NextNav Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Financial statements are unaudited. NextNav develops positioning, navigation and timing services, including its Pinnacle altitude service and TerraPoiNT terrestrial PNT network, using licensed 900 MHz spectrum and related technology.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $0.8 million | $1.4 million | $1.6 million | $2.6 million |
| Operating loss | $15.0 million | $17.0 million | $29.0 million | $33.1 million |
| Net income (loss) | $(15.8) million | $0.8 million | $(32.1) million | $(8.9) million |
| Net loss per share, diluted | $(0.15) | $0.01 | $(0.30) | $(0.09) |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $(15.9) million | $(16.8) million |
Q2 cost of goods sold was $3.1 million against $0.8 million of revenue, implying a gross loss of approximately $2.3 million before depreciation and amortization. Operating expenses were $15.8 million. For the six-month period, research and development rose 17% to $9.6 million; selling, general and administrative expense fell 36% to $12.6 million, largely due to lower stock-based compensation. Depreciation and amortization increased 30% to $2.3 million.
Liquidity, debt and balance sheet
- At June 30, cash and cash equivalents were $52.8 million and short-term investments were $32.2 million, totaling approximately $85.0 million. Current assets were $89.8 million and current liabilities $9.7 million.
- Six-month investing cash outflow was $26.7 million, largely reflecting purchases of marketable securities and network/property investments. Financing provided $48.1 million, primarily from the notes issuance; cash increased $5.6 million from year-end.
- In May, NextNav issued $50 million of senior secured notes at 10% interest, due December 2026. Their June 30 carrying value was $34.0 million after debt discounts. The notes are secured by substantially all company and domestic subsidiary assets and include customary restrictive covenants. The company reported covenant compliance at June 30.
- After quarter-end, lenders exercised an option for an additional $20 million of notes, issued July 6, 2023. The company also issued 7.4 million related warrants at a $2.16 exercise price. These subsequent issuances are not included in the June 30 debt carrying value.
Material changes and unusual items
- Revenue declined 44% in Q2 and 38% for the first half, primarily because of lower integration revenue from commercial technology and services contracts. One customer generated 89% of Q2 revenue and 87% of first-half revenue.
- Despite improved operating losses, net results worsened versus Q2 2022 and the first half of 2022, when warrant fair-value gains substantially benefited reported earnings. In the first half of 2023, warrant remeasurement instead produced a $3.1 million expense; the comparable 2022 period included a $24.2 million gain.
- NextNav reported recurring losses and negative operating cash flows. Accumulated deficit was $720.6 million at June 30. Warrant liabilities were $7.3 million, compared with $4.2 million at year-end.
Outlook, risks and contingencies
Management expects further losses and higher operating expenses as it invests in R&D and expands TerraPoiNT. It expects Pinnacle customer adoption to support revenue growth, but provided no numerical revenue or earnings guidance. Management believes June 30 cash and marketable securities will fund working capital, capital expenditure needs and contractual commitments for the next 12 months; longer-term needs may require operating cash flows, equity issuance or further debt financing. This assessment depends on internal projections and market and business conditions.
Management cited possible network deployment delays or cost increases from tight field-services labor supply and continued financial-market disruption, while stating labor constraints were not then materially affecting projects. Key risks also include limited revenue, significant customer concentration, the need to finance development and network expansion, and execution of TerraPoiNT and Nestwave integration. The company reported no legal matters expected to have a material adverse effect and no material changes in market risk disclosures. Disclosure controls were considered effective at quarter-end.
Investor facts to verify
- Whether customer concentration and lower integration revenue persist, and whether Pinnacle adoption translates into recurring revenue.
- Cash burn, investment and network deployment spending, and management’s 12-month liquidity assumptions.
- The full economics and restrictions of the 10% secured notes, including the July 2023 additional issuance and any future financing needs.
- Potential dilution from warrants and equity awards; the filing reports 37.3 million warrants outstanding at June 30, before the subsequent 7.4 million warrant issuance.
- Progress and costs of TerraPoiNT expansion and Nestwave integration, including whether anticipated efficiency benefits materialize.