do so.
Having said that, I want to reemphasize that we're very pleased with our progress to date, the Company is on a strong trajectory, and we look forward to working with the FCC in advancing our vision for an innovative spectrum solution in the lower 900 megahertz band to provide a complement and backup to GTS. as well as 5G broadband spectrum available. We will continue Q2 call center and updated on our progress and I look forward to engaging with the financial community on this. And I want to also thank you all for joining us today. And everyone have a great afternoon.

Operator

Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.