UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
OR
For the transition period from _____ to _____
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Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
There were
NEXTNAV INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2023
Unless the context otherwise requires, all references in this Quarterly Report on Form 10-Q to “NextNav,” the “Company,” “we,” “us,” and “our” include NextNav Inc. and its subsidiaries.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1034, as amended (the “Exchange Act”). Forward-looking statements include, but are not limited to, statements regarding our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future, projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, and are not guarantees of future performance. The words “may,” “anticipate,” “believe,” “expect,” “intend,” “might,” “plan,” “possible,” “potential,” “aim,” “strive,” “predict,” “project,” “should,” “could,” “would,” “will” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. These statements may relate to, but are not limited to: expectations regarding our strategies and future financial performance, including future business plans or objectives, expected functionality of our geolocation services, anticipated timing and level of deployment of our services, including our TerraPoiNT system, anticipated demand and acceptance of our services, prospective performance and commercial opportunities and competitors, the timing of obtaining regulatory approvals, ability to finance our research and development activities, commercial partnership acquisition and retention, products and services, pricing, marketing plans, operating expenses, market trends, revenue, liquidity, cash flows and uses of cash, capital expenditures, and our ability to invest in growth initiatives; our ability to realize the anticipated technical and business benefits associated with the acquisition of Nestwave (as defined below), and any subsequent mergers, acquisitions, or other similar transactions, which may be affected by, among other things, competition, and the ability of the combined business to grow and manage growth profitably; factors relating to our future operations, projected capital resources and financial position, estimated revenue and losses, projected costs and capital expenditures, prospects and plans, including the potential increase in customers on our Pinnacle network, the expansion of our services in Japan through MetCom (as defined below), and expectations about other international markets; projections of market growth and size, including the level of market acceptance for our services; our ability to adequately protect key intellectual property rights or proprietary technology; our ability to maintain our Location and Monitoring Service (“LMS”) licenses and obtain additional LMS licenses as necessary; our ability to maintain adequate operational financial resources or raise additional capital or generate sufficient cash flows, including the adequacy of our financial resources to meet our operational and working capital requirements for the 12-month period following the issuance of this report and our ability to meet longer term expected future cash requirements and obligations; our ability to develop and maintain effective internal controls; our success in recruiting and/or retaining officers, key employees or directors; expansion plans and opportunities; costs related to being a public company; our ability to maintain the listing of our securities on Nasdaq; macroeconomic factors and their effects on our operations; and the outcome of any known and unknown litigation and regulatory proceedings, as well as assumptions relating to the foregoing.
Forward-looking statements are based on information available as of the date of this quarterly report on Form 10-Q, and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views of any subsequent date, and we do not undertake any obligation to update or revise any forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
For additional information regarding risk factors, see Part II, Item 1A, “Risk Factors” of this quarterly report on Form 10-Q and Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022, and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 as well as those otherwise described or updated from time to time in our other filings with the Securities and Exchange Commission (the “SEC”).
Item 1. Financial Statements
NextNav Inc.
CONDENSED Consolidated Balance Sheets
(IN THOUSANDS, EXCEPT SHARE DATA)
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June 30, 2023 (unaudited) |
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December 31, 2022 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Short term investments |
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Accounts receivable |
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Other current assets |
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Total current assets |
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$ |
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$ |
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Network under construction |
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Property and equipment, net of accumulated depreciation of $ |
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Operating lease right-of-use assets |
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Goodwill | ||||||||
Intangible assets |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and stockholders’ equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other current liabilities |
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Operating lease current liabilities |
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Deferred revenue |
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Total current liabilities |
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$ |
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$ |
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Warrants |
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Operating lease noncurrent liabilities |
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Other long-term liabilities |
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Long term debt, net of debt issuance cost and discount | ||||||||
Total liabilities |
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$ |
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$ |
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Stockholders’ equity: |
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Common stock, authorized |
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Additional paid-in capital |
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Accumulated other comprehensive income |
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Accumulated deficit |
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Common stock in treasury, at cost; |
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Total stockholders’ equity |
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$ |
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$ |
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Non-controlling interests |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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See accompanying notes.
1 |
NextNav INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2023 |
2022 |
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2023 |
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2022 |
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Revenue |
$ | $ |
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$ |
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$ |
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Operating expenses: |
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Cost of goods sold (exclusive of depreciation and amortization) |
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Research and development |
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Selling, general and administrative |
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Depreciation and amortization |
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Total operating expenses |
$ | $ |
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$ |
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$ |
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Operating loss |
$ | ( |
) | $ | ( |
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$ |
( |
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$ |
( |
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Other income (expense): |
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Interest income (expense) |
( |
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Change in fair value of warrants |
( |
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( |
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Other income (loss) |
( |
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( |
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( |
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Income (loss) before income taxes |
$ | ( |
) | $ |
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$ |
( |
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$ |
( |
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Benefit (Provision) for income taxes |
( |
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( |
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( |
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Net income (loss) |
$ | ( |
) | $ |
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$ |
( |
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$ |
( |
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Foreign currency translation adjustment |
( |
) |
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( |
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Comprehensive income (loss) |
$ | ( |
) | $ |
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$ |
( |
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$ |
( |
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Net income (loss) | ( |
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Net income (loss) attributable to common stockholders |
$ | ( |
) | $ |
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$ |
( |
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$ |
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Weighted average of shares outstanding – basic |
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Weighted average of shares outstanding – diluted | ||||||||||||||||
Net income (loss) attributable to common stockholders per share - basic |
$ | ( |
) | $ |
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$ |
( |
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$ |
( |
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Net income (loss) attributable to common stockholders per share - diluted | $ | ( |
) | $ | $ | ( |
) | $ | ( |
) |
See accompanying notes.
NEXTNAV INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
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Class A Common Stock |
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Additional Paid-In |
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Accumulated |
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Accumulated Other Comprehensive |
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Treasury stock, |
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Stockholders’ (Deficit) |
Non- controlling |
Total |
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Units |
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Value |
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Capital |
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Deficit |
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(Loss) |
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at cost |
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Equity | interests |
Equity |
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Balance, December 31, 2021 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
— |
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$ | $ | — |
$ |
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Impact from adoption of new accounting standards |
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— |
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— |
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— |
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( |
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— |
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— |
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( |
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( |
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Balance, January 1, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
— |
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$ | $ | — |
$ |
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Exercise of common stock options |
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— |
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— |
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— |
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— |
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— |
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Exercise of common warrants |
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— |
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— |
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— |
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— |
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— |
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— | — |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
) |
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— |
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— |
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( |
) | — |
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( |
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Foreign currency translation adjustment |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) | — |
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( |
) |
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Common stock received for tax withholding |
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( |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) | — |
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( |
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Balance, March 31, 2022 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
$ |
( |
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$ | $ | — |
$ |
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Vesting of RSUs |
— | — | — | — | — | — | — |
— | ||||||||||||||||||||||||||||
Issuance of RSUs | — | — | — | — | — | — | — |
— | ||||||||||||||||||||||||||||
Exercise of common stock options | — | — | — | — | — | |||||||||||||||||||||||||||||||
Exercise of common warrants | — | — | — | — | — | — |
— | — | ||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | — | — |
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Net income | — | — | — | — | — | — |
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Foreign currency translation adjustment | — | — | — | — | ( |
) | — | ( |
) | — |
( |
) | ||||||||||||||||||||||||
Balance, June 30, 2022 | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | $ | — | $ |
See accompanying notes.
3 |
NextNav INC.
