AST SPACEMOBILE, INC. Except as otherwise noted or where the context requires otherwise, references in
this report (the "Quarterly Report") to "we," "us" or the "Company" refer to
The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with our unaudited condensed
consolidated financial statements and related notes included in Item 1 of this
Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the
year ended
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes "forward-looking statements" for the purposes of
federal securities laws that are not historical facts and involve risks and
uncertainties that could cause actual results to differ materially from those
expected and projected. All statements, other than statements of historical fact
included in this Form 10-Q including, without limitation, statements in this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" regarding the Company's financial position, business strategy and
the plans and objectives of management for future operations, are
forward-looking statements. Words such as "expect," "believe," "anticipate,"
"intend," "estimate," "seek" and variations and similar words and expressions
are intended to identify such forward-looking statements. Such forward-looking
statements relate to future events or future performance, but reflect
management's current beliefs, based on information currently available. A number
of factors could cause actual events, performance or results to differ
materially from the events, performance and results discussed in the
forward-looking statements. For information identifying important factors that
could cause actual results to differ materially from those anticipated in the
forward-looking statements, please refer to Part I, "Item 1A. Risk Factors"
included in our Annual Report on Form 10-K for the year ended
Overview
We are an innovative satellite designer and manufacturer. We operate from six
locations that include our corporate headquarters and 185,000 square foot
satellite assembly, integrating and testing facilities in
We and our global partners are building what we believe is the first space-based cellular broadband network designed to be accessible by standard mobile phones. Our SpaceMobile Service is expected to provide cost-effective, high-speed mobile broadband services with global coverage to all end-users, regardless of where they live or work, without the need to purchase special equipment. We believe the SpaceMobile Service would be the first global direct mobile broadband network using LEO satellites to provide connectivity to any standard, unmodified, off-the-shelf mobile phone or 2G/3G/4G LTE/5G and IoT-enabled device. We intend to partner with Mobile Network Operators ("MNOs") to offer the SpaceMobile Service to the MNOs' end-user customers. Our vision is that users will not need to subscribe to the SpaceMobile Service directly with us, nor will they need to purchase any new or additional equipment. Instead, users will be able to access the SpaceMobile Service when prompted on their mobile device that they are no longer within range of the land-based facilities of the MNO operator or will be able to purchase a plan directly with their existing mobile provider.
The SpaceMobile Service currently is planned to be provided through a network of 168 high-powered, large phased-array satellites in LEO. The worldwide mobile traffic will be directed by the SpaceMobile constellation to terrestrial gateways via high throughput Q/V-band links and then directed to the in-country MNO's core cellular network infrastructure, located at our dedicated gateways. Our intent is that users will be able to connect to the SpaceMobile Service as if they were using a local cell tower, with less communication delay effects than existing geostationary satellite communication systems experience.
On
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We are also currently developing and designing our constellation of BlueBird ("BB") satellites. We currently plan to begin launching the first commercial BB satellites in the second quarter of 2023 and expect this to continue through 2025. We currently plan to achieve substantial global mobile coverage after the launch of a total of 110 satellites by the end of 2024 and MIMO capabilities during 2025 after the launch of a total of 168 satellites. Our current plan is subject to numerous uncertainties, many of which are beyond our control, including, satisfactory and timely completion of assembly and testing of the satellites, availability of launch windows by the launch providers, proposed orbits and resulting satellite coverage, launch costs, ability to enter into agreements with MNOs, regulatory approvals, and other factors. Accordingly, we may adopt a deployment strategy that may differ materially from our current plan.
The SpaceMobile Service has not yet generated revenue and is not expected to generate revenue until after the commercial launch of the SpaceMobile Service. After we begin to launch and deploy our BB satellites during 2023, we may seek to generate revenue during 2023 by providing a limited SpaceMobile Service in certain countries. The limited SpaceMobile Service would not be available on a continuous basis and our ability to offer such limited services is dependent upon numerous factors, including execution of definitive commercial agreements with MNOs, agreement by MNOs to provide limited services to their end-user customers, end-user customer acceptance, pricing, availability of active satellites over the applicable countries, regulatory approvals, and other factors. As we continue to launch and deploy additional BB satellites during 2024 and 2025, we expect to generate revenue after the commercial launch of the SpaceMobile Service in certain geographical locations beginning in 2024.
