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 two 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 the SEC from time to time. Readers are cautioned not to put undue reliance on forward-looking statements, and the company specifically disclaims any obligation to update the forward-looking statements that may be discussed during this call.
Also, after our initial remarks, we will be starting our Q&A section with questions submitted in advance by our shareholders. Now, referring to slide three, 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 faced by today's five 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 start early to mid-September. In parallel to construction of BlueWalker 3, we are building the next five satellites that are under initial construction phase, using designs and parts similar to what we have in BlueWalker 3, including phased array antennas, and they are planned to be launched in late 2023.
In parallel to that, we also have substantially complete the commercial agreements with partners and vendors in order to get access to the components that we will need for the next five Block 1 satellites and the next generation satellite. Also, we're on target with our extension facility site 2 to support our scheduled plan of launches. A little more detail of what happened when we launched BlueWalker 3, what will be the launch and testing timeline. In July 2019, we transported BlueWalker 3 to California for testing, environmental testing. That was successfully completed in California. On August 9, we transported BlueWalker 3 to Cape Canaveral, where we continue testing. We'll continue testing here in the Cape while at the same time we're completing preparation for the launch.
The launch is planned for a window between early September to mid-September on a Falcon 9 from Cape Canaveral. T plus two, so two months after the launch with approximately two months after the launch, we will have BlueWalker3 placed into its orbit. We will initiate initial in-orbit testing. We will unfold the array and we'll deploy the Ku-band antenna for initiating communication to the ground. From launch all the way through initial six months, we will start our campaign to testing our broadband direct-to-cell system in cooperation with participating MNOs on six continents. We will also be testing BlueWalker3 satellite using Nokia and Rakuten infrastructure to interconnect with the local operators.
That's kind of what we have as a plan for BlueWalker 3 from now to launch. Continue the business momentum, continue to be strong. We had added three new operators, including a memorandum of understanding with Smartfren Telecom in Indonesia. Indonesia 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 memorandums 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 expanding competitive advantage. We also have achieved an agreement to sell a majority ownership in NanoAvionics at an enterprise value of $65 million.
The company expects to receive approximately $27 million in net proceeds at closing. Just recently we have completed an agreement with Nokia for their 4G and 5G technology to integrate it 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. 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 on my first three 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. 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 seven. 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 non-cash 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 two 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. 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-$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. This will also result in an increase in cost per satellites 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.
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 two production facilities in Midland, Texas. One, which is the production facility that we use to build BlueWalker 3. Site two, which is the production facility where, combined with site one, will allow us to scale up to six satellites per month production. 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 and site two in order to support the launches that we have next year. To follow up and extend our site two in order to support the six satellites per month production capability.
Steve from Arizona asked, "Will the proceeds from the sale of AST's stake in NanoAvionics and equity sold under the B. Riley facility generate enough proceeds to complete phase one of the SpaceMobile constellation? Or will other actions such as tapping into the mixed shelf offering be needed?
Steve, thanks for that. As we disclose in our filings, we look to manage our business with liquidity for at least the next 12 months. 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 one 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 NanoAvionics, 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 our plan.
Rick from the Netherlands asked, "Can you please explain the expected average cost of the BlueBird satellites compared to the cost BlueWalker 3?
Yeah, Rick. The BlueWalker 3 costs are a result of one-time research and development, building out supplier relationship, seeing what works and doesn't. 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 costs estimates for the first 20 satellites was a result of the use of older generation BlueWalker 3 parts in the first five satellites and the impact of general inflation and supply chain issues. This has increased our estimated per 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. You know, our technology architecture, which does not require a user terminal and is designed to connect directly with unmodified handsets, this is really ideal for when terrestrial networks are not available. For the Ukraine, you know, we would love for our solution to someday support humanitarian missions and save lives. This applies to natural disasters, outages or other emergencies. 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. We will be continuously testing BlueWalker 3 all the way till 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 is being performed in the Cape in the launch facility where the satellite will be launched. After that is completed, we launch. We will be getting into space. We will be running an in-orbit test, basically to make sure that everything continue to work as we get into space and then we get into our orbit.
