NextNav Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. NextNav develops positioning, navigation and timing services, including its Pinnacle altitude-location service and TerraPoiNT terrestrial positioning network.
Financial highlights
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $1.0 million | $0.5 million | $2.7 million | $3.1 million |
| Operating loss | $14.6 million | $17.9 million | $43.6 million | $51.0 million |
| Net loss | $23.2 million | $18.7 million | $55.3 million | $27.6 million |
| Basic and diluted loss per share | $0.21 | $0.18 | $0.51 | $0.28 |
| Operating cash flow | Not separately presented for the quarter | $(24.6) million | $(25.2) million |
At September 30, cash and cash equivalents were $90.1 million and short-term investments were $7.0 million, totaling $97.1 million. Current assets were $102.2 million and current liabilities $11.2 million. The company reported $47.1 million of long-term debt, net of discount, and $14.0 million of warrant liabilities. Stockholders’ equity was $80.3 million; accumulated deficit was $743.8 million.
Changes versus comparable periods
- Q3 revenue rose 104.2%, primarily from increased recurring commercial services revenue. Nine-month revenue declined 14.9%, as lower integration revenue more than offset growth in recurring services.
- Q3 operating loss narrowed by $3.3 million; nine-month operating loss narrowed by $7.4 million. SG&A decreased substantially, including lower stock-based compensation, while cost of goods sold, R&D, and depreciation and amortization increased.
- Net loss increased in both comparison periods: Q3 loss widened by $4.5 million, and nine-month loss widened by $27.7 million. The nine-month comparison was significantly affected by warrant fair-value movements: a $9.8 million expense in 2023 versus $23.2 million of income in 2022.
- Operating cash use was broadly similar year over year. Investing cash use declined to $1.5 million from $11.3 million. Financing provided $69.0 million, primarily from the 2023 notes issuance, versus $44,000 in the prior-year period.
Debt, liquidity and outlook
- In May and July 2023, NextNav issued $70 million of senior secured notes bearing 10% fixed interest and maturing December 1, 2026. Interest is payable semiannually; the company may elect to pay up to 50% of accrued interest in common stock. Notes are secured by substantially all company and domestic-subsidiary assets and guaranteed by domestic subsidiaries. The company reported compliance with applicable covenants at quarter-end.
- The note transactions included 25.5 million debt warrants exercisable at $2.16 per share. Total warrants outstanding were 44.3 million at September 30, including public, private-placement and debt warrants.
- Management expects further losses and higher operating expenses as it invests in R&D and TerraPoiNT expansion. It stated that available cash and marketable securities should cover working-capital and capital-expenditure needs, including contractual commitments, for more than 12 months. Longer-term funding may also depend on operating cash flows and further equity or debt financing; the assessment depends on internal projections and market conditions.
- Management cited field-services labor constraints and potential schedule delays or cost increases, though their current impact on network projects was described as not material. It expected macroeconomic effects to continue through the rest of 2023.
Management commentary, risks and unusual items
- NextNav says Pinnacle covers over 90% of U.S. commercial structures over three stories, while TerraPoiNT had been deployed in 88 markets. The company expects customer adoption and network expansion to support future growth, but provides no quantified revenue or earnings guidance in this filing.
- Customer concentration remains significant: one customer represented 69% of Q3 revenue; three customers represented 95% combined. One customer accounted for 80% of nine-month revenue.
- Warrant valuation is a material source of earnings volatility. The filing reports a $9.8 million nine-month fair-value expense and a $14.0 million quarter-end liability for private-placement warrants.
- The company has recurring losses and negative operating cash flow, and has historically relied on debt and equity financing. Further investment, customer concentration, liquidity needs, execution of TerraPoiNT expansion, and macroeconomic conditions are key risks.
- Management reported no legal matters expected to have a material adverse effect, no material changes in market risk, and effective disclosure controls as of September 30, 2023. No subsequent events requiring disclosure were identified.
Important facts for investors to verify
- Whether recurring commercial revenue growth can persist and reduce dependence on a small number of customers.
- Actual TerraPoiNT deployment, customer adoption and associated capital and operating costs compared with management’s plans.
- Cash burn, financing needs and the assumptions underlying management’s stated liquidity runway.
- Debt interest and covenant terms, refinancing or repayment capacity, and potential dilution from 44.3 million outstanding warrants.
- The effect of future warrant fair-value changes on reported earnings and the conversion of accounting losses into operating cash use.
Common shares outstanding were 110,135,859 as of November 3, 2023.