NextNav Inc. (NN) Q4 2024 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. My name is Abby, and I'll be your conference operator today. At this time, I would like to welcome everyone to the NextNav Fourth Quarter 2024 Earnings Conference Call [Operator Instructions]. And I would now like to turn the conference over to [Nevan Riley]. You may begin.

Good afternoon, everyone. And welcome to NextNav's fourth quarter conference call. Participating on today's call are Mariam Sorond, NextNav's Chief Operating Officer and Chief Executive Officer; and Chris Gates, NextNav's 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 use of words such as may, anticipate, believe, expect, intend, might, plan, possible potential, aim, drive, predict, project, should, could, would, will, and similar expressions may identify forward-looking statements but the absence of these words does not mean that the statements are not forward-looking. Such forward-looking statements, which may relate to NextNav's forecast of future results, future prospects, developments and business strategies are subject to known and unknown risks, uncertainties and assumptions and other important factors, many of which are outside NextNav's control that could cause actual results to differ materially from the results discussed in forward-looking statements. In particular, such forward-looking statements include the achievement of certain FCC related milestones and FCC approvals, the ability to realize and broaden spectrum capacity and the advancement of NextNav's terrestrial 3D PNT services. NextNav is positioned to drive growth in its 3D geolocation business, an expansion of its next generational terrestrial 3D PNT technologies. The business plans, objectives, expectations and intentions of NextNav and NextNav's estimated and future business strategies, competitive position, industry environment, potential growth opportunities, revenue, expenses and profitability. These statements are based on NextNav management's current expectations and beliefs as well as a number of assumptions concerning future events. You are cautioned not to place undue reliance upon the forward looking statements, which speak only as the date made and NextNav 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 read Part 2, Item 1A, Risk Factors of the company's quarterly reports on Form 10 Q, Part 1, Item 1A, Risk Factors of NextNav's annual report on Form 10-K for the year ended December 31, 2024, as well as those otherwise described or 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 Web site. I'd now like to turn the call over to Ms. Mariam Sorond, Chief Executive Officer of NextNav. Please go ahead, Mariam.

