AST SpaceMobile, Inc.

Good day and thank you for standing by. Welcome to the AST SpaceMobile third 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 the AFT Space Mobile Annual Report on Form 10-K for the year that ended December 31, 2021. with the Securities and Exchange Commission and on other documents filed by ASP Space Mobile 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 the 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 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 Space Mobile 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 portfolios. Our engineers and space scientists are on a mission to eliminate the connectivity gaps they cite today's 5 billion mobile subscribers and finally bring broadband to the billions who remain unconnected. Since our last quarterly business update, we have made strong progress, including the achievement of several critical technology milestones. It is my pleasure to now pass it over to Chairman and CEO Abel Avalon, who will take you through that now. Abel?

We announced this morning I am super excited to report that Blue Walker 3 successfully unfolded its 690-square-foot array in full. And this satellite is operating normally in its new deployed configuration. Why this is extremely important. First, large space-based arrays are the key technology that support direct-to-phone broadband connectivity from space. In order to provide broadband to regular phones from space, we believe large-phase arrays are the key and essential technology necessary for this type of communication. Now we are the first and only company that has mastered not only how to build them at low cost, but also how to fly them in low Earth orbit at approximately 17,000 miles per hour, which we think it is critical for the capability to connect to regular phones as they fly. Second, the years of R&D And hundreds of millions invested in this technology are starting to fail, and they have now resulted in a deep portfolio of IP of more than 2,600 patent and patent-pending claims. Third, the successful execution of the unfolding of a 692-square-feet array designed for cellular broadband communication validated key aspects of our satellite design and paved the way for us to build our next batch of satellites. We plan to incorporate these essential learnings an improvement not only in how we build them at a lower cost, but also how we fly them in space. That can only be achieved by actually going through the complete process of building and flying in orbit. This is a process with this achievement we consider substantially complete. Fourth, our patented satellite architecture is fundamentally different approach to the one taken by legacy satellite industry. Now we have invented, patented, built, and flown a new satellite architecture that now we own and one we think will change what has been possible to do with satellites up to this point in terms of capability and cost. Fifth, this architecture proves that we have the capability to build, fly, and operate the largest commercial communications array, the key enabler to provide direct to regular cell phone connectivity from space. an extremely large market where we have a clear technological and timing advantage as it relates to our planned cellular broadband network for InSpace. This step of successfully unfolding the system we consider the major risk factor for our technology and a proof of our solid architecture. Now we look forward to continue our collaboration with MNOs around the world, including Vodafone, AT&T, Rakuten Mobile, Bell Canada, MTN Group, Orange, Telefonica, Getisa Lab, Indosat, Smart, Globe Telecom, Millicom, Tespransnet, Telecom Argentina, Telstra, AfriCell, and Liberty Latin America, among others. And with that, I'm happy to pass it to Sean.

Thanks, Abel. Good afternoon, everyone. The third quarter with another period of milestone achievements and execution, and I want to congratulate the entire ASD space mobile team for their efforts on the successful launch of the Blue Walker 3 test satellite and the unfolding of the largest communications array ever deployed commercially in low Earth orbit. This infrastructure currently orbiting the Earth represents an important step forward in our efforts to demonstrate that cellular subscribers can enjoy cellular coverage around the globe at 5G speeds. This technology is designed to eventually erase those mobile phone dead zones that we all suffer through. And more importantly, provide the productivity enhancing technology of mobile communications to billions of currently unconnected people. Let me move on to a discussion about some of our key operating metrics that are presented on slide six. Looking at the first chart, we see for the third quarter of 2022, we had non-GAAP adjusted operating expenses of $38.6 million versus $31.8 million in the second quarter. Non-GAAP adjusted operating expenses exclude non-cash operating costs including depreciation and amortization and stock-based compensation totaling $3.6 million and $3.6 million in the third quarter and second quarter respectively. Our third quarter non-GAAP adjusted operating expenses increased by $6.8 million versus the second quarter. This increase is mostly a result of the achievement of certain milestones in our R&D projects which brought forward certain milestone payments, and an increase in engineering services costs due to an increase in headcount. Our research and development expenses consist principally of non-recurring development activities for which we typically engage third-party vendors, and payments are based on completion of milestones. After evaluating future R&D milestones over the next few quarters, we expect that the level of non-GAAP adjusted operating expenses will remain in the high 30s for the next two quarters as we continue to pursue important R&D projects for our Bluebird satellites and decline to the low 30s thereafter. Our other components of non-GAAP adjusted operating expenses, namely engineering services and GA, is expected to remain in about the same range for the next two quarters and will trend up slightly over time as a result of growing operations. Turning towards the second chart, our capital expenditures for the third quarter was $11.3 million versus $9.4 million for the second quarter. We expect our levels of capital expenditures, which include direct material costs, capital improvements of AIT facilities, and ground infrastructure, will average around $12 million over the next four quarters. And on the final chart on the slide, we ended the second quarter just shy of $200 million in cash on hand. We believe this cash is sufficient to support our cash expenditures for the next 12 months, including completing the construction of our next five Block 1 satellites. In addition to this cash on hand, we've 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. If we are successful in attracting additional capital, we would look to reevaluate our business plan and might further accelerate certain R&D expenditures and other investments designed to enable us to achieve our goal of global coverage more rapidly. As Blue Walker 3 continues to perform as expected, we are now focusing our investments towards the production of our Bluebird satellites in the latter half of 2023 and setting up ground infrastructure to connect to the terrestrial network of the MNOs supported by technology and infrastructure partners such as American Tower, Rakuten Symphony, and Nokia. We believe a key advantage of the space mobile system is its ability to be deployed in a phased manner where we can target a modest number of satellites to provide limited coverage in 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 continue to project that our materials and launch costs for our first 20 satellites remains at between 300 million to 340 million, with a midpoint per satellite cost of $16 million. The projected cost of these satellites could be adversely affected by 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 have increased the cost to design, assemble, and launch our satellites. These estimated costs 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 space mobile mission. And with that, I'll turn it back to Scott. Thanks, Sean.

