NextNav Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Amounts are in U.S. dollars; financial figures below are in millions unless stated otherwise. NextNav develops positioning, navigation and timing services, including Pinnacle indoor altitude location and TerraPoiNT terrestrial PNT networks.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $0.503 | $0.276 | $3.123 | $0.743 |
| Operating loss | $(17.937) | $(7.026) | $(51.001) | $(28.273) |
| Net loss | $(18.730) | $(32.421) | $(27.614) | $(98.465) |
| Operating cash used | — | $(25.185) | $(29.429) | |
| Investing cash used | — | $(11.297) | $(1.054) |
- Q3 revenue rose 82%; nine-month revenue rose 320%, primarily from commercial technology and services contracts. Commercial revenue was $2.970 million of nine-month revenue.
- Revenue remains small relative to operating costs: Q3 cost of goods sold was $2.830 million, exceeding revenue by $2.327 million before other operating expenses.
- Operating losses widened despite revenue growth, reflecting higher operating expenses. Nine-month selling, general and administrative expense increased to $29.874 million from $9.385 million; research and development rose to $12.725 million from $6.894 million. Nine-month stock-based compensation was $20.593 million.
- Net loss improved substantially year over year for nine months, mainly because warrant fair-value changes swung to $23.188 million of noncash income from $61.184 million of noncash expense. The Q3 net-loss improvement likewise reflects a smaller warrant-related expense. These changes did not represent operating profit.
- At September 30, cash and cash equivalents were $63.588 million and short-term investments were $8.173 million, totaling $71.761 million. Current assets were $74.896 million and current liabilities $9.009 million. The company reported no debt outstanding; the prior senior secured facility was repaid in connection with the 2021 business combination.
- Cash and cash equivalents declined $36.488 million during the first nine months. Operating cash use was $25.185 million; investing cash use included network and equipment spending, an equity-method investment, software, and short-term securities purchases.
Material changes and business developments
- Operating expenses increased year over year, particularly stock-based compensation, professional services, insurance, and personnel costs. Depreciation and amortization also rose as Pinnacle and TerraPoiNT assets entered service.
- Revenue concentration is high: one customer represented 95% of Q3 revenue and 91% of nine-month revenue. Management reported that three customers represented 86% and 92%, respectively, in the comparable 2021 periods.
- TerraPoiNT was deployed with metro-wide service in San Francisco and select services available in 51 U.S. markets, according to the filing. Pinnacle provides floor-level altitude location and is used by FirstNet and commercial partners.
- On October 31, 2022, after quarter-end, NextNav completed its acquisition of Nestwave for $19.3 million: $4.3 million cash and $15.0 million in shares, including shares to be issued after closing. The company expects the acquisition to accelerate product capabilities; purchase accounting valuations were still in progress.
- NextNav amended its AT&T services agreement on October 7, extending it for three months through January 2023. AT&T distributes services to FirstNet customers.
Outlook, risks and contingencies
- Management expects continued losses and higher operating expenses as it invests in research and development and expands TerraPoiNT. It stated that September 30 cash and investments should cover working capital and capital expenditure needs for the next 12 months; longer-term needs may require operating cash flows or additional equity or debt financing.
- Management identified possible network deployment delays and cost increases from tight field-services labor supply, but said the impact was not material at the filing date. It also noted uncertainty from COVID-19-related effects, supply chains, labor availability, and inflation.
- Risks include dependence on a major customer and the expiring AT&T arrangement; intense competition, including free location services; uncertainty about adoption by additional wireless carriers and handset platforms; and the possibility that FCC acceptance of competitors’ E911 solutions could reduce the market for NextNav services.
- The filing reported no legal matters expected to have a material adverse effect. Management concluded disclosure controls and procedures were effective as of September 30, 2022; development of internal control over financial reporting remained ongoing.
Important facts for investors to verify
- Whether customer concentration declines and commercial revenue converts into sustained growth.
- Renewal or replacement of the AT&T agreement after its January 2023 expiration, and adoption by additional wireless carriers and device platforms.
- Actual cash burn, network expansion costs, and whether management’s stated 12-month liquidity outlook remains achievable.
- Nestwave integration progress, final purchase accounting, acquisition benefits, and dilution from the shares issued or to be issued.
- How much reported earnings variation continues to come from noncash warrant remeasurement rather than operating performance.