On
We are currently industrializing the assembly, integration, and testing
processes for the future production of the BB satellites. We are making the
necessary capital investments in the assembly, integration and testing ("AIT")
facility in
We are an early stage and emerging growth company and, as such, we are subject
to all of the risks associated with early stage and emerging growth companies.
Please refer to Risk Factors contained in Part I, "Item 1A. Risk Factors"
included in our Annual Report on Form 10-K for the year ended
Recent Developments
On
On
Impact of COVID-19 Pandemic
We continue to closely monitor the impact of the COVID-19 pandemic and the resulting impact on all aspects of our business across geographies, including how it has and may continue to impact our workforce, suppliers and vendors. We have implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on our business. The extent to which the COVID-19 pandemic impacts our business, research and development efforts and the value of our equity, will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time. To date, the pandemic has not had a material impact to our technology development efforts or results of our operations. However, given the evolution of the COVID-19 outbreak and
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the global responses to curb its spread, we are not able to estimate the future effects of the COVID-19 outbreak on our results of operations, financial condition, or liquidity.
Factors Affecting Comparability of Our Future Results of Operations to Our Historical Results of Operations
The consolidated assets, liabilities and results of operations for the period
from
Components of Results of Operations
Revenues
To date, we have not generated any revenues from our SpaceMobile Service. Our 51% owned subsidiary, Nano, generates revenue from the development and manufacture of satellite technology, and ancillary sales and services globally. Nano also sells individual satellite parts, subsystems, and software to be configured to customers' satellites, and enters into "rideshare" type agreements whereby Nano provides hosted payload services using customers' payloads integrated with Nano-owned satellite buses for scheduled launches. Accordingly, all revenue recognition presented herein exclusively relates to Nano's sales of goods and services.
Cost of Sales
Cost of sales includes the purchase price of various products used and services performed to execute Nano's sales contracts. Cost of sales also includes operational costs to fulfil Nano customer orders, including costs for Nano employees and overheads.
Engineering Services
Engineering costs are charged to expense as incurred. Engineering costs consist primarily of the expenses associated with our ongoing engineering efforts related to integration, testing, and development of our satellites, as well as the cost of internal staff (such as engineers and consultants) to support these efforts and general expenses related to engineering centers.
General and Administrative Costs
General and administrative costs include the costs of insurance, cost of non-engineering personnel and personnel related expenses such as recruiting and travel and lodging expenses, software licensing and subscriptions, office and facilities expenses, investor relations, and professional services, including public relations, accounting and legal fees.
Research and Development Costs
R&D costs consist principally of non-recurring development activities in which we typically engage third-party vendors. Currently, major R&D activities include engaging with vendors to help design and develop the electronic componentry, software, and mechanical deployment systems to be used in the BB satellites and in connection with the planned SpaceMobile service.
Depreciation and Amortization
Depreciation and amortization expense includes amounts related to property and equipment as well as definite lived intangible assets. Once the BW3 test satellite is completed and successfully launched, we expect a significant portion of our depreciation expense to relate to the depreciation of this asset, given its assigned useful life is two years.
Gain (Loss ) on Remeasurement of Warrant Liabilities
Public and private warrants issued by us are accounted for as liability-classified instruments at their initial fair value on the date of issuance. They are remeasured on each balance sheet date and changes in the estimated fair value are recognized as an unrealized gain or loss in the unaudited condensed consolidated statements of operations.
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Other Income (Expense), Net
Other income (expense), net consists of interest earned on cash and cash equivalents held by us in interest bearing demand deposit accounts, net of any interest expense, as well as miscellaneous non-operating items, including foreign exchange gains or losses.