CONDENSED Consolidated Statements of Changes in Stockholders’ equity
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
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Class A Common Stock |
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Additional Paid-In |
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Accumulated |
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Accumulated Other Comprehensive |
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Treasury stock, |
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Stockholders’ (Deficit) |
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Non- controlling |
Total |
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Units |
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Value |
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Capital |
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Deficit |
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Income |
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at cost |
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Equity |
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interests |
Equity |
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Balance, December 31, 2022 | $ | $ | $ | ( |
) | $ | $ | ( |
) | $ | $ | $ | ||||||||||||||||||||||||
Vesting of RSUs | — |
— |
— |
— |
— |
— | — | |||||||||||||||||||||||||||||
Issuance of RSAs | — | — | — |
— | — | — |
— | |||||||||||||||||||||||||||||
Exercise of common stock options | — | — | — | — | — | |||||||||||||||||||||||||||||||
Stock-based compensation expense | — |
— | — | — |
— |
— | ||||||||||||||||||||||||||||||
Net loss | — | — | — | ( |
) | — |
— | ( |
) | — | ( |
) | ||||||||||||||||||||||||
Foreign currency translation adjustment | — | — |
— | — | — | — | ||||||||||||||||||||||||||||||
Balance, March 31, 2023 | $ | $ | $ | ( |
) | $ | $ | ( |
) | $ | $ | $ | ||||||||||||||||||||||||
Vesting of RSUs | — |
— |
— |
— |
— |
— | — | — | ||||||||||||||||||||||||||||
Issuance of RSAs | — | — | — |
— | — | — |
— | — | ||||||||||||||||||||||||||||
Exercise of common stock options | — | — | — | — | — | |||||||||||||||||||||||||||||||
Stock-based compensation expense | — |
— | — | — |
— |
— | ||||||||||||||||||||||||||||||
Issuance of common warrants | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
Net loss | — | — | — | ( |
) | — |
— | ( |
) | — | ( |
) | ||||||||||||||||||||||||
Foreign currency translation adjustment | — | — |
— | — | — | — | ||||||||||||||||||||||||||||||
Balance, June 30, 2023 | $ | $ | $ | ( |
) | $ | $ | ( |
) | $ | |
$ | $ |
See accompanying notes.
4 |
NextNav INC.
CONDENSED Consolidated Statements of Cash Flows
(UNAUDITED)
(IN THOUSANDS)
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Six Months Ended June 30, |
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2023 |
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2022 |
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Operating activities |
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Net loss |
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$ |
( |
) |
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$ |
( |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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Equity-based compensation |
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Change in fair value of warranty liability |
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( |
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Realized and unrealized gain on marketable securities |
( |
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Equity method investment loss |
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Asset retirement obligation accretion |
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Amortization of debt discount | ||||||||
Changes in operating assets and liabilities: |
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Accounts receivable |
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Other current assets |
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Other assets |
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Accounts payable |
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( |
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( |
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Deferred revenue |
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( |
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( |
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Accrued expenses and other liabilities |
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( |
) | |
Operating lease right-of-use assets and liabilities |
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Net cash used in operating activities |
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$ |
( |
) |
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$ |
( |
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Investing activities |
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Capitalization of costs and purchases of network assets, property, and equipment |
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( |
) |
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( |
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Purchase of marketable securities |
( |
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Sale and maturity of marketable securities | ||||||||
Purchase of internal use software |
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( |
) |
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( |
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Net cash used in investing activities |
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$ |
( |
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$ |
( |
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Financing activities |
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Proceeds from senior secured notes | ||||||||
Payments towards debt issuance cost | ( |
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Payments towards debt | ( |
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Proceeds from exercise of stock options |
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Repurchase of common stocks (withholding taxes) |
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( |
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Net cash provided by financing activities |
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$ |
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$ |
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Effect of exchange rates on cash and cash equivalents |
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( |
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( |
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Net decrease in cash and cash equivalents |
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( |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
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$ |
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$ |
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Non-cash financing information |
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Capital expenditure included in accounts payable |
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$ |
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$ |
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Issuance of warrants | $ | $ |
See accompanying notes.
NextNav INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
For the six months ended June 30, 2023
1. Organization and Business
Principal Business
NextNav Inc. and its consolidated subsidiaries (collectively “NextNav” or the “Company”) deliver next generation positioning, navigation and timing (“PNT”) solutions built on a robust asset platform, including 8MHz of nearly nationwide wireless spectrum in the 900MHz band, intellectual property and deployed network systems. The Company’s Pinnacle system provides “floor-level” altitude service to any device with a barometric pressure sensor, including most off-the-shelf Android and iOS smartphones. The Company’s TerraPoiNT system is a terrestrial-based, encrypted network designed to overcome the limitations inherent in the space-based nature of global positioning system (“GPS”) through a network of specialized wide area location transmitters that broadcasts an encrypted PNT signal over the Company’s licensed spectrum.
Since its inception, NextNav has incurred recurring losses and generated negative cash flows from operations and has primarily relied upon debt and equity financings to fund its cash requirements. During the six months ended June 30, 2023 and 2022, the Company incurred net losses of $
Managing liquidity and the Company’s cash position is a priority of the Company. The Company continually works to optimize its expenses in light of the growth of its business, and adapt to changes in the economic environment. The Company believes that the cash and cash equivalents and marketable securities as of June 30, 2023 will be sufficient to meet its working capital and capital expenditure needs, including all contractual commitments, for the next 12 months. The Company believes it will meet longer term expected future cash requirements and obligations through a combination of its existing cash and cash equivalents balances and marketable securities, cash flows from operations, and issuance of equity securities or debt offerings. However, this determination is based upon internal projections and is subject to changes in market and business conditions.
2. Summary of Significant Accounting Policies
Basis of Presentation
The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in these condensed consolidated financial statements.
Unaudited Interim Financial Information
The condensed consolidated financial statements as of June 30, 2023 are unaudited. These interim financial statements of NextNav have been prepared in accordance with U.S. GAAP and SEC instructions for interim financial information and should be read in conjunction with NextNav’s Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”), which the Company filed with the SEC on March 30, 2023.
The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and reflect, in management’s opinion, all adjustments of a normal, recurring nature that are necessary for the fair statement of the Company’s financial position as of June 30, 2023, results of operations for the three and six months ended June 30, 2023 and 2022, and changes in stockholders’ equity and cash flows for the six months ended June 30, 2023 and 2022, but are not necessarily indicative of the results expected for the full fiscal year or any other period.
There have been no changes to the Company’s significant accounting policies described in the 2022 Form 10-K that have had a material impact on these condensed consolidated financial statements and related notes.
6 |
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period and accompanying notes. These estimates include those related to the useful lives and recoverability of long-lived and intangible assets, valuation of common stock warrants, income taxes and equity-based compensation, among others. NextNav bases estimates on historical experience, anticipated results and various other assumptions, including assumptions of future events, it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets, liabilities, equity, revenue and expenses, that are not readily apparent from other sources. Actual results and outcomes could differ materially from these estimates and assumptions.
Cash and Cash Equivalents and Marketable Securities
Cash and cash equivalents include all cash in banks and highly liquid investments with an original maturity of three months or less when purchased. The combined account balances held on deposit at each institution typically exceed Federal Deposit Insurance Corporation (“FDIC”) insurance coverage and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. The Company seeks to reduce this risk by maintaining such deposits with high quality financial institutions that management believes are creditworthy. Further, the Company seeks to minimize its exposure to banking risk by limiting the amount of uninsured deposits and investing its excess cash in U.S. government and government agency bonds, and money market funds.
The Company invests excess cash primarily in U.S. government and government agency bonds, and money market funds. The Company classifies all marketable securities that have stated maturities of three months or less from the date of purchase as cash equivalents, and those that have stated maturities of over three months as short-term investments on the Consolidated Balance Sheets. The Company determines the appropriate classification of investments in marketable securities at the time of purchase and reevaluates such designation at each balance sheet date. The Company’s marketable securities are classified as trading and are measured at fair value with the related gains and losses, including unrealized, recognized in interest income (expense).
