NextNav(NN) - 2022 Q2 - Quarterly Report

Cautionary Note Regarding Forward-Looking Statements This section provides a cautionary note on forward-looking statements, highlighting their inherent risks and the company's policy on updates Forward-Looking Statements Disclosure This section outlines forward-looking statements, their inherent risks, and the company's policy on updates - Forward-looking statements are based on current information, expectations, forecasts, and assumptions, involving judgments, risks, and uncertainties[10] - The company does not undertake to update or revise any forward-looking statements unless required by applicable securities laws[10] - Readers should review 'Risk Factors' in this 10-Q and the Annual Report on Form 10-K for factors that could cause actual results to differ materially[11] Part I. Financial Information This part presents NextNav Inc.'s unaudited condensed consolidated financial statements, management's discussion, and market risk disclosures Item 1. Financial Statements This section presents NextNav Inc.'s unaudited condensed consolidated financial statements for Q2 2022, including core statements and notes Condensed Consolidated Balance Sheets This section details the company's financial position, including assets, liabilities, and equity at specific dates Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2022 (in thousands) | December 31, 2021 (in thousands) | | :----------------------------------- | :----------------------------- | :------------------------------- | | Cash and cash equivalents | $82,522 | $100,076 | | Total current assets | $85,524 | $106,332 | | Total assets | $123,949 | $136,823 | | Total current liabilities | $7,671 | $6,680 | | Warrants | $4,725 | $28,875 | | Total liabilities | $19,408 | $36,866 | | Total stockholders' equity | $104,541 | $99,957 | - Cash and cash equivalents decreased by $17.55 million from December 31, 2021, to June 30, 2022[14] - Total liabilities decreased significantly by $17.458 million, primarily due to a $24.15 million decrease in warrant liability[14][73] Condensed Consolidated Statements of Comprehensive Loss This section presents the company's revenues, expenses, and net income or loss over specific reporting periods Condensed Consolidated Statements of Comprehensive Loss (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $1,421 | $216 | $2,620 | $467 | | Total operating expenses | $18,437 | $8,853 | $35,684 | $21,714 | | Operating loss | $(17,016) | $(8,637) | $(33,064) | $(21,247) | | Change in fair value of warrants | $17,763 | $(27,182) | $24,150 | $(38,841) | | Net income (loss) | $827 | $(38,975) | $(8,884) | $(66,043) | | Basic EPS | $0.01 | $(6.07) | $(0.09) | $(10.87) | - Revenue for the three months ended June 30, 2022, increased by 557.9% to $1.421 million from $0.216 million in the prior year period[17][107] - The company reported a net income of $0.827 million for the three months ended June 30, 2022, a significant improvement from a net loss of $38.975 million in the same period last year, primarily due to a positive change in the fair value of warrants[17][114] Condensed Consolidated Statements of Changes in Stockholders' Equity This section details changes in the company's equity, including stock issuance, compensation, and retained earnings adjustments - Total stockholders' equity increased from $99.957 million at December 31, 2021, to $104.541 million at June 30, 2022[14] - Stock-based compensation expense for the six months ended June 30, 2022, was $13.958 million, a substantial increase from $0.688 million in the prior year period[20][40] - The Business Combination on October 28, 2021, resulted in the conversion of all outstanding Class C and Class D Redeemable Preferred Units into common stock[82] Condensed Consolidated Statements of Cash Flows This section outlines the company's cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(16,774) | $(21,659) | | Net cash used in investing activities | $(785) | $(918) | | Net cash provided by financing activities | $47 | $16,647 | | Net decrease in cash, cash equivalents and restricted cash | $(17,554) | $(5,930) | | Cash, cash equivalents and restricted cash at end of period | $82,522 | $7,739 | - Net cash used in operating activities decreased by $4.885 million, from $21.659 million in H1 2021 to $16.774 million in H1 2022[22][129] - Net cash provided by financing activities significantly decreased from $16.647 million in H1 2021 (primarily from senior secured loan) to $47 thousand in H1 2022 (primarily from stock option exercises)[22][136] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements 1. Organization and Business; Business Combination - NextNav Inc. delivers next-generation positioning, navigation, and timing (PNT) solutions through its Pinnacle system (floor-level altitude) and TerraPoiNT system (terrestrial-based, encrypted PNT signal on 900 MHz spectrum)[24] - The company consummated a business combination on October 28, 2021, with Spartacus Acquisition Corporation, which was accounted for as a reverse recapitalization with Holdings as the accounting acquirer[26][27] 2. Summary of Significant Accounting Policies - The unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP and SEC instructions for interim financial information[31] Revenue Disaggregