NextNav Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; balance-sheet figures are compared with December 31, 2022. Unless stated otherwise, amounts are in U.S. dollars.
Business context
NextNav develops positioning, navigation and timing services, including Pinnacle, which provides floor-level altitude data, and TerraPoiNT, a terrestrial positioning network intended to complement GPS. The company also holds 900 MHz spectrum and related intellectual property. It reported limited revenue and continues investing in research, development and network expansion.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Revenue | $0.83 million | $1.20 million; down 30.8% |
| Cost of goods sold | $3.02 million | $3.04 million |
| Gross result (revenue less COGS) | $(2.19) million; approximately -264% gross margin | Not stated as a margin in the filing |
| Operating expenses | $14.78 million | $17.25 million |
| Operating loss | $(13.95) million | $(16.05) million |
| Net loss | $(16.35) million | $(9.71) million |
| Basic and diluted loss per share | $(0.15) | $(0.10) |
| Cash used in operating activities | $7.43 million | $6.10 million |
| Cash and cash equivalents | $43.81 million at March 31 | $47.23 million at December 31, 2022 |
| Short-term investments | $2.99 million at March 31 | $8.22 million at December 31, 2022 |
Cash plus short-term investments totaled $46.8 million at March 31. Current assets were $51.6 million and current liabilities $8.1 million. Total liabilities were $24.5 million, including a $7.0 million warrant liability and operating lease liabilities; the filing does not provide a clear quarter-end borrowing balance. Stockholders’ equity was $88.7 million, and accumulated deficit was $704.8 million.
Investing activities provided $4.02 million, principally from sales and maturities of short-term investments, partly offset by network and software spending. Financing activities used $0.001 million. The company had 107.2 million common shares outstanding at March 31 and reported 107.7 million as of May 5, 2023.
Changes versus prior year and notable items
- Revenue fell $0.37 million, primarily because of lower commercial technology and services contract revenue. One customer represented 86% of Q1 revenue, versus 97% a year earlier.
- Research and development expense rose 14.8% to $4.58 million, while selling, general and administrative expense fell 35.2% to $6.05 million, primarily due to lower stock-based compensation and directors’ and officers’ insurance costs. Depreciation and amortization increased 27.6% to $1.13 million as network assets entered service.
- Net loss increased despite a narrower operating loss, primarily reflecting the $2.8 million increase in warrant fair-value expense in Q1 2023, compared with $6.4 million of warrant fair-value income in Q1 2022. Interest income was $0.47 million in Q1 2023.
- Stock-based compensation declined to $3.87 million from $7.20 million.
Outlook, risks and contingencies
- Management expects further losses and higher operating expenses as it invests in research and development and expands TerraPoiNT and other networks. It expects Pinnacle customer ramp-up to support revenue growth, but provided no quantified financial guidance.
- Management stated that cash and marketable securities as of May 10, 2023, together with expense management, should cover working capital and capital expenditure needs, including contractual commitments, for the next 12 months. Longer-term funding may depend on operating cash flows and additional debt or equity financing.
- After quarter-end, NextNav closed a private placement of $50 million of 10% senior secured notes due December 1, 2026. Purchasers may elect to buy up to an additional $20 million of notes. The agreement also provides for stock purchase warrants; their share count and exercise price are determined under the agreement’s pricing formula. Up to half of accrued interest may, at the company’s option, be paid in common stock.
- FCC spectrum-license build-out compliance is a material risk. The company said showings for 78 of 82 licenses subject to an earlier deadline had been accepted, while four remained pending. For licenses with an April 3, 2023 deadline, showings for 64 licenses were pending; extensions were requested for eight licenses, and two-year extensions for 64 others. The filing notes there is no certainty that pending showings or extensions will be approved; failure to meet requirements may put licenses at risk.
- Management cited potential field-labor constraints and financial-market disruption, which it expected to continue through 2023. It said these had not materially affected network projects at the filing date.
- The company reported no legal proceedings it believed would have a material adverse effect. Disclosure controls were assessed as effective as of March 31, 2023.
Important facts for investors to verify
- Progress on FCC decisions for pending license build-out showings and extension requests, and the resulting status of the licenses.
- Terms, issuance and potential dilution from the notes’ warrants, as well as the cost and availability of the optional additional $20 million financing.
- Cash burn, expense controls and whether the stated 12-month liquidity outlook remains adequate as network investment proceeds.
- Revenue growth, customer concentration and conversion of Pinnacle and TerraPoiNT deployments into recurring commercial revenue.
- How Q1 warrant revaluation affected reported losses and the warrant liability’s future volatility.