Revenue
The following table presents the Company’s revenue disaggregated by category and source:
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2023 |
2022 |
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2023 |
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2022 |
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(in thousands) |
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(in thousands) |
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Commercial |
$ | $ |
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$ |
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$ |
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Government contracts |
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Equipment sales |
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Total revenue |
$ | $ |
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$ |
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$ |
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7 |
Contract Balances
Accounts receivable are billed and unbilled amounts related to the Company’s rights to consideration as performance obligations are satisfied when the rights to payment become unconditional but for the passage of time. As of June 30, 2023 and December 31, 2022, the Company’s accounts receivable balances were comprised of $
Contract liabilities relate to amounts billed in advance, or advance consideration received from customers, for which transfer of control of the good or service occurs at a later point in time. As of June 30, 2023 and December 31, 2022, the Company’s contract liabilities were $
Equity-Based Compensation
Measurement of equity-based compensation with employees is based on the estimated grant date fair value of the equity instruments issued. The fair value of stock options is determined using the Black-Scholes option pricing model. The fair value of restricted stock awards is based on the closing price of NextNav’s common stock on the date of grant. NextNav recognizes equity-based compensation on a straight-line basis over the requisite service period of the grant, which is generally equal to the vesting period. NextNav accounts for forfeitures as they occur.
The following details the amount of stock-based compensation included in cost of goods sold, research and development, and selling, general and administrative expenses:
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Three Months Ended June 30, |
Six Months Ended June 30, |
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2023 |
2022 |
2023 | 2022 | ||||||||||||
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(in thousands) |
(in thousands) | ||||||||||||||
Cost of goods sold |
$ | $ | $ | $ | ||||||||||||
Research and development |
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Selling, general and administrative |
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Total stock-based compensation expense |
$ | $ | $ | $ |
Basic and Diluted Net Earnings (Loss) per Share
Basic earnings (loss) per share (“EPS”) excludes dilution for common share equivalents and is computed by dividing net income (loss) available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is based on the weighted-average number of shares of common stock outstanding during each period, adjusted for the effect of dilutive common share equivalents.
Restricted shares are included in the computation of basic EPS as they vest and are included in diluted EPS, to the extent they are dilutive, determined using the treasury stock method. Outstanding options and warrants are included in the computation of diluted EPS, to the extent they are dilutive, determined using the treasury stock method.
8 |
The determination of the diluted weighted average shares is included in the following calculation of EPS:
|
Three Months Ended June 30, |
Six Months Ended June 30, |
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2023 |
2022 |
2023 | 2022 | ||||||||||||
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(in thousands, except per share amounts) |
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Numerator |
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Net income (loss) attributable to common stockholders |
$ | ( |
) | $ | $ | ( |
) | $ | ( |
) | ||||||
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Denominator |
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Weighted average shares – basic |
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Weighted average shares – diluted | ||||||||||||||||
Basic earnings (loss) per share |
$ | ( |
) | $ | $ | ( |
) | $ | ( |
) | ||||||
Diluted earnings (loss) per share | $ | ( |
) | $ | $ | ( |
) | $ | ( |
) |
The following details anti-dilutive unvested restricted stock units and unvested restricted stock awards, as well as the anti-dilutive effects of the outstanding warrants and stock options:
|
Three Months Ended June 30, |
Six Months Ended June 30, | ||||||||||||||
Antidilutive Shares Excluded |
2023 |
2022 |
2023 | 2022 | ||||||||||||
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(in thousands) |
(in thousands) | ||||||||||||||
Warrants |
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Stock Options |
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Unvested Restricted Stock Units |
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Unvested Restricted Stock Awards |
Equity Method Investment
The Company applies the equity method of accounting to investments when it has significant influence, but not controlling interest, in the investee. Judgment regarding the level of influence over each equity method investment includes considering key factors such as ownership interest, representation on the board of directors, participation in policy-making decisions and material intercompany transactions.
The initial carrying value of equity method investment is based on the amount paid to purchase the interest in the investee entity. Subsequently, the investment is increased or decreased by the Company’s proportionate share in the investee’s earnings or losses and decreased by cash distributions from the investee. The Company eliminates from its financial results all significant intercompany transactions to the extent of its ownership interest, including the intercompany portion of transactions with equity method investee. The Company’s share of the investee’s income or loss is recorded on a one quarter lag.
The Company evaluates equity method investment for impairment based upon a comparison of the fair value of the equity method investment to its carrying value, when impairment indicators exist. If the Company determines a decline in the fair value of an equity method investment below its carrying value is other-than-temporary, an impairment is recorded.
Leases
NextNav leases office space under a non-cancellable lease as well as site leases for towers and shelters under operating leases related to its network. Site leases are entered into throughout the United States under which NextNav receives the rights to install equipment used to transmit its services over its licensed spectrum. The Company, at the inception of the contract, determines whether a contract is or contains a lease based on assessment of the terms and conditions of the contract. The Company classifies leases with contractual terms longer than twelve months as either operating or finance. The Company has elected not to recognize lease assets and liabilities for its short-term leases, which are defined as leases with an initial term of twelve months or less.
9 |
The Company’s leases may include options to extend or terminate the lease. The option to renew may be automatic, at the option of NextNav or mutually agreed to between the landlord and NextNav. Lease terms include the non-cancellable term and periods under options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.
The Company’s lease agreements generally contain lease and non-lease components. Payments under the lease arrangements are primarily fixed. Non-lease components primarily include payments for utilities and maintenance. The Company combines fixed payments for non-lease components with lease payments and account for them together as a single lease component which increases the amount of the Company’s lease assets and liabilities. Certain lease agreements contain variable payments, which are expensed as incurred and not included in the lease assets and liabilities. These amounts include payments for common area maintenance.
Lease assets and liabilities are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value of the future lease payments is the Company’s incremental borrowing rate, because the interest rate implicit in the Company’s leases is not readily determinable. The Company’s incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in economic environments where the leased asset is located. Lease assets are reduced by landlord incentives, plus any direct costs from executing the leases or lease prepayments reclassified from “Other current assets” upon lease commencement. Operating lease expense is recognized on a straight-line basis over the lease term. Monthly rent expense includes any site related utility payments or other fees such as administrative or up-front fees contained in the lease agreements that are determinable upon execution of the lease agreement.
Acquired finite-lived intangible assets
Acquired finite-lived intangible assets primarily includes proprietary technology and software. See Note 5 — Intangibles.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. Goodwill is not amortized but is tested for impairment annually in the fourth quarter or more frequently if events or changes in circumstances indicate that the asset may be impaired. The Company operates as one reporting unit. When testing goodwill for impairment, the Company may first perform an optional qualitative assessment. If the Company determines it is not more likely than not the reporting unit’s fair value is less than its carrying value, then no further analysis is necessary. If the Company determines that it is more likely than not that the fair value of its reporting unit is less than its carrying amount, then the quantitative impairment test will be performed. Under the quantitative impairment test, if the carrying amount of the Company’s reporting unit exceeds its fair value, the Company will recognize an impairment loss in an amount equal to that excess but limited to the total amount of goodwill.
Goodwill - January 1, 2023 | $ | ||
Changes in foreign exchange rates | |
||
Purchase price adjustment | ( |
) | |
Goodwill - June 30, 2023 | $ | |
Acquisitions
The Company accounts for its acquisitions using the acquisition method of accounting. The purchase price is attributed to the fair value of the assets acquired and liabilities assumed. Transaction costs directly attributable to the acquisition are expensed as incurred. Identifiable assets and liabilities acquired or assumed are measured separately at their fair values as of the acquisition date. The excess of the purchase price of acquisition over the fair value of the identifiable net assets of the acquiree is recorded as goodwill. The results of businesses acquired are included in the Company’s consolidated financial statements from the date of acquisition.
When the Company issues stock-based or cash awards to an acquired company’s shareholders, the Company evaluates whether the awards are consideration or compensation for post-acquisition services. The evaluation includes, among other things, whether the vesting of the awards is contingent on the continued employment of the acquired company’s stockholders beyond the acquisition date. If continued employment is required for vesting, the awards are treated as compensation for post-acquisition services and recognized as expense over the requisite service period.
10 |
Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates, including the selection of valuation methodologies, estimates of future revenue and cash flows, discount rates, and selection of comparable companies. The estimates and assumptions used to determine the fair values and useful lives of identified intangible assets could change due to numerous factors, including market conditions, technological developments, economic conditions, and competition. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill. In addition, uncertain tax positions, tax-related valuation allowances and pre-acquisition contingencies are initially recorded as of the acquisition date. The Company continues to collect information and reevaluates these estimates and assumptions quarterly and records any adjustments to the Company’s preliminary estimates to goodwill provided that the Company is within the measurement period. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded in the Company’s consolidated statement of operations. In connection with the determination of fair values, the Company may engage a third-party valuation specialist to assist with the valuation of intangible and certain tangible assets acquired and certain assumed obligations.
Long term debt
In conjunction with the issuance of senior secured notes due 2026 in May of 2023, the Company issued warrants to the lenders. The Company allocated the proceeds from its debt issuance to long term debt and equity classified warrants based on relative fair value as determined by the Discounted Cash Flow approach and Monte Carlo simulation model, respectively. The portion of proceeds allocated to equity-classified warrants and direct debt issuance costs are classified as debt discounts. The carrying value of long term debt in the Company’s condensed consolidated balance sheet consists of principal amount of debt, net of debt discounts. Debt discounts are amortized to interest expense based on the related debt agreements primarily using the effective interest method.
Non-controlling Interests
The non-controlling interest in the Company’s condensed consolidated financial statements represents the warrants for Nestwave, SAS (“Nestwave”) shares that were owned by the selling shareholders. Holders of the warrants do not have the right to income or obligation to losses, and the Company did not attribute any net loss to the non-controlling interests for the three and six months ended June 30, 2023.
Foreign Currency Translation
The functional currency of NextNav’s foreign subsidiaries is generally the local currency. Assets and liabilities are translated into U.S. dollars at the exchange rate in effect at the Consolidated Balance Sheet date. Operating accounts are translated at an average rate of exchange for the respective accounting periods. Translation adjustments resulting from the process of translating foreign currency financial statements into U.S. dollars are reported as a component of accumulated other comprehensive loss. Transaction gains and losses reflected in the functional currencies are charged to income or expense at the time of the transaction.
Net transaction gains (losses) from foreign currency contracts recorded in the Consolidated Statements of Comprehensive Loss were immaterial for the three and six months ended June 30, 2022 and 2022. The only component of other comprehensive loss is currency translation adjustments for all periods presented. No income tax expense was allocated to the currency translation adjustments.
Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326) (“ASU 2016-13”), which requires that an entity measure and recognize expected credit losses for financial assets held at amortized cost and replaces the incurred loss impairment methodology in current U.S. GAAP with a methodology that requires consideration of a broader range of information to estimate credit losses. The guidance also modifies the impairment model for available-for-sale debt securities. ASU 2016-13 is effective for the Company’s fiscal year beginning January 1, 2023. The Company adopted this ASU as of January 1, 2023. The adoption did not have a material impact on the consolidated financial statements.
Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s consolidated financial statements.
11 |
3. Acquisition
On October 31, 2022 (the “Closing Date”), the Company completed the acquisition of all outstanding equity in Nestwave, a privately held French company that is a global leader in low-power geolocation. The acquisition is expected to significantly accelerate the availability of resilient 3D position, navigation and timing, release the underlying spectrum’s capacity for additional data-oriented services and enables broader penetration of NextNav’s applications and technology across the handset and device ecosystem for all of its products and target markets. The acquisition is accounted for under the acquisition method of accounting in accordance with Accounting Standard Codification (“ASC”) 805 Business Combinations.
The Company acquired Nestwave for $
The earnings of Nestwave have been included in the consolidated financial statements of the Company beginning November 1, 2022. The pro forma financial information, assuming the acquisition had taken place on January 1, 2021, as well as the revenue and earnings generated during the period after the acquisition date, were not material for separate disclosure and, accordingly, have not been presented.
The fair value measurements of the identified intangible assets on acquisition date were based primarily on significant unobservable inputs and thus represent a Level 3 measurement as defined in ASC 820 Fair Value Measurements. The fair values of technology and software were determined using the replacement cost method under the cost approach. The excess of the purchase price over the fair value of the tangible net assets and intangible assets acquired was recognized as goodwill and is attributable to a number of business factors, including but not limited to, the acquired workforce and expanded market opportunities when integrating Nestwave’s software and technology with the Company’s other offerings. Goodwill generated from the acquisition is not deductible for tax purposes.
As of October 31, 2022, the purchase price assigned to the acquired assets and assumed liabilities is summarized as follows. The Company provided estimates of balances as of December 31, 2022 and updated these estimates as more information become available. The Company has completed this exercise. The assets and liabilities of Nestwave recorded in the Company's financial statements at the acquisition date are summarized below:
Preliminary | Adjustments | Final | |||||||||
(in thousands) |
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Cash acquired |
$ | $ |
$ |
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Other current assets |
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Property and equipment |
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Other noncurrent assets |
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Intangible assets: |
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Technology |
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Software |
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Goodwill |
( |
) |
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Total assets acquired |
$ | $ | ( |
) |
$ |
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Current liabilities | |||||||||||
Noncurrent liabilities | ( |
) | |||||||||
Net assets acquired | $ | $ |
$ |
The estimated useful lives of the identified finite-lived intangible assets from the acquisition is
12 |
Certain shareholders of Nestwave hold warrants for Nestwave shares that remained unexercised and outstanding as of the Closing Date. The Company and the holders of unexercised warrants entered into Put & Call Option Agreements whereas upon exercising the warrants, the Company will issue a total of
4. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:
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|
June 30, 2023 |
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|
December 31, 2022 |
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(in thousands) |
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Accrued salary and other employee liabilities |
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$ |
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$ |
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Accrued legal and professional services |
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Other accrued liabilities |
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Total |
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$ |
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$ |
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5. Intangibles
Intangible assets as of June 30, 2023 and December 31, 2022 consist of following (in thousands):
June 30, 2023 |
December 31, 2022 |
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Gross Amount |
Accumulated Amortization |
Net Carrying Value | Gross Amount |
Accumulated Amortization |
Net Carrying Value | |||||||||||||||||||
Indefinite-Lived intangible assets | $ |
$ | $ | $ | $ | $ | ||||||||||||||||||
Acquired Software | ||||||||||||||||||||||||
Acquired Technology | ||||||||||||||||||||||||
Internal Use Software | ||||||||||||||||||||||||
Total | $ | $ | $ | $ | $ | $ |
The average weighted average remaining useful lives of acquired software and acquired technology were 11.3 years as of June 30, 2023.
Amortization expenses on intangibles assets was $
2023 | $ | |||
2024 | ||||
2025 | ||||
2026 | ||||
2027 and thereafter | ||||
$ |
6. Equity Method Investment
As of June 30, 2023, the Company’s total ownership of MetCom Inc., a privately-owned Japanese joint stock company (kabushiki kaisha) (“MetCom”), consists of
The Company holds a warrant (the “MetCom Warrant”) issued by MetCom which entitles the Company to purchase additional shares at an exercise price of JPY
7. Fair Value
NextNav uses observable and unobservable inputs to determine the value of its assets and liabilities recorded at fair value. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect internal market assumptions. The three-tier hierarchy for inputs used to measure fair value, which prioritizes the inputs used in the methodologies of measuring fair value for assets and liabilities, where applicable, is as follows:
- Level 1 — Quoted prices in active markets for identical assets or liabilities
- Level 2 — Observable inputs other than quoted prices in active markets for identical assets and liabilities
- Level 3 — No observable pricing inputs in the market
Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurements. NextNav’s assessment of the significance of a particular input to the fair value measurements requires judgment and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy. NextNav effectuates transfers between levels of the fair value hierarchy, if any, as of the date of the actual circumstance that caused the transfer.
The following table presents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis:
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Level 1 |
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Level 2 |
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Level 3 |
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Total |
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(in thousands) |
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June 30, 2023 |
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Cash and Cash Equivalents - Money Market Funds | $ | $ | $ | $ | ||||||||||||
Cash and Cash Equivalents - U.S. Government Agency Bonds | ||||||||||||||||
Short term investments - U.S. Government Agency Bonds | ||||||||||||||||
Private placement warrants |
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December 31, 2022 |
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Cash and Cash Equivalents - Money Market Funds | $ | $ | $ | $ | ||||||||||||
Cash and Cash Equivalents - U.S. Government Agency Bonds | ||||||||||||||||
Short term investments - U.S. Government Agency Bonds | ||||||||||||||||
Private placement warrants |
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$ |
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|
|
$ |
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|
|
$ |
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|
|
$ |
|
|
The carrying values of cash and cash equivalents, accounts payable, accrued expenses, amounts included in other current assets, and current liabilities that meet the definition of a financial instrument, approximate fair value due to their short-term nature.
Assets, liabilities, and equity instruments that are measured at fair value on a nonrecurring basis include fixed assets and intangible assets. The Company recognizes these items at fair value when they are considered to be impaired or upon initial recognition. The fair value of these assets and liabilities are determined with valuation techniques using the best information available and may include quoted market prices, market comparables and discounted cash flow models.
Level 3 Liabilities
The Company engaged a third-party valuation firm to assist with the fair value analysis of the private placement warrants. The analysis used commonly accepted valuation methodologies and best practices to determine the fair value of the equity, in accordance with fair value standards and U.S. GAAP. For the Private Placement Warrants that were outstanding as of June 30, 2023 and December 31, 2022, NextNav used a Monte Carlo simulation model. The following table shows the assumptions used in each respective model:
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June 30, 2023 |
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December 31, 2022 |
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Values |
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Values |
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Stock Price |
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$ |
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$ |
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Strike price |
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$ |
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$ |
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Holding Period/Term (years) |
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Volatility |
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% |
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% |
Expected dividends |
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Risk-Free Rate |
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% |
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% |
Fair value of warrants |
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$ |
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$ |
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|
The table below provides a reconciliation of the beginning and ending balances for the liabilities measured at fair value using significant unobservable inputs (Level 3).
Warrants: |
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(in thousands) |
|
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Balance as of December 31, 2022 |
|
$ |
|
|
Fair value adjustment of Private Placement Warrants |
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|
|
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Balance as of June 30, 2023 |
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$ |
|
|
8. Long term debt, net
On May 9, 2023 (“Initial Closing”), pursuant to the terms of the Notes Purchase Agreement (“NPA”) and Indenture Agreement (“Indenture”), the Company issued $
Under the NPA, the Lenders have the right, but not the obligation, to purchase additional Notes, on a pro rata basis, in an aggregate principal amount of $
In conjunction with the issuance of Notes, the Company issued
The carrying value of the Notes was $
Additional Interests
The Notes are subject to additional interest of up to
Redemption and Early Repayment
The Company may redeem the Notes, in whole or in part, at any time on or after
In the event of certain non-ordinary course asset sales, including sales of certain intellectual property or spectrum licensed by the FCC to the Company or its subsidiaries, the Company must make a mandatory repurchase offer for a portion of the Notes outstanding with the proceeds of such sale, at a price equal to
In the event of a change of control, each holder has the right, at such holder’s option and subject to the limitations set forth in the Indenture, to require the Company to repurchase for cash all or any portion of such holder’s Notes at a price equal to
Debt Covenant Compliance
The Notes are guaranteed on a first lien senior secured basis by NextNav’s domestic subsidiaries and secured by substantially all of the assets of the company and its domestic subsidiaries.
The Indenture contains customary covenants limiting the ability of the Company and its subsidiaries to: incur or guarantee additional indebtedness; pay dividends or distributions on, or redeem or repurchase, capital stock; make certain investments or other restricted payments; sell assets; enter into transactions with affiliates; merge or consolidate or sell all or substantially all of their assets. These covenants are subject to a number of important and significant limitations, qualifications and exceptions. The Indenture also contains customary events of default. Failure to comply with such covenants could result in an acceleration of the maturity of indebtedness outstanding and additional interest of up to
As of June 30, 2023,
9. Warrants and Warrant Liability
As of June 30, 2023, NextNav had
Holders of the Public Warrants, Private Placement Warrants and the Warrants are entitled to acquire shares of common stock of NextNav. With respect to the Public Warrants and Private Placement Warrants, each whole warrant entitles the registered holder to purchase
NextNav has
The Private Placement Warrants are identical in all respects to the Public Warrants except that, so long as they are held by the current holder or its permitted transferees: (i) they will not be redeemable by NextNav; (ii) they may be exercised by the holders on a cashless basis; and (iii) they are subject to registration rights.
NextNav has the right to redeem for cash the applicable pro rata portion of any Warrant on each of May 1, 2025, September 1, 2025 and December 1, 2025, in each case, at a redemption price of $
10. Common Stock
As of June 30, 2023, NextNav had authorized the issuance of
11. Commitments and Contingencies
Litigation and Legal Matters
From time to time, the Company is party to litigation and other legal matters incidental to the conduct of its business. Such matters are subject to many uncertainties and outcomes are not predictable with assurance. The Company accrues liabilities for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. As of June 30, 2023, the Company was not involved in any such matters, individually or in the aggregate, which management believes would have a material adverse effect on the Company’s business, financial condition, results of operations, or cash flows.
12. Income Taxes
The Company computes its year-to-date provision for income taxes by applying the estimated annual effective tax rate to year-to-date pretax income or loss and adjusts the provision for discrete tax items recorded in the period. A valuation allowance has been established against the Company’s U.S. federal and state deferred tax assets, which results in an annualized effective tax rate for the Company’s U.S. operations of
13. Subsequent Events
The Company has completed an evaluation of all subsequent events through the date of this Quarterly Report on Form 10-Q to ensure that these financial statements include appropriate disclosure of events both recognized in the financial statements and events which occurred but were not recognized in the financial statements. The Company has concluded that no subsequent event has occurred that requires disclosure other than as disclosed in Note 8 — Long term debt, net and Note 9 – Warrants and Warrant Liability.
18 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying quarterly unaudited condensed consolidated financial statements and our Annual Report on Form 10-K for the year ended December 31, 2022. Our 2022 Form 10-K includes additional information about our significant accounting policies, practices, and the transactions that underlie our financial results, as well as a detailed discussion of the most significant risks and uncertainties associated with our financial condition and operating results. In addition to historical financial information, some of the information contained in the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Actual results and outcomes could differ materially for a variety of reasons. You should review “Cautionary Note Regarding Forward-Looking Statements” at the beginning of this Quarterly Report on Form 10-Q, as well as Item 1A, “Risk Factors” in our 2022 Form 10-K and Part II, Item 1A, “Risk Factors” of our Quarterly Report on Form 10-Q for the quartered ended March 31, 2023, as well as those otherwise described or updated from time to time in our other filings with the SEC, for a discussion of important factors that could cause our actual results to differ materially from the results described or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are the market leader in delivering next generation PNT solutions that overcome the limitations of existing space-based GPS, built on a robust asset platform including 8MHz of nearly nationwide wireless spectrum in the 900MHz band, intellectual property and deployed network systems. The world increasingly requires more accurate and resilient PNT capabilities. Public safety, autonomous vehicles, eVTOLs, UAVs, and the app economy all require precise 3D location solutions. Paramedics need to know which apartment a 911 call originated from, ride hailing and delivery apps need to know precisely where you are standing.