Before we go to the queue of analyst questions, we'd 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?

Yes, thank you. Damian from England asks, Could you provide some key milestones during the six-month testing program so that we can have a feel when to expect certain types of results during the program?

Thank you, Damien, for the question. Well, first of all, let me say, having had deployed the phase array, it is a major milestone for us. It was the step left that was not completely testable on the ground. And now having that behind us, that gives us a very good path forward on how to complete our test program. So what is left is basically connecting the array, which had been deployed, directly to the cell phones and something that we advanced a lot with. First, with BlueWalker 1. then everything that we have done on the ground with our partners, like Nokia and Rakuten, and that will be the next step. So by completing the deployment, now we have all the learnings required for installing, launching, operating, testing, and flying a satellite that had been accumulated over the last two months of flying the spacecraft. So we're very confident with the architecture that we have. We don't foresee any changes to our next batch of satellites, which we call Block 1. And in terms of next steps for Blue Walker 3, we plan to do testing with many of our mobile network operators and technology and infrastructure partners in order to commercialize our ground network capabilities. And we expect that timeline to occur over the next several months. into 2023. So for that, we have an experimental license together with AT&T to start testing in the U.S., covering Texas and Hawaii. In parallel, we will be working with Rakuten in Japan, Vodafone in Europe and Africa, among other minerals where we will plan testing virtually in every continent.

Steve from Arizona asks, how is the bill for the first five bluebirds progressing? Is it still on schedule for a second half of 2023 launch?

Yes, we believe they are. We're targeting for launching the first Bluebirds in late 2023, second half of 2023. We have been making all the necessary investments in Site 2, our second site in Midland. We have so far invested $50 million to date. at the location, and we had only 5 million to go. Also, we have been buying all the equipment in order to support the assembly, integration, and testing of the Bluebird program, including its own panel assemblies, which we have in-source. The learnings today from Blue Walker III are well contracted with our supply base. An early inventory build of long lead items did give us confidence on the planned timelines for the next batch of satellites in 2023.

Jay from California asks, what happens to bluebirds transmitting to ships in the middle of the Pacific when there isn't a gateway in its line of sight to relay back to the network? Can you elaborate on how that works?

Yeah, we had a very large field of view per satellite. It's given to the geometry of the satellite, also their size. So we can cover up to 2,800 kilometers. So there's a flood mine of 58 degrees of latitude. There's always land mass where we can place our gateways and then be able to cover all the oceans. I mean, Having said that, our main market is where people live and work outside their regular locations in cities and populated areas. But we will have the full capability to cover unpopulated areas, oceans, deserts, national parks on a global basis.

Carl from Sweden asks, Will you test some measures to reduce brightness perceived by astronomers on the next set of satellites?

Thanks, Carl. Our network is being designed to support a universal good. Cellular broadband for more people globally helps address poverty, support economic development, and build a diverse digital society. And our network is designed to connect hundreds of millions of devices, so the scope for impact is quite attractive. The brightness issue has been a longstanding complaint for objects in low-Earth orbit, and we're eager to use the latest innovations to manage the issue. To do that, we're actively working with industry experts on the latest innovations, including next-generation anti-reflective materials. We're also engaged with NASA and certain working groups within the astronomy community to participate in and advance industry solutions. And lastly, compared to other constellations that require thousands of satellites, Because of the size of our satellite and its aperture and field of view, we require much fewer satellites to achieve global coverage for cellular broadband. And we think that that, together with the scope of our impact, is very important.

Our final question comes from Tom. Tom asks, you always mention that you're ahead of competition. How many years ahead do you think you are?

Well, we think that we are... many years ahead. In the last few months, we have seen a lot of attention into the market of connecting direct to cell phone. We obviously were not surprised by that, given the size and the large opportunity that we're playing in. But ultimately, connecting regular modified devices to to space is a challenging problem, one that we have been actively working for many years with the best partners around the world. We have developed, patented, and now launched and operated a new architecture that is supported by 2,600 patents and patent-pending claims. And as of today, we do not see anyone else who is pursuing cellular broadband solution to modify phones. SOS solutions or very low data rate solutions, we ultimately don't see them as competitors or as direct competitors as our solution is providing direct connectivity to handsets at 5G, at true 5G broadband speed.

And with that, I'd like to thank our shareholders for submitting these questions. Operator, let's open the call to analyst questions now.

Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question today, please press star 1 from your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star 2 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. Thank you. Thank you. Our first question will be coming from the line of Griffin Boss with B. Riley. Please proceed with your questions.

Hi, thanks for taking my question. So in reference to some of the language from the 8K this morning, I'm just curious to what extent are you already manufacturing your Bluebird satellites versus waiting for data from the BlueWalker 3 testing to determine if any modifications are going to be needed? Are there certain aspects of production that you're waiting on until you get more data from BlueWalker 3?

Yes, let me clarify that. So, no, we have not been waiting for the data. The productions are ongoing. Parts start to be received and be manufactured in our factories. This reconfirmed that our architecture do not need any modification, and we were able to very successfully deploy, stabilize, and fly this satellite on the design that is basically making a crossover to the next batch of satellites. So, of course, there is a lot of learnings by flying and operating the satellite that we are applying that they have to do with the software and how the satellite is operated. But, in essence, the plan and the manufacturing of all next batch of satellites is ongoing and nothing has been modified on them. based on the schedule that we have presented.

Okay, thanks for the clarification there, Abel. And then, so I haven't seen the queue released yet. I was just curious how many shares of Class A stock were issued in that 16.9 million number that you guys gave for 17.0.

Griffin, I think we'll have to come back to you offline on that. We don't have that to hand.

Okay. No problem, Scott. And then just last one clarification for me for Sean. Did you say – I just want to clarify on the OPEX guidance. You said non-GAAP adjusted OPEX will remain in the high 30s over the next two quarters before declining. Did I hear that right?

That is correct. Okay, great. So it's going to be about the same level it was this quarter – while that increases all R&D milestone related, and it'll go back down to around the 30 level in the following two quarters.

Okay, great. Thanks, Sean.

Appreciate it, guys. Thank you. Our next question is from the line of Brian Kraft with Deutsche Bank. Please receive your questions.

Hi, good afternoon. I had a few, if you don't mind. I guess, you know, first, it's great to see that you've unfolded the array successfully on BlueWalker 3.0. I guess the question there is how much of a proof point is that for the successful unfolding of the Bluebird arrays? I understand that the Bluebird arrays are larger than BlueWalker3, so just trying to understand, you know, how much of a read through the success with the BlueWalker array is into the probability of also having success with the Bluebirds and how much that, you know, technology or design risk has been, you know, has been minimized now. And then I guess the next question is how should we think about the pace of launches in 2024 off of the five satellites, you know, by the end of 2023 guide? And, yeah, just, you know, trying to understand, you know, that velocity of launch going into 2024 and, you know, how quickly the revenue ramp, you know, would therefore be in 2024 based on the number of launches. Thank you.

Hey, Brian. Let me answer that. For the For the next batch of satellites, basically what we will call Block 1, is identical architecture. It's the same architecture, same mechanism, same technology for doing the deployment, and also, very importantly, same software. Humana control and operate the spacecraft. So we will basically repeat what we just did on the first block of satellites. As it relates to your question on the first five satellites, we will be launching the second half of 2023, the next batch of satellites, five of them. And then during 2024, we will be ramping up our production. to get eventually to six satellites per month. We're not giving guidance just exactly how many in 2024, but that's what we have done in preparation to get to that cadence, and that's why we have the two sites, the Site 1 and Site 2 in Texas, and that's how we automated to get to that pace.

So just to be clear, the six satellites will be the manufacturing case in 24, and then I guess the launches would be on a little bit of a lag from that. Is that the right way to think about it?

Yes, that's the right way to think about it. Five in 23 and ramping up during 2024 for up to six satellites per month. Got it. Okay.

And if I could ask you one other one, how do you think, that the announced Starlink relationship with T-Mobile and the Global Star relationship with Apple will affect your business, if at all, long-term. I know that initially those are pretty limited capability services, but I guess I was just wondering, you know, what your perspective is on their ability to maybe evolve those into something that's more competitive with what you're offering.

Well, our focus has been from the very, very beginning is that we are the only company broadband space-based cellular broadband network. All these other architectures are limited to SOS or very, very limited amount of capacity. We believe that people will be selecting and using services based on access through the carriers that what we had access now to 1.8 billion subscribers through a significant number of the top global telcos around the globe. So we do not see that yet as a direct competition to what we're doing. Our proposition is broadband, broadband everywhere, without dedicating a spectrum to the fund. It's basically reusing the spectrum of the operator on a global basis, in partnership with the operator, accessing 5 billion subscribers around the globe as they move in and out of the service, and always in partnership with the telco. So we We believe that SOS or very limited connectivity of few megabits per cell is not a direct competitor to what we're doing. Understood. Thank you.

Thank you. As a reminder, you may press star 1 to ask a question. The next question is from the line of Caleb Henry with Quality Analytics. Please proceed with your questions.

Hi, guys. Congratulations on the antenna deployment. That was a big milestone. I had a question on one about the first five satellites. So I think there was some discussion last quarter about switching those from equatorial to a mid-inclination. Has that been – or an inclined orbit, I should say. Has that been finalized, you know, where those five satellites will go?

Hey, Caleb, this is Scott. We've retained flexibility on that point, so we have not given guidance on incline versus equatorial at this time.

Okay. And then also for the Block 1 satellites, those were originally supposed to be 20 satellites, and I think the recent discussion is centered on five. What's the plan for the other 15 that are going to be part of Block 1? Will those also look like clones of the Blue Walker?

Yeah, so to clarify, you know, for us to build out our network, we've talked about 20 satellites around Equatorial, 90 to get global coverage, and then another 58 on top of that. or for memo and so those are intentionally phased right so that we can build out our network as we go and retain flexibility so that's how we think about our network build and our network design over time as it relates to the five satellites that we've given guidance on for next year those are satellites that could play in in you know, either of those networks, quite frankly. So the satellites that come beyond it don't necessarily fill out the 20 or the 90. You know, those are just how we've designed the first five with, you know, as nearly identical to the Blue Walker 3 design as possible in order to accelerate their development and construction. And so that's how we've thought about the next five and how it links to the other network builds that we've talked about.

Okay. For the two phases, do you have a sense of the timeline for when you'd have, I guess, 110 satellites in orbit?

Yeah, the guidance we've given on timeline is those five satellites for late 2023. And then in 2024, you know, we're going to be building as fast as we can, ramping into that six-per-month cadence. So at what point do we get to those total completed numbers? You know, we haven't given guidance on that. Our objective is to build and launch five as quickly as possible and follow up more satellites on top of that in 2024.

Okay. And then just my last question. Early in the call, there was mention of an interest in accelerating some R&D goals or projects. the funding can be secured for those. Can you give more color on what exactly, what kind of R&D you hope to do and what impact that might have on the constellation or service rollout?

I'll start, and then Bill will add some things. We have a variety of R&D projects, whether it's in the RF side or solar or some of the components of the satellite. So we're going to continue to spend money because we are going to continue to improve the power of the satellite, the RF capacity, and that will continue on. What my point was that we might bring some of those expenditures forward so we can accelerate the launch of the Constellation in order to get to market sooner. So we just want to give you a good guidance for how much we're going to spend over the next four quarters. If we had more money, we might spend a little bit more.

Yeah, I mean, the primary areas are indeed we have our own ASIC. The ASIC, it will be part of the upgrade as we move forward. So we can continue to use this architecture. for up to the first 20 satellites. And we continue to progress on our AC development manufacturing, which is entering to the last phase of production will be completed at R&D phase. We also own pretty much all major subsystems have been internally developed in order to make them at cost, at a cost that is not available in the market today, including our own solar panels, our own reaction wheels, our own avionics, a flight system. So there is a number of, and then the whole system is fully integrated in our own facility. So that's what we refer to as an R&D, and that we will continue to lower because of our satellites. Okay, thank you.

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

Thank you, operator. Our company is building a space-based cellular broadband network designed for the use of the phone in your pocket today. And with today's announcement, we're very happy to speak to you, and I want to thank everyone for joining, both the shareholders and analysts for their questions, and wish everybody a great week.

This will conclude today's conference. May disconnect your lines at this time. Thank you for your participation.