We deploy, and then we continue, as I explained earlier, our test campaign together with our network partners around the globe. That's a very significant logistics. We have tests planned in every single continent where there is population. Many test facilities and locations are being lined up for that. There's a lot of logistics required for that in order to do all the testing in a timely manner.
With that, I'd like to thank our shareholders for submitting these questions. Operator, let's open the call to analyst questions now.
At this time, we will be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Our first question is from Griffin Boss with B. Riley, p lease proceed with your question.
Hey, thanks for taking my question. So first off, we've obviously seen some strength in the stock recently. I'm not gonna try to speculate on the exact drivers there, but it seemed like the significant rally on the eleventh came on the heels of the FCC announcement that SpaceX wouldn't be awarded $900 million from the RDOF fund. Whether or not that contributed to the rally is anyone's guess. At the end of the day, you're not competing directly against Starlink. You know, the RDOF is unrelated to ASTS, given that it's focused on fixed broadband. I did want to come back to that topic of government funding in general. We know you're vying 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.
Hi, Griffin. It's Scott here. I'll take that one. I think first off, we continue to believe that we qualify under a prospective 5G Fund for Rural America. You know, details on that have not been released. That's still in process, but we continue to believe that we qualify for that based on the rulemaking from a little while ago, and that's an opportunity for us for sure. I think globally there are similar types of funding available. We haven't talked about those specifically and but generally speaking, I'd say our message and our story has been pretty well received. Apart from grants, there's also, you know, government supported debt that's available.
I think our story continues to resonate well with governments, with regulators, and importantly, as we get closer and closer to a launch, we delivered a satellite to Cape Canaveral. You know, seeing that satellite, seeing the tangible milestone has been very powerful with a lot of different audiences. Yeah, we continue to believe we qualify for that prospective FCC fund, but we're in wait mode there.
Got it. Okay, great. Thanks, Scott, for that. Next is so related to the upcoming BlueWalker 3 launch, and then subsequent testing. If everything goes according to plan, and there's no issues, obviously, you know, with that technology risk in the rearview mirror, your ability to sign deals becomes much simpler. I know you guys mentioned, you know, a few more in the quarter. That was good to see. You know, as we know, the BlueWalker 1 launch in 2019 was sort of the basis for investment from, you know, Vodafone, Rakuten and American Tower. To the extent that you guys can discuss anything.
You know, 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?
At this point, you know, we've signed up to an agreement or understanding with quite a lot of the global MNOs. You know, we're approaching 2 billion subscribers under some form of agreement or understanding. The message continues to resonate quite nicely. Again, in the prior question, I referenced the tangibility, the delivery of the satellite. You know, 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, you know, we have not signed. Generally speaking, we're with nearly all the top MNOs who are not, say, in China or in conflict with Vodafone.
really we've made a lot of the progress there. I think for us, you know, this tangible milestone is very powerful and will continue to accelerate the customer conversations. We're pretty happy where we are at this stage.
Sure. Okay. Yeah, that makes sense. 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, you know, the role that Nokia is playing in the rollout and commercialization of SpaceMobile and, you know, how this agreement is sort of different than the other MNO agreements that we've seen in the past.
Yeah, absolutely. Regarding Nokia, you know, they're one of the top three global providers of RAN network hardware and software globally. These are companies that sell to the same customers that our same customers. They sell equipment and software to the wireless companies who then use it to build out their network. You know, there's a technology that sits on the top of the tower, on the base of the tower, and then back at the network core. They are a leader here, and they together with Rakuten, who's a new entrant and one of our top investors, they're two providers of this equipment that'll sit back at the gateway, a couple locations within each country and be part of the MNO network for connecting to, you know, our backhaul.
I think that's, you know, a real powerful indicator that we have someone like that working with us. Their off-the-shelf hardware and customized software will be very, very valuable for our MNOs and allow them to scale up very quickly.