In early 2021, we launched the first element of our next generation GPS service through initial commercial launch of our nationwide Pinnacle network that was deployed in partnership with AT&T Services, Inc. (“AT&T”). The Pinnacle network provides “floor-level” altitude data to over 90% of commercial structures over three stories in the U.S. Pinnacle is being utilized by FirstNet® for public safety. We are currently providing service to Verizon as a customer for E911 services, using our Pinnacle 911 solution. Pinnacle has also been adopted by a growing number of public safety apps, commercial apps and app development platforms, including Unity Engine, CRG, GeoComm, Rapid Deploy, Central Square, NGA 911, Qualcomm, and the Unreal Engine. We believe that ramp up of customers using our existing Pinnacle network will support revenue growth over the coming year.
We will be extending our capabilities by expanding the deployment of our TerraPoiNT system, which is a nationwide network that is designed to overcome the inherent limitations of traditional GPS. TerraPoiNT utilizes a network of specialized wide area location transmitters that broadcast an encrypted PNT signal on our licensed 900 MHz LMS spectrum with a signal that is 100,000 times stronger than GPS. TerraPoiNT is well suited for urban and indoor environments where existing GPS signals are either distorted or blocked all together. In addition, TerraPoiNT provides redundancy for GPS, which is vulnerable to spoofing and jamming. GPS redundancy is increasingly a U.S. national security priority and is a rising priority in the other parts of the world. Critical infrastructure, including communications networks and power grids, require a reliable GPS signal for accurate timing. A failure of GPS would be catastrophic, and there is no back-up system today.
Since the inception of NextNav, LLC in 2007, we have secured valuable FCC licenses covering over 90% of the U.S. population for a continuous 8MHz band of nearly nationwide 900 MHz spectrum, filed more than 170 patents related to our systems and services, deployed the nationwide Pinnacle network and launched commercial service. In addition, we have deployed our TerraPoiNT solution in 88 markets, and TerraPoiNT received the highest scores in testing by the U.S. Department of Transportation of potential PNT back-up solutions.
In October 2022, we acquired Nestwave SAS (“Nestwave”). We expect the integration of the Nestwave technology to significantly reduce the capital and operating expenditures associated with a national deployment of a TerraPoiNT network. In addition, Nestwave’s technology could result in a significant improvement in the spectral efficiency of our radio transmissions, which may allow us to offer an expanded suite of PNT and data services.
19 |
Macroeconomic Factors
We are aware that network deployment projects are experiencing delays in schedules and potential cost increases due to a tight labor supply in the field services market. While the impact of this supply constraint is not material to the Company's network projects at this time, we continue to carefully manage labor and materials supply matters. Additionally, there is an increased risk of financial market disruption. Management continues to actively monitor our financial condition, liquidity, operations, suppliers, industry and workforce. We expect these macroeconomic factors and their effects on our operations to continue through the remainder of 2023.
Key Components of Results of Operations
Revenue
We have generated limited revenue since our inception. We derive our revenue from “floor-level” altitude location data, and related products and services as well as from other PNT products and services. Our revenue includes revenue generated through services contracts with wireless carriers, services with applications developers, technology demonstration, assessment and support contracts with government customers, sales of equipment, and licensing of proprietary technology. We recognize revenue when an arrangement exists, services, equipment or access to licensed technology are delivered, the transaction price is determined, the arrangement has commercial substance, and collection of consideration is probable.
Operating Expense
Cost of Goods Sold
Cost of goods sold (“COGS”) consist of personnel-related expenses, including salaries, benefits and stock-based compensation, and allocated facility costs for our operations and manufacturing teams. COGS also includes expenses for site leases, cost of equipment, and professional services related to the maintenance of the equipment at each leased site. We expect our operations costs to increase for the foreseeable future as we continue to invest in the expansion of our Pinnacle and TerraPoiNT networks in domestic U.S. and international markets.
Research and Development
Research and development expenses consist of personnel-related expenses, including salaries, benefits and stock-based compensation, and allocated facility costs for our research and development functions. Research and development costs also include outside professional services for software and hardware development, cloud hosting costs, and software licensing costs. We expect our research and development costs to increase for the foreseeable future as we continue to invest in research and development for our current products and future products.
Selling, General and Administrative
Selling, general and administrative expenses consist of personnel-related expenses, including salaries, benefits and stock-based compensation, and allocated facility costs for our business development, marketing, corporate, executive, finance, legal, human resources, IT and other administrative functions. Selling, general and administrative expenses also include expenses for outside professional services, including legal, auditing and accounting services, recruitment expenses, travel expenses and certain non-income taxes, insurance and other administrative expenses.
We expect our selling, general and administrative expenses to increase for the foreseeable future with the growth of our business, and as a result of operating as a public company, including compliance with the rules and regulations of the SEC, legal, audit, and additional insurance expenses, investor relations activities, and other administrative and professional services. As a result, we expect our selling, general and administrative expenses will increase in absolute dollars, subject to underlying variability in stock-based compensation, but may fluctuate as a percentage of total revenue over time.
20 |
Depreciation and Amortization
Depreciation and amortization expense results from depreciation and amortization of our property and equipment and intangible assets that is recognized over their estimated useful lives.
Interest Income (Expense)
Interest income consists of interest earned from our cash and cash equivalents balance and on marketable securities. Interest expense relates to interest on our senior secured notes.
Other Income (Expense)
Other income (expense) consists of miscellaneous non-operating items, such as change in fair value of warrants, equity method income (loss), and foreign currency gains (losses).
Results of Operations
The following table sets forth our statements of operations for the periods indicated:
|
|
Three months ended June 30, |
Six months ended June 30, |
|||||||||||||
|
|
2023 |
|
|
2022 |
2023 |
2022 |
|||||||||
|
|
(in thousands) |
(in thousands) | |||||||||||||
Revenue |
|
$ |
800 |
|
|
$ |
1,421 |
$ | 1,630 | $ | 2,620 | |||||
Operating expense: |
|
|
|
|
|
|
|
|||||||||
Cost of goods sold (1) |
|
|
3,142 |
|
|
|
3,001 |
6,165 | 6,038 | |||||||
Research and development (1) |
|
|
4,994 |
|
|
|
4,170 |
9,572 | 8,158 | |||||||
Selling, general and administrative (1) |
|
|
6,516 |
|
|
|
10,382 |
12,570 | 19,722 | |||||||
Depreciation and amortization |
|
|
1,178 |
|
|
|
884 |
2,303 | 1,766 | |||||||
Total operating expenses |
|
|
15,830 |
|
|
|
18,437 |
30,610 | 35,684 | |||||||
Operating loss |
|
|
(15,030 |
) |
|
|
(17,016 |
) | (28,980 | ) | (33,064 | ) | ||||
Interest income (expense) |
|
|
(343 |
) |
|
|
109 |
126 | 109 | |||||||
Other income (expense) |
|
|
(249 |
) |
|
|
17,726 |
(3,130 | ) | 24,097 | ||||||
Income (loss) before income taxes |
|
|
(15,622 |
) |
|
|
819 |
(31,984 | ) | (8,858 | ) | |||||
Benefit (Provision) for income taxes |
|
|
(148 |
) |
|
|
8 |
(135 | ) | (26 | ) | |||||
Net income (loss) |
|
$ |
(15,770 |
) |
|
$ |
827 |
$ | (32,119 | ) | $ | (8,884 | ) |
(1) |
Cost of goods sold, research and development, and selling, general and administrative expense for the periods do not include depreciation and amortization, which is presented separately in the Condensed Consolidated Statements of Comprehensive Loss, but include stock-based compensation as follows: |
|
|
Three months ended June 30, |
Six months ended June 30, | |||||||||||||
|
|
2023 |
|
|
2022 |
2023 | 2022 | |||||||||
|
|
(in thousands) |
(in thousands) | |||||||||||||
Cost of goods sold |
|
$ |
606 |
|
|
$ |
539 |
$ | 1,144 | $ | 1,183 | |||||
Research and development |
|
|
1,758 |
|
|
|
1,506 |
3,358 | 3,300 | |||||||
Selling, general and administrative |
|
|
2,006 |
|
|
|
4,718 |
3,734 | 9,475 | |||||||
Total stock-based compensation expense |
|
$ |
4,370 |
|
|
$ |
6,763 |
$ | 8,236 | $ | 13,958 |
21 |
Comparison of the Three Months Ended June 30, 2023 and 2022
Revenue
|
|
Three months ended June 30, |
|
|
|
|
|
|
|
|||||||
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Revenue |
|
$ |
800 |
|
|
$ |
1,421 |
|
|
$ |
(621 |
) |
|
|
(43.7 |
)% |
Revenue decreased by $0.6 million, or 44%, to $0.8 million for the three months ended June 30, 2023 from $1.4 million for the three months ended June 30, 2022. The decrease was driven by a decreased in integration revenue from technology and services contracts with commercial customers. For the three months ended June 30, 2023 and 2022, one customer accounted for 89% and 83% of total revenue, respectively.
Operating Expense
Cost of Goods Sold (COGS)
|
|
Three months ended June 30, |
|
|
|
|
|
|
|
|||||||
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
(in thousands) |
|
|||||||||||||
COGS |
|
$ |
3,142 |
|
|
$ |
3,001 |
|
|
$ |
141 |
|
|
4.7 |
% |
COGS increased by $0.1 million, or 4.7%, to $3.1 million for the three months ended June 30, 2023 from $3.0 million for the three months ended June 30, 2022. The increase was primarily driven by increase in site rent expense due to deployment of new sites during the quarter.
Research and Development
|
|
Three months ended June 30, |
|
|
|
|
|
|
|
|||||||
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Research and development |
|
$ |
4,994 |
|
|
$ |
4,170 |
|
|
$ |
824 |
|
|
19.8 |
% |
Research and development expenses increased by $0.8 million, or 20%, to $5.0 million for the three months ended June 30, 2023 from $4.2 million for the three months ended June 30, 2022. The increase was driven by a $0.4 million increase in payroll-related expenses, and a $0.3 million increase in stock-based compensation, and a $0.1 million increase in operational and maintenance expenses.
22 |
Selling, General and Administrative
|
|
Three months ended June 30, |
|
|
|
|
|
|
|
|||||||
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Selling, general and administrative |
|
$ |
6,516 |
|
|
$ |
10,382 |
|
|
$ |
(3,866 |
) |
|
|
(37.2 |
)% |
Selling, general and administrative expenses decreased by $3.9 million, or 37%, to $6.5 million for the three months ended June 30, 2023 from $10.4 million for the three months ended June 30, 2022. The decrease was primarily driven by a $2.7 million decrease in stock-based compensation, a $0.4 million decrease in payroll-related expenses, a $0.3 million decrease in outside consulting expenses, $0.3 million decrease in professional services, marketing and recruiting cost, and a $0.2 million decrease in directors’ and officers’ insurance.
Depreciation and Amortization
|
|
Three months ended June 30, |
|
|
|
|
|
|
|
|||||||
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Depreciation and amortization |
|
$ |
1,178 |
|
|
$ |
884 |
|
|
$ |
294 |
|
|
33.3 |
% |
Depreciation and amortization expenses increased by $0.3 million, or 33%, to $1.2 million for the three months ended June 30, 2023 from $0.9 million for the three months ended June 30, 2022. The increase in depreciation and amortization expense is primarily attributable to placing the Pinnacle and TerraPoiNT network assets in service since the first quarter of 2022.
Interest Income (Expense)
|
|
Three months ended June 30, |
|
|
|
|
|
|
|
|||||||
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Interest income (expense) |
|
$ |
(343) |
|
|
$ |
109 |
|
$ |
(452 |
) |
|
|
(414.7) |
% |
Interest expense for the three months ended June 30, 2023 was $1.2 million where as interest income was $0.9 million resulting in net interest expense of $0.3 million for the three months ended June 30, 2023 compared with interest income of $0.1 million for the three months ended June 30, 2022.
Other Income (Expense)
|
|
Three months ended June 30, |
|
|
|
|
|
|
|
|||||||
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Other income (expense) |
|
$ |
(249) |
|
$ |
17,726 |
|
$ |
(17,975 |
) |
|
|
(101.4 |
)% |
Other expense was $0.2 million for the three months ended June 30, 2023 compared with other income of $17.7 million for the three months ended June 30, 2022. The change was primarily driven by the change in the fair value of warrants.
23 |
Comparison of the Six Months Ended June 30, 2023 and 2022
Revenue
|
|
Six months ended June 30, |
|
|
|
|
|
|
|
|||||||
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Revenue |
|
$ |
1,630 |
|
|
$ |
2,620 |
|
|
$ |
(990 |
) |
|
|
(37.8 |
)% |
Revenue decreased by $1.0 million, or 38%, to $1.6 million for the six months ended June 30, 2023 from $2.6 million for the six months ended June 30, 2022. The decrease was driven by decreased integration revenue from technology and services contracts with commercial customers. For the six months ended June 30, 2023, and 2022, one customer accounted for 87% and 90% of total revenue, respectively.
Operating Expense
Cost of Goods Sold (COGS)
|
|
Six months ended June 30, |
|
|
|
|
|
|
|
|||||||
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
(in thousands) |
|
|||||||||||||
COGS |
|
$ |
6,165 |
|
|
$ |
6,038 |
|
|
$ |
127 |
|
|
2.1 |
% |
COGS increased by $0.1 million, or 2%, to $6.2 million for the six months ended June 30, 2023 from $6.0 million for the six months ended June 30, 2022. The increase was primarily driven by increase in site rent expense due to deployment of new sites during the quarter.
Research and Development
|
|
Six months ended June 30, |
|
|
|
|
|
|
|
|||||||
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Research and development |
|
$ |
9,572 |
|
|
$ |
8,158 |
|
|
$ |
1,414 |
|
|
17.3 |
% |
Research and development expenses increased by $1.4 million, or 17%, to $9.6 million for the six months ended June 30, 2023 from $8.2 million for the six months ended June 30, 2022. The increase was primarily driven by a $0.9 million increase in payroll-related expenses, a $0.4 million increase in software license fee, and a $0.3 million increase in operational and maintenance cost. The increases were partially offset by a $0.2 million decrease in outside consulting expenses.
24 |
Selling, General and Administrative
|
|
Six months ended June 30, |
|
|
|
|
|
|
|
|||||||
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Selling, general and administrative |
|
$ |
12,570 |
|
|
$ |
19,722 |
|
|
$ |
(7,152 |
) |
|
|
(36.3 |
)% |
Selling, general and administrative expenses decreased by $7.2 million, or 36%, to $12.6 million for the six months ended June 30, 2023 from $19.7 million for the six months ended June 30, 2022. The decrease was primarily driven by a $5.7 million decrease in stock-based compensation, a $0.6 million decrease in directors’ and officers’ insurance, a $0.4 million in outstanding consulting expenses, a $0.3 million decrease in payroll-related expenses, and a $0.2 million decrease in marketing and recruiting cost.
Depreciation and Amortization
|
|
Six months ended June 30, |
|
|
|
|
|
|
|
|||||||
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Depreciation and amortization |
|
$ |
2,303 |
|
|
$ |
1,766 |
|
|
$ |
537 |
|
|
30.4 |
% |
Depreciation and amortization expenses increased by $0.5 million, or 30%, to $2.3 million for the six months ended June 30, 2023 from $1.8 million for the six months ended June 30, 2022. The increase in depreciation and amortization expense was primarily attributable to placing the Pinnacle and TerraPoiNT network assets in service since the first quarter of 2022.
Interest Income
|
|
Six months ended June 30, |
|
|
|
|
|
|
|
|||||||
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Interest income |
|
$ |
126 |
|
$ |
109 |
|
$ |
17 |
|
|
15.6 |
% |
Interest expense for the six months ended June 30, 2023 was $1.2 million where as interest income was $1.3 million resulting in net interest income of $126 thousand for the six months ended June 30, 2023 compared with interest income of $109 thousand for the six months ended June 30, 2022.
Other Income (Expense)
|
|
Six months ended June 30, |
|
|
|
|
|
|
|
|||||||
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Other income (expense) |
|
$ |
(3,130 |
) |
|
$ |
24,097 |
|
$ |
(27,227 |
) |
|
|
(113.0 |
)% |
Other income was $3.1 million for the six months ended June 30, 2023 compared with other expenses of $24.1 million for the six months ended June 30, 2022. The change in other income was primarily driven by the change in the fair value of warrants.
25 |
Liquidity and Capital Resources
We have incurred losses since our inception and to date have generated only limited revenue. We have primarily relied upon debt and equity financings to fund our cash requirements. During the six months ended June 30, 2023 and 2022, we incurred net losses of $32.1 million and $8.9 million, respectively. During the six months ended June 30, 2023, our net cash used in operating activities and investing activities was $15.9 million and $26.7 million, respectively. During the six months ended June 30, 2022, our net cash used in operating activities and investing activities was $16.8 million and $0.8 million, respectively. As of June 30, 2023, we had cash and cash equivalents and marketable securities of $85.0 million and an accumulated deficit of $720.6 million. We expect to incur additional losses and higher operating expenses for the foreseeable future. Our primary use of cash is to fund our operations as we continue to grow our business. We will require a significant amount of cash for expenditures as we invest in ongoing research and development and the expansion of the TerraPoiNT network.
Managing liquidity and our cash position is a priority of the Company. We continually work to optimize our expenses in light of the growth of our business, and adapt to changes in the economic environment. We believe that our cash and cash equivalents and marketable securities as of June 30, 2023 will be sufficient to meet our working capital and capital expenditure needs, including all contractual commitments, for the next 12 months. We believe we will meet longer term expected future cash requirements and obligations through a combination of our existing cash and cash equivalents balances and marketable securities, cash flows from operations, and issuance of equity securities or debt offerings. However, this determination is based upon internal projections and is subject to changes in market and business conditions.
On May 9, 2023, pursuant to the terms of the NPA and Indenture, the Company issued $50.0 million senior secured notes with a fixed interest rate of 10% to the Lenders. The Notes will mature on December 1, 2026 with interest payable semi-annually in arrears on June 1 and December 1 of each year. The Company may elect, in its sole discretion, to pay up to 50% of the accrued and unpaid interest on the Notes due with its common stock. Under the NPA, on June 8, 2023, the Lenders exercised the right to purchase additional Notes, on a pro rata basis, in an aggregate principal amount of $20.0 million. The additional Notes were issued on July 6, 2023. The terms and conditions of the additional Notes are the same as the original Notes.
Cash Flows
The following table summarizes our cash flows for the period indicated:
|
|
Six Months Ended June 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
|
(in thousands) |
|
|||||
Net cash (used in) operating activities |
|
$ |
(15,919 |
) |
|
$ |
(16,774 |
) |
Net cash (used in) investing activities |
|
|
(26,659 |
) |
|
|
(785 |
) |
Net cash provided by financing activities |
|
|
48,146 |
|
|
47 |
|
26 |
Cash Flows from Operating Activities
Our cash flows used in operating activities are significantly affected by the growth of our business and are primarily related to research and development, sales and marketing, and selling, general and administrative activities. Our operating cash flows are also affected by our working capital needs to support growth in personnel-related expenditures and fluctuations in accounts payable and other current assets and liabilities.
Net cash used in operating activities during the six months ended June 30, 2023 was $15.9 million, resulting primarily from a net loss of $32.1 million adjusted for non-cash charges of $8.2 million for stock-based compensation, non-cash expense of $3.1 million for change in the fair value of warrant liability, $2.3 million for depreciation and amortization, $0.5 million for amortization of debt discount, $(0.2) million realized and unrealized gain on marketable securities, and $0.1 million for equity method investment loss. Additionally, there was a net increase in operating liabilities of $2.2 million.
Net cash used in operating activities during the six months ended June 30, 2022 was $16.8 million, resulting primarily from a net loss of $8.9 million adjusted for non-cash charges of $14.0 million for stock-based compensation, $1.8 million for depreciation and amortization, and non-cash income of $24.2 million for change in the fair value of warrant liability. Additionally, there was a net increase in operating assets and liabilities of $0.5 million.
Cash Flows from Investing Activities
Net cash used by investing activities during the six months ended June 30, 2023 was $26.7 million, representing purchase of marketable securities net of proceeds from the sale and maturity of short term investments, and cash used for property and equipment primarily related to the deployment of the Pinnacle and TerraPoiNT network and internal use software.
Net cash used in investing activities during the six months ended June 30, 2022 was $0.8 million, representing additions to property, equipment and related installation costs primarily related to the deployment of the Pinnacle Network.
Cash Flows from Financing Activities
Net cash provided by financing activities during the six months ended June 30, 2023 was $48.1 million, primarily reflecting cash proceeds from issuance of senior secured notes net of debt issuance cost.
Net cash provided by financing activities during the six months ended June 30, 2022 was $47,000 primarily reflecting cash proceeds from exercise of common stock options.
Critical Accounting Policies and Significant Management Estimates
For a discussion of our critical accounting policies and estimates, please refer to Item 7 under Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2022 Form 10-K. There have been no material changes to the critical accounting policies and estimates as of June 30, 2023 as outlined in our 2022 Form 10-K, filed with the SEC on March 30, 2023.
Recently Issued and Adopted Accounting Standards
For information regarding new accounting pronouncements, and the impact of these pronouncements on our condensed consolidated financial statements, refer to Note 2 to our condensed consolidated financial statements for the three and six months ended June 30, 2023 included elsewhere in this Quarterly Report on Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in our market risks from those disclosed in Part II, Item 7A of the 2022 Form 10-K.
Item 4. Controls And Procedures
Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2023. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective as of June 30, 2023.
Changes in Internal Control over Financial Reporting
As a result of the acquisition of Nestwave, we have incorporated internal controls over significant processes specific to the acquisition that we believe to be appropriate and necessary in consideration of the level of related integration. As the post-closing integration continues, we will continue to review such internal controls and processes and may take further steps to integrate such controls and processes with those of the Company.
There were no changes in our internal control over financial reporting during the fiscal quarter ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
In the course of our business, we are involved in litigation and legal matters from time to time. Such matters are subject to many uncertainties and outcomes are not predictable with assurance. We accrue liabilities for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. We do not believe that any such matters, individually or in the aggregate, will have a material adverse effect on our business, financial condition, results of operations, or cash flows.
You should carefully consider all of the information included in this Quarterly Report on Form 10-Q before you decide whether to invest in our securities. Our business is subject to risks and events that, if they occur, could adversely affect our financial condition and results of operations and the trading price of our securities. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors described in Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022 filed with SEC on March 30, 2023, and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, as well as those otherwise described or updated from time to time in our other filings with the SEC. You should consult your own financial and legal advisors as to the risks entailed by an investment in our securities and the suitability of investing in our securities in light of your particular circumstances.
29 |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) Unregistered Sales of Equity Securities
None.
(b) Use of Proceeds from Sale of Registered Equity Securities
None.
(c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report.
|
* |
Filed previously. |
|
** |
Furnished herewith. |
+ | Certain schedules and exhibits have been omitted pursuant to Rule 601(a)(5) of Regulation S-K under the Securities Act. A copy of any omitted schedule or exhibit will be furnished to the SEC upon request. |
31 |
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
NEXTNAV INC. |
|
|
|
|
Date: August 9, 2023 |
By: |
/s/ Christian D. Gates |
|
Name: |
Christian D. Gates |
|
Title: |
Chief Financial Officer and Principal Financial Officer |
|
|
|
Date: August 9, 2023 |
By: |
/s/ Sammaad R. Shams |
|
Name: |
Sammaad R. Shams |
|
Title: |
Corporate Accounting Officer and |
32 |