Thank you, [Nevan]. Good afternoon. And thank you, everyone, for joining us today. I would like to begin today's call with an update on the business and our latest steps with the FCC. I will then turn things over to Chris to provide an update on our financials. 2024 was a transformational year for NextNav, and I am pleased with all that we have accomplished. We have made significant progress in advancing our vision for a threshold complement and backup to GPS, leveraging strategic regulatory, technological and financial milestones to strengthen our position. Following our agreement to acquire spectrum licenses covering an additional 4 megahertz and lower 900 megahertz band last March, we moved quickly to file a petition for rule making with the FCC. Our petition, which seeks to unlock spectrum for a nationwide threshold PNT network, took a crucial step forward in August when the FCC issued a public notice inviting public comment. Since that time, we have received strong support from public safety organizations, industry stakeholders and government agencies recognizing the urgent need for a resilient complement and backup to GPS. Recently, Convey911 filed in support of the NextNav petition and the Texas 9-1-1 Alliance and the Nevada Division of Emergency Management, each recently filed in support of the commission moving forward to explore solutions that address the limitations of GPS. NextNav has been actively holding engineer to engineer discussions to address concerns and refine its proposals. Notably, we are actively engaged with key stakeholders, including the NTIA, the Association of American Railroads and tolling operators to address coexistence concerns and technical considerations. To date, these conversations have been highly productive. We are working with MxV, a subsidiary of the Association of American Railroads, to gather the necessary information about railroad equipment and developing a joint test plan. We are working with E-ZPass and IBTTA towards a joint testing approach with the tolling entities. And finally, in late February, we filed a detailed technical analysis of coexistence with unlicensed operations with the FCC. The study provides a real world deployment comparison and in-depth technical assessments that find coexistence is feasible and that replacement of legacy operations in the bandwidth 5G would not cause unacceptable interference to Part 15 devices. The findings demonstrate that by updating decades old rules, the FCC can address a major national security and public safety threat without causing unacceptable interference on licensed devices. Beyond these conversations, public advocacy for a viable US PNT solution continues to grow. This past fall, retired Rear Admiral, David Simpson published a white paper on PNT resiliency. The Brattle Group released a report quantifying the economic value of the NextNav's proposal as a backup for GPS. While former representatives Greg Walden and Loretta Sanchez highlighted the benefits of terrestrial PNT in a Broadband Breakfast op-ed. More recently, Diane Rinaldo, a leading expert in 5G and telecommunication security filed a literature review with the FCC emphasizing the severe risks of prolonged GPS disruptions to national security and infrastructure. The paper underscores the growing capabilities of US adversaries and advocates for a system of systems approach to PNT modernization, fortifying GPS while diversifying backup solutions across space and terrestrial based systems. The FCC released an NOI last week, this is an exciting and critical development and we are pleased to see Chairman Carr's prompt leadership in advancing initiatives supporting national security. This reflects the urgent need for a terrestrial backup to GPS as part of a system of systems, including multiple technologies in space and on the ground. We are eager to continue working with the chairman, commissioners and staff at the FCC, and NOI allows the commission to solicit input and feedback from the public. Chairman Carr has made it clear that he is action oriented and that he views NOIs as a serious indicator of the direction he is heading. We welcome this filing and it's importance to all stakeholders as it signals Chairman Carr's active and engaged leadership at the FCC a positive development for consumers, businesses in the nation. There are five points of significance I want to point out. Number one, Chairman Carr has been the leader of the FCC for less than two months and the presence of the PNT NOI on the agenda for his second commission meeting is an indication that he takes GPS limitations and vulnerabilities seriously and wants to take action in this area. This early focus is a significant one for the prospects of a terrestrial complement and backup to GPS and therefore for NextNav. Number two, the C-band NOI adopted at the February meeting is a clear message that the FCC is focused on the C-band and therefore we conclude the Chairman Carr is using NOIs to advance his agenda with a bias towards action. Number three, the PNT NOI is the first acknowledgement by the FCC of the seriousness of GPS vulnerabilities and limitations and the need for a system of systems approach that includes terrestrial PNT. The NOI notes, the terrestrial based PNT technologies can receive stronger signals than space based PNT technologies, be less vulnerable to intentional interference and space environment -- events and function in certain locations where satellite signals aren't available. This is a level set on PNT issues and the findings are foundational to NextNav's desired results. Number four, NOI also discusses the general consideration for solutions that are nationwide can be implemented in consumer devices and use spectrum resources. NextNav agrees with the system of systems approach, solving national security problem is an industry wide effort and everybody brings something different to the table. For example, some bring just timing or other aspects, some bring space. NextNav's terrestrial solution is unique in that it addresses both positioning and timing is wide scale and is in consumer devices. And very significantly, number five, the comment cycle in the draft NOI is quite compressed and paves the way for prompt action on this topic in the future. The quick action in comment cycle set the pace for this process and gives a strong indication that the next steps will be as prompt. I am pleased that NextNav has contributed to the discussion on how to address GPS vulnerabilities. Executive Order 13905 was released at the end of the first Trump administration. Additionally, Chairman Ted Cruz and Senator Ed Markey, through letters and hearings during the first Trump administration, have clearly laid out the need for solutions and remain longtime supporters of this issue. NextNav's petition along with other PNT technologies is a subject of this notice of inquiry. The NOI follows Chairman Carr's staff appointment in late January, including the historic naming of Adam Chan as the FCC's first National Security Counsel, underscoring the agency's commitment to security to securing critical US infrastructure, including terrestrial PNT. Meanwhile, Commerce Secretary, Howard Lutnick signaled a rigorous, balanced approach to spectrum policy at his confirmation hearing, considering national security, commercial applications and taxpayer impact. With the administration prioritizing national security, we believe these developments position NexNav well in 2025 and beyond. Moving forward, we remain committed to constructive collaboration with the FCC, NTI and other agencies to advance our spectrum and terrestrial PNT initiatives. Beyond the FCC, results from a new national public policy polling survey also showed overwhelming bipartisan support for a complement and backup to GPS in order to support national security, public safety, global competition and economic stability. This support beyond the FCC is critical and a great additional backing for NextNav and the broader market. We also reached a significant milestone in our next gen technology. As we announced in February, NextNav successfully demonstrated its next gen technology incorporating PRS based positioning and timing in its labs. We also completed successful timing synchronization field test, leveraging a prototype network powered by NextNav's current spectrum in Palo Alto, California. These successful demonstrations validate the effectiveness of NextNav's 5G PRS based PNT solutions and paves the way for NextNav's next steps on leveraging 5G infrastructure to advance terrestrial 3D PNT commercialization. Building on this momentum, we recently put agreements in place with outside suppliers to develop an over the air network to showcase a 5G based 3D terrestrial positioning, navigation and timing capability using standards compliant equipment. Through these collaborations, NextNav will demonstrate interoperability with commercial 5G infrastructure and device platforms in existing 3GPP standards to rapidly develop 3D PNT capabilities powered by 5G. Before turning over to Chris, I want to highlight a key addition to our leadership team. In February, Renee Gregory joined NextNav as VP of Regulatory Affairs, leading our FCC approval and compliance efforts. With 20 plus years of experience across government and the private sector, she's held senior advisory roles at the White House, NTIA and FCC. We are thrilled to have her on board, working with our top notch team of DC Consultants to help advance FCC engagement and address national security needs. And finally, an exciting development for our capital structure. We also announced today that we have signed a note purchase agreement for a private offering of $190 million led by [EMCOR Capital] and Fortress Investment Group alongside other new and existing investors. We look forward to benefiting from their wide ranging expertise across strategy, finance and national security. This deal strengthened our balance sheet, positioning us to pursue the opportunity ahead of us. It also demonstrates that the market is enthusiastic about our technology and future. Chris will provide more details on this shortly. As we look ahead, NextNav is committed to advancing cutting edge geolocation solutions that strengthen security, public safety and economic resiliency. The past year has reinforced the urgent need for a resilient PNT solution and we are leading the charge. With increasing recognition of the need for a terrestrial GPS backup, strong national security focus from the new administration and continued industry collaboration, we are well positioned for momentum in 2025. Our team remains focused on executing our strategic roadmap and driving innovation in geolocation technology. With that, let me turn things over to Chris for a review of our financials. Chris?