All right, great. I appreciate that, Scott, and thanks again. Looking forward to the launch in September.
Our next question is from Bryan Kraft with Deutsche Bank, please proceed with your question.
Hi, good afternoon. 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 five BlueBirds that will launch in late 2023. I think it represents roughly two-quarter postponement from your disclosure in May. Assuming that's right, can you just talk about the factors behind the change in the timeline for the launches and also, you know, at this point, what your overall timeline is for commercializing, starting to commercialize the BlueBirds and, you know, generating revenue from the satellites. Thank you.
Hey, Bryan. How are you?
Great, thanks.
The plan is to launch these five satellites in a single launcher on a Falcon 9. The idea is to actually start monetizing these initial satellites with a service that is not continuous, but a service that allows us to start monetizing the satellites earlier rather than waiting for the complete block of satellites to be in place. This launch is to plan for later in 2023. There's a couple of things that we have done with them. We are reusing a significant part of the current design on BlueWalker 3, the avionics, FPGA, the software, in order to reuse that.
At the same time, we're also having the next generation satellites in design and to start strategically the production of certain components for them. That's the rationale of that is basically to get to a service with these initial satellites. It will not be continuous service as we need more to have continuous service, but it will allow us to basically start monetizing with those initial satellites earlier than having the complete fleet.
It sounds like early 2024. Is that the right way to interpret your statements at all?
Yeah. I mean, very late 2023, early 2024. Yes.
Okay. Okay, great. Just your confidence level in that timeline for late in 2023 on the launches. Sounds like you've got a lot of the pieces in place now, so it sounds like you're fairly confident in that.
Yeah. We announced earlier we have a reservation for that launch. We are basically taking advantage of everything that we have learned and built for BlueWalker 3. There are many lessons learned, we built the first, and we're obviously applying them to our build processes. Yes, I mean, as we continue to repeat the production of these satellites, the pace will be accelerating. That's why we have taken this approach.
Okay. Okay, thank you.
Our next question is from Caleb Henry with Quilty Analytics, please proceed with your question.
Hi, guys. A few questions from me. The first five satellites, can you give any detail on how those will be different from the remainder of the Block 1 satellites, the other 15?
Yeah, the main difference is the FPGA base. There's two differences. One is their size and mass. The other relevant difference is the usage of ASICs versus FPGAs. Those are the two distinct differences between the two satellites.
Okay. How much of a size difference are you looking at between the two different designs?
They're roughly around half between one and the other.
Okay. The latter ones, the ones with the ASICs will be the smaller spacecraft?
No, they will be the largest.
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 then launch for, you know, time being is in Florida. Just wondering if there are any plans to try and consolidate testing to, you know, a location that's either closer to manufacturing or launch or is not really an issue having it in California?
No, that was really a one-time 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 the spacecraft. As I said earlier, we will be testing till we are completely encapsulated and into the launch vehicle. Going forward, we will not need to transport the BlueBird ones outside our facility.
Okay. Just last question. In terms of launching the remainder of the Block 1 satellites and then going beyond that, do you have any timeline plan for the announcement of additional launch orders? Or do you have additional launch capacity already secured with SpaceX beyond those first five?
Hey, this is Scott here. I'll take that one. You know, we have a multi-launch agreement with SpaceX. We did have to do some prepayments for additional launch. 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 the first five satellites and for the next generation beyond that, many components are already contracted as well. We've got the planning in place. We try to be smart around long lead items and seeing into the future 'cause obviously there's disruptions in the supply chain to manage that everyone's dealing with.
We've been planning actively for the satellites that come after the first five. At this time, we're not gonna announce when, but those are ones that we're obviously very focused on and we wanna be building satellites as fast as we can. We've taken the first five satellites as a single launch, as Abel said, a kind of a chunky way to make a dent in the constellation. That's one that we're doing as a first move. We plan to have satellites behind that very closely.
All right. Those are all my questions. Thank you.
