AST SpaceMobile Moves to Beta Testing
Taking a Look AST SpaceMobile's (ASTS) Financial Results.
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AST SpaceMobile Reports Wider-Than-Expected Q3 Loss Amid Significant Operational Milestones
AST SpaceMobile (ASTS) announced their Q3 2024 financial results last week. The company reported a net loss of $1.10 per share for Q3 2024, which significantly exceeded analysts' projections of a loss between $0.20 and $0.23 per share. The company's revenue came in at $1.1M, slightly above the expected $1M (I’ll go into this more below). Total operating expenses for the quarter were $66.6M, which included depreciation, amortization, and stock-based compensation expenses. Adjusted operating expenses stood at $45.3M, reflecting increased investment in R&D.
As of September 30, 2024, ASTS held just over $518M in cash, cash equivalents, and restricted cash. The company has also incurred approximately $374M in gross capitalized property and equipment costs, with accumulated depreciation and amortization of $113.9M.
Operational Highlights
CEO Abel Avellan emphasized the company's significant progress during the quarter. The first five BlueBird satellites were successfully launched, unfolded, and have entered initial operations as they called “Beta Testing” / “Limited Service”. The company is preparing these satellites for operational readiness and is integrating them with partner networks, including AT&T and Verizon. ASTS has filed a Special Temporary Authority request with the Federal Communications Commission to commence beta services with these major telecom partners.
Business Update
The company secured orbital launch capacity to enable continuous space-based cellular broadband service coverage in key markets such as the United States, Europe, Japan, and for U.S. government applications. The company entered into launch service agreements with Blue Origin and existing launch providers for missions scheduled in 2025 and 2026. These agreements will facilitate the deployment of up to approximately 60 Block 2 BlueBird satellites.
Moreover, the company achieved initial validation of its AST5000 ASIC chip, which is expected to support a capacity of up to 40MHz and enable peak data transmission speeds up to 120 Mbps. This enhances support for voice, data, and video applications directly to smartphones.
ASTS also expanded its customer ecosystem by adding three new contract awards with the U.S. government and was selected by the Space Development Agency to compete as a prime contractor under the Hybrid Application for Proliferated Low Earth Orbit (HALO) program.
Funding and Future Plans
The ambitious expansion plan requires substantial capital investment. I think all reasonable bulls have assumed this (I think). With the cost of building and launching each satellite estimated at up to around $20M, deploying 60 BlueBird satellites could put this price tag up to around $1B. While the company has over $518M in cash reserves, there remains a funding gap that ASTS aims to bridge through various means.
The company is exploring non-dilutive financing options, including commercial prepayments and commitments from mobile network operator partners. It has also filed a formal application with the Export-Import Bank of the United States for debt financing. Additionally, ASTS benefited from a warrant redemption and an at-the-market (ATM) program, receiving $153.3M in net proceeds. The company repaid $48.5M of its Senior Secured Credit Facility, which will reduce future interest expenses.
However, which I’ll highlight below, investors should remain cautious about potential dilution if the company opts to raise additional capital through equity offerings. They do have a history of using dilution as a means to fund parts of their business. Personally, I think the stock's recent decline reflects these concerns (along with full commercialization timeline), as well as broader market volatility influenced by macroeconomic factors, such as the Federal Reserve's stance on interest rates.
Future Outlook
While the larger-than-expected loss raises concerns, it is a reasonable outcome given the high operating costs in this industry and the continuous investment in R&D. These investments are essential for achieving the company's long-term goal of providing global, space-based cellular connectivity.
The successful deployment and operation of the initial BlueBird satellites, coupled with strategic partnerships and government contracts, does demonstrate significant progress. The company's technology has the potential to disrupt the telecommunications industry by extending connectivity to underserved regions and enhancing network resilience.
My Take
My stance on this quarter is neutral. We have to remember this is still a pre-revenue company, they have yet to generate a single dollar from their primary business, but they are getting there closer and closer. I believe ASTS is becoming increasingly less speculative as they approach full commercialization. However, we need to be realistic about their timeline, liquidity position—including the potential for dilution—and competition. Let me start by discussing the revenue component of ASTS, then I'll highlight the concerns regarding liquidity and competition. For the revenue, the company reported $1.1M in revenue for the quarter, which originated from performance obligations completed under a U.S. Government contract with a prime contractor. Specifically:
This revenue did not stem from the company's primary business of providing space-based cellular broadband services, which is still in the development phase.
The revenue reflects completed services provided under this government contract, showcasing the company's ability to monetize its technology in dual-use applications for both commercial and governmental purposes.
Additionally, if you browse their SEC filing, they have another $22.5M in contract liabilities, representing advance payments for future obligations related to their SpaceMobile Service and associated equipment and services.