Thanks Mariam. And good afternoon, everyone. I'll first address our financial performance for the fourth quarter and fiscal year 2024 and then provide some details on the note purchase agreement Mariam just referenced. Beginning with the top line, NextNav's revenue in the fourth quarter was $1.9 million, a $0.7 million increase from $1.2 million in the prior year period. For the 12 month period, revenue was $5.7 million, a $1.8 million increase from $3.9 million in 2023. The increase in both the three and 12 month period was primarily driven by our previously announced one year DOT contract and a one time license fee earned in the fourth quarter of our soft GPS technology. Operating expenses for the fourth quarter were $16.7 million, down approximately $4.5 million versus the same period last year. Operating expenses included $1.3 million in depreciation and amortization and $2.7 million in equity compensation compared to $1.3 million in depreciation and amortization and $9.2 million in equity compensation in the fourth quarter of 2023. In the 12 month period, operating expenses were $65.8 million as compared to $67.4 million in 2023. Excluding stock based compensation expenses and depreciation and amortization, operating expenses were $46.7 million in 2024 and $40.7 million in 2023. Net loss for the fourth quarter was $32.3 million, which included a $14.9 million loss associated with the change in the fair value of warrants and liability associated with [Telesource] asset purchase agreement. This is compared to a net loss of $16.4 million in the fourth quarter of 2023, which included a gain on the change of the fair value of our warrant liability of $5.7 million. For the full year, net loss was $101.9 million, including a $32.2 million loss associated with the change in the fair value of warrant liability net of the gain associated with the settlement of liability associated with the [Telesource] asset purchase agreement compared to a net loss of $71.7 million in the full year of 2023, including $4.1 million associated with the change in the fair value of warrant liability. Turning to our balance sheet. We finished the quarter with $80.1 million in cash, cash equivalents and short term investments. This is a result of our continued disciplined use of cash and we enjoyed the benefit of $3.5 million in proceeds from additional warrant exercises in the quarter. At December 31st, we had $54.6 million in debt net of unamortized discount attributed to transaction costs and the issuance of warrants with a gross value of $70 million. As we mentioned in the past, we continue to carefully manage our use of capital taking a disciplined approach to any spend. Now before wrapping up, I want to provide some additional detail on the just signed note purchase agreement. This agreement reflects our prudent long term approach to liquidity. As Mariam highlighted, we're very excited to have the opportunity to welcome new strategic capital to our investor base, while enhancing the liquidity of our balance sheet on attractive terms. We believe that this capital will provide us with significant additional financial flexibility as we pursue our objectives in 2025 and beyond. The agreement is for a private offering of $190 million of 5% redeemable senior secured convertible notes maturing on June 30, 2028. Approximately $70 million of the proceeds from this issue will be used to redeem NextNav's existing 10% senior secured notes due December 01, 2026. The new notes will have a conversion price of $12.56 per share based on a 20% premium to the trailing 10 day closing price average prior to March 11th. The new notes may not be redeemed for one year, after which new notes will be redeemable if NextNav stock is greater than 160% of the new notes conversion price. Conversion will be at the option of the noteholder. The company is providing a conditional notice of redemption to redeem the existing 10% notes at 101% of the principal amount of the existing notes plus accrued and unpaid interest, conditioned upon closing of the transaction. And then finally, associated with the transaction, we are issuing warrants to both [EMCOR] and Fortress, including 1.5 million shares of NextNav common stock to each exercisable at $20 per share, warrants to purchase 950,000 shares of common stock at an exercise price of $17 per share and warrants to purchase 1.45 million shares of common stock at an exercise price of $12.56 per share. And again, that's for each of the lead investors in the transaction. The transaction is expected to close on or about March 31, 2025. With that, I'll turn the call back over to the operator for questions. Operator?

Thank you. And we will now begin the question-and-answer session [Operator Instructions]. And your first question comes from the line of Mike Crawford with B. Riley Securities.

That's a lot to digest today, but just to look at the bigger picture. Can you talk about what might be capital cost to deploy a 5G network with the timing signal propagated per your IP as you're pursuing in the NPRM and who might bear this capital cost?

As we've said previously in our petition, it will be a 5G operator who will be building this network. And because we are using a standards based 5G PRS solution, we don't see major cost in addition to what the 5G network cost would be for the operator to deploy. They add spectrum to their bands all the time, they need 5G spectrum and this is standards based. Our solution is software sitting on top of it.

So could the software sit on top of existing radios and towers or would there need to be all new infrastructure put in by the operator?

I mean, the operators have existing towers and radio equipment but every time that an operator adds a new spectrum band, there's new radios to be added. They do this all the time. I mean, they're going to continue to build out more spectrum as capacity demand grows and they're going to continue to add whatever there needs to be added to their existing towers and infrastructure. Our software is completely capable and this is what actually we just demonstrated through our technology trials that it could take an existing 5G PRS based signal that's transmitting from the operator's network as they would deploy any 5G new spectrum and provide accurate positioning and timing.

And then my one follow up question would be what potential uses of capital would you have beyond just headcount and legal, et cetera, as you progress toward getting a report in order?

Chris, do you want to take that one?

And I think you're getting to some extent of course that the financial flexibility that we're building into our balance sheet with this new notes issue that we just signed. Obviously, one of the things that we've been able to achieve is to move the maturity of any potential notes well into mid 2028. But at the same time, we've significantly enhanced the flexibility of capital in our balance sheet and that of course provides us with substantial long term liquidity. And it also allows us to approach not only our existing capital structure but our business opportunities as we kind of look into 2025 and pursue our objectives with a great deal of flexibility. And I'm going to use that word a couple different times there. The other thing that I would highlight, and I think Mariam mentioned this, is that our business plan continues to not require the deployment of a network by ourselves. We intend to partner with third parties in the future for network deployment. And so we're not provisioning in advance of like a major network or CapEx build out program.

And ladies and gentlemen, that concludes our question-and-answer session. I will now turn the conference back over to Mariam Sorond for closing remarks.

Thank you all for joining us today. And as we look ahead, we're committed to advancing geolocation services that will enhance national security, public safety and economic resilience. And we are super excited for 2025 as our momentum proposals forward. We are looking forward to connecting with you next quarter.

And ladies and gentlemen, this concludes today's call and we thank you for your participation. You may now disconnect.