Income Tax Expense
Noncontrolling Interest
Noncontrolling interest primarily represents the equity interest in
Results of Operations
The following table sets forth a summary of our unaudited condensed consolidated
statements of operations for the three months ended
Three months ended March 31,
(unaudited)
2022 2021 $ Change % Change
Revenues $ 2,394 $ 951 $ 1,443 152 %
Cost of sales (exclusive of items
shown separately below) 1,986 896 1,090 122
Gross profit 408 55 353 642
Operating expenses:
Engineering services 11,740 5,659 6,081 107
General and administrative costs 11,619 5,537 6,082 110
Research and development costs 8,281 304 7,977 2,624
Depreciation and amortization 1,100 614 486 79
Total operating expenses 32,740 12,114 20,626 170
Other income (expense):
Loss on remeasurement of warrant
liabilities (5,482 ) - (5,482 ) 100
Other income (expense), net 15 (28 ) 43 (154 )
Total other expense, net (5,467 ) (28 ) (5,439 ) 19,425
Loss before income tax expense (37,799 ) (12,087 ) (25,712 ) 213
Income tax expense 104 1 103 10,300
Net loss before allocation to
noncontrolling interest (37,903 ) (12,088 ) (25,815 ) 214
Net loss attributable to
noncontrolling interest (27,182 ) (508 ) (26,674 ) 5,251
Net loss attributable to common
stockholders $ (10,721 ) $ (11,580 ) $ 859 (7 ) %
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Revenues
Total revenues increased by
Cost of Sales
Total cost of sales increased by
Engineering Services
Total engineering services increased by
General and Administrative Costs
Total general and administrative costs increased by
Research and Development Costs
Total R&D costs increased by
Depreciation and Amortization
Total depreciation and amortization expense increased by$0.5 million , or 79%, to$1.1 million for the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 . The increase was primarily due to the purchase of additional fixed assets and leasehold improvements during the period. Depreciation expense is expected to increase significantly once the BW3 test satellite is completed and successfully launched given its assigned useful life of two years.
Changes in Fair Value of Warrant Liabilities
Increase in fair value of warrant liabilities resulted in a loss of
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Income Tax Expense
The provision for income taxes was
Net Loss attributable to Noncontrolling Interest
Net loss attributable to noncontrolling interest was
Liquidity and Capital Resources
We require capital to fund our operating expenses and to make capital
expenditures. We expect our capital requirements to increase as we execute our
plan to develop the SpaceMobile Service with global coverage. As of
The design, manufacture, integration, testing, assembly and launch of satellites
and related components and related ground infrastructure is a capital-intensive
venture. We currently estimate the capital expenditures required for the
manufacture and launch of the first 20 BB satellites to be between approximately
We will continue to seek to raise additional capital prior to the commercial launch of the SpaceMobile Service. Also, we will need to raise significant additional capital to build out the SpaceMobile Service to provide global coverage. We expect to raise additional funds through the issuance of equity, equity related or debt securities, or through obtaining credit from government or financial institutions or commercial partners. This capital will be necessary to fund ongoing operations, continue research, development and design efforts, improve infrastructure, and launch satellites. The capital asset investments required to complete the SpaceMobile constellation and related operating costs are preliminary estimates. As we complete the design, development, componentry and progress with procurement, assembly, integration and testing of the BB satellites, our estimates may be subject to change and actual costs may be materially greater than our current estimates. We may also face delays and other challenges which will have the impact of increasing the cost of the SpaceMobile constellation. We cannot be certain that additional funds will be available to us on favorable terms if required, or at all. If we cannot raise additional funds when needed, our financial condition, results of operations, business and prospects will be materially adversely affected.
We have contractual obligations, including non-cancellable operating leases for
office space, with terms expiring through
Common Stock Purchase Agreement
On
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any securities to
Texas Financing Agreement
In
In connection with the term loan, we have deposited into a reserve account
The Credit Agreement contains certain customary events of default, and certain covenants that limit our Subsidiary's ability to, among other things, create liens on collateral, consolidate, merge, sell, or otherwise dispose of all or substantially all of their assets; and enter into certain transactions with their affiliates. If our Subsidiary fails to perform its obligations under these and other covenants, or should any event of default occur, the term loan may be terminated and any outstanding borrowings, together with unpaid accrued interest, could be declared immediately due and payable, and the lender will be authorized to take possession of the collateral.
Cash Flows
Historical Cash Flows
The following table summarizes our sources and uses of cash for the three months
ended
Three months ended March 31 ,
(unaudited)
2022 2021
Cash, cash equivalents and restricted cash
$ (47,508 ) $ (8,527 ) Cash used in investing activities (21,567 ) (11,423 ) Cash provided by (used in) financing activities 130 (595 )
Operating activities
Cash used in operating activities was
Investing activities
Cash used in investing activities was
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Financing activities
Cash provided by financing activities was
Impact of inflation
While inflation may impact our capital and operating expenditures, we believe the effects of inflation, if any, on our results of operations and financial condition have not been significant. However, there can be no assurance that our results of operations and financial condition will not be materially impacted by inflation in the future, including by heightened levels of inflation experienced globally as a consequence of the COVID-19 pandemic and recent geopolitical conflict.