Now, as mentioned above the company is in Beta Testing and/or Limited Service. They plan to use its five first-generation Block 1 BB satellites to initiate a limited, noncontinuous SpaceMobile Service in targeted geographical areas, including the United States. However, this is contingent upon obtaining necessary regulatory approvals and finalizing commercial agreements with Mobile Network Operators (MNOs) such as AT&T and Verizon.
Next Steps for Full Commercialization: The launch of 25 satellites (5 Block 1 BB and 20 Block 2 BB satellites) is anticipated to enable service in the most commercially attractive regions. The company estimates substantial coverage across its targeted areas will require approximately 95 satellites.
Target Timeline: ASTS expects to deploy the first Block 2 BB satellite to a launch provider by March or April 2025. A broader launch campaign for up to 60 Block 2 BB satellites is planned for 2025/2026.
As for their liquidity, understanding ASTS’s cash burn is essential as the company moves closer to deploying its network. The cash burn can be evaluated by examining both operating expenses and capital expenditures. For Q3 2024, the company reported total cash used in operations at $97M. A significant portion of this expenditure was allocated to R&D efforts, including the continued development and testing of the AST5000 ASIC chip and integration work with the five Block 1 BlueBird satellites. Preparations for the deployment of Block 2 satellites also contributed substantially to these costs. R&D expenses increased by $10.3M compared to Q2 2024.
Then the general and administrative (G&A) costs accounted for another significant segment of the cash burn, increasing by $1.2M QoQ. These expenses supported management, administrative operations, and compliance efforts necessary to scale the business and navigate regulatory requirements. Engineering services costs also played a critical role, covering satellite design, manufacturing, and assembly to ensure the performance and integration of the satellites with partner networks. Additional costs were incurred for satellite deployment and testing, including the successful launch and operational readiness of the five Block 1 BlueBird satellites. This process involved integration with AT&T and Verizon’s networks and filing for beta service permissions with the FCC. Furthermore, the company recognized non-cash depreciation and amortization expenses related to its satellite assets, lab equipment, and integration facilities, which impacted the overall cash flow.
Like I said above, they also reported $22.5M in contract liabilities from advance payments received for future performance obligations. While these payments will some financial cushion, fulfilling these obligations require(d) significant upfront operational investments.
The success of ASTS ultimately depends on their ability to execute their plans within the projected timeline. While there is some margin for error, it is currently quite limited. In the future, they will need to raise additional funding to support their expansion plans. Although they may generate revenue from operations, it likely won't be sufficient to fully fund all activities. In the past, ASTS has actively secured additional funding through various means, including public warrant exercises and ATM offerings. However, they have also resorted to issuing more shares, leading to dilution. While it wouldn't be surprising if they took this route again, management has expressed a desire to avoid further dilution and aims to minimize this risk by securing funding through other means.
One key approach is leveraging strategic investments and partnerships with industry leaders such as AT&T, Google, and Vodafone (worked well!). These collaborations not only provide capital but also strengthen the company’s technological and market positioning. Additionally, the company is engaging with mobile network operators to secure prepayments for future services. This method offers immediate funding without issuing additional equity, thereby avoiding dilution. The company is also exploring “quasi-governmental” funding opportunities, which can provide non-dilutive capital to support growth plans/operations.
Lastly, there has been growing discussion about rising competition from Starlink and Elon Musk, which is a valid concern but may be somewhat misconstrued. The good news is that ASTS holds over 1,000 patents protecting its technology for direct-to-cell communications. As far as we know, Starlink does not currently have the capability to perform direct-to-cell communication without potentially infringing on ASTS's patented technology, though it's possible they are developing it under R&D. Starlink's communication model currently involves satellite-to-ground stations, which then connect to cell networks—this is not direct-to-cell. Therefore, ASTS is leading this race by a wide margin at the moment.
On the downside, concerns arise due to Elon Musk's significant influence and resources. While it's speculative, some believe that political connections could benefit Musk in terms of favorable treatment from regulatory bodies like the FCC. Additionally, Musk's companies have substantial capital and a vertically integrated approach to the space economy. This means that if they were to compete directly with ASTS, they could allocate significant funds to new technology and rapidly deploy it globally with less friction.
Personally, the risks posed by Starlink don't concern me; my main worry is ASTS's liquidity position. If the company can execute consistently from here on out, investors should be okay, but don't be surprised if more dilution occurs. I'm still holding my modest 100 shares at a cost basis of $4.22, and I believe there's significant appreciation potential once they achieve full commercialization and their business model proves successful. If that happens, this could become a low to mid-level $XX billion-dollar company. As I've said many times before, I won't add to my position until I see success with their SpaceMobile service. Once it's fully operational and we see the numbers, I'll start to consolidate my position.