Our next question is from Landon Park with Morgan Stanley. Please proceed with your question.
Great. Good afternoon. Thanks for taking the questions, everyone. Just on the BlueWalker 3 testing, can you, Abel, talk about, you know, what are the main, you know, issues that you think could arise during testing? What do you view as the biggest hurdles to sort of overcome? What type of disclosure should we expect throughout the sort of that six-month process of testing?
Hi, how are you? Okay. Well, I think in order to answer that, I will have to split this in phases. 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 satellite itself arrive properly into its orbit, and all the components are functioning as expected. That will be the first phase. We believe that will be in the first two weeks after launch. Then after that, there will be a phase where when we decide to deploy, basically to release the array.
Basically, we had a phased array of approximately eight meter by eight meter that get deployed. We have cameras, we have potentially other satellites taking picture of that event. That disclosed that basically proved the mechanisms and the ability to open the satellite. The last events where we start, basically, we had a lot of these pre-planned and obviously agree with the network operators when we start doing broadband directly to cell phone with BlueWalker 3. For that, we will have multiple opportunities to test with leading operators the satellite together with the Nokia and Rakuten equipment on the ground. We'll basically be able to demonstrate broadband directly to the handset.
That's kinda the last phase.
Thanks. Which of these do you view as the biggest hurdle for you to overcome?
Well, that's difficult to say. I mean, we had to spend over a year testing and verifying that all these states will function as planned. At this moment, our view is that when we launch, we have all the evidence that we think everything will operate as planned. That's also what we have, phased in-orbit testing, deployment, and then actual broadband to the cell phones.
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 Fund. Starting even with BlueWalker 3. Of course, as we launch the additional satellites and we add additional improvement to them, we expect that to increase.
Okay. Just to make sure I'm understanding. With the BlueWalker 3, the service throughput will be more limited, is the expectation? Is that 'cause your testing is in such a narrow band or?
No, we had at least in our experimental license, we had a 10 megahertz block.
Okay.
To do testing. We have facilities in locations in Texas to perform the test, also in Hawaii. This is a 10 MHz spectrum allocated to us. We expect roughly 1.5 bits per hertz on the uplink, two-three bits per hertz in the downlink. We have the spectrum located. We have approval from the FCC to do this testing.
That's 10 megahertz of TDD, I guess? Is that-
FDD. 10 MHz
Oh, sorry, FDD. Okay. It sounds like double-digit downlink-
Yeah.
In terms of data rates. Okay. Have you talked about the type of throughput per satellite you're expecting, you know, for BlueWalker 3 and what the ratio then is to the BlueBirds?
I mean, the amount of capacity per satellite is around 1.8 million GB per month per satellite. That number will increase as we add satellites that we will be able to enable MIMO into the network. 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 you know usable throughput are or?
That is usable throughput into handsets. That's billable.
I'm just wondering what, you know, in terms of gigabits per second, what is the throughput of the satellite?
Well, we had approximately 9-13 gigabit per second of trunking capacity back to ground that we can bring down into an area of approximately 2,800 kilometers of diameter that moves around the earth. That when you take in consideration as the satellite move between areas where there is phones and area where there are no phones and all of 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 9-13 gigs per satellite in terms of throughput?
Yes. Yes.
Okay. That's BlueWalker 3 or that's BlueBird, the initial BlueBird?
That's BlueWalker 3. I'm sorry, those are the production satellites. BlueBird 1.
BlueBird. Okay, p erfect. Great. That's all very helpful. Then Sean, just one question for you. Did you size the funding gap that you're expecting and?
We don't disclose that as yet. We just, what we have been doing is giving guidance on how we're funded for the next 12 months.
Okay.
We've also given guidance on our 20 satellite configuration.
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 expense around $30. CapEx will go up or down, but it could be in that range. Yes.
Okay, great. Thanks very much for all the questions.
We have reached the end of the question and answer session. 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 wanna thank all of our shareholders for joining the call and their continued strong support of the AST SpaceMobile mission, t hank you.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.