Funding Requirements
We believe our existing cash and cash equivalents will be sufficient to meet anticipated cash requirements for at least 12 months from the date hereof. However, our forecast of the period of time through which our financial resources will be adequate to support operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could expend capital resources sooner than we expect.
Future capital requirements will depend on many factors, including:
•
Establishing and maintaining supply and manufacturing relationships with third parties that can provide adequate, in both amount and quality, products and services to support our satellite development;
•
Technological or manufacturing difficulties, design issues or other unforeseen matters;
•
Negotiation of launch agreements (including launch costs), launch delays or failures or deployment failures or in-orbit satellite failures;
•
Addressing any competing technological and market developments;
•
Seeking and obtaining market access approvals; and
•
Attracting, hiring, and retaining qualified personnel.
Until such time, if ever, as we can generate substantial revenues to support our cost structure, we expect to finance cash needs through a combination of equity offerings, debt financings, commercial and other similar arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of stockholders will be, or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through commercial agreements, or other similar arrangements with third parties, we may have to relinquish valuable rights to our technologies and/or future revenue streams, or grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. Also, our ability to raise necessary financing could be impacted by the COVID-19 pandemic, recent geopolitical events, and inflationary economic conditions and their effects on the market conditions. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our commercialization efforts or grant rights to develop and market other services even if we would otherwise prefer to develop and market these services ourselves or potentially discontinue operations.
Critical Accounting Policies
Our unaudited condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in
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BlueWalker3 Capitalization
We account for research and development costs related to the BW3 test satellite in accordance with ASC 730 - Research and Development ("ASC 730"). We have determined there is an alternative future use for BW3 as defined in this guidance. As such, certain costs related to the construction of the BW3 test satellite are capitalized and reported as construction-in-progress ("CIP") on our unaudited condensed consolidated balance sheets. We capitalize only those expenditures and ancillary costs that are directly attributable to the construction phase and necessarily incurred to place BW3 into its intended location and use. To date, capitalized expenditures include the costs for satellite parts, paid launch costs, and other non-recurring costs directly associated with BW3 developments. The other non-recurring costs primarily include third-party engineers who are hired solely for the design and assembly of BW3 and are responsible for the value and progression of the project. The costs for internal, recurrent engineers and consultants are expensed as engineering services and not capitalized to the CIP account on our unaudited condensed consolidated balance sheets, as these employees are not directly associated with the development of BW3. Costs incurred that are not directly attributable to the construction phase or necessarily incurred to place BW3 into its intended location and use are recognized as an expense as incurred.
Warrant Liabilities
We account for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant's specific terms and applicable authoritative guidance in ASC 480 - Distinguishing Liabilities from Equity("ASC 480") and ASC 815 - Derivatives and Hedging ("ASC 815"). Our assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, whether they meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to our own common stock and whether the warrant holders could potentially require "net cash settlement" in a circumstance outside of our control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period-end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity classification, they are recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, they are recorded at their initial fair value on the date of issuance and subject to remeasurement each balance sheet date with changes in the estimated fair value of the warrants to be recognized as a non-cash gain or loss in the unaudited condensed consolidated statements of operations.
We assess goodwill for impairment at least annually in the fourth quarter, on a reporting unit basis, or more frequently, when events and circumstances occur indicating that the recorded goodwill may be impaired. We first perform a qualitative assessment of goodwill, a Step 0 analysis, to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The qualitative impairment analysis consists of evaluating macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, relevant entity-specific events, events affecting a specific reporting unit, and sustained decrease in the share price. If we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying value we perform a quantitative impairment test. This test identifies both the existence of and the amount of goodwill impairment by comparing the fair value of a reporting unit to its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount goodwill is not impaired. If the carrying amount of a reporting unit exceeds its fair value an impairment loss is recognized in amount equal to that excess, limited to the amount of goodwill allocated to that reporting unit. When performing a quantitative impairment test we make various estimates and assumptions in determining the estimated fair value of the reporting unit, including estimated cash flows and a terminal value, discounted at a rate of return that reflects the relative risk of the cash flows, as well as valuation multiples derived from comparable publicly traded companies that are applied to operating performance of the reporting unit. It is possible that changes in circumstances or changes in management's judgments, assumptions and estimates could result in an impairment charge of a portion or all of its goodwill.
We assess the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider important in the determination of an impairment include significant underperformance relative to historical or projected future operating results, significant changes in the manner that we use the acquired asset and significant negative industry or economic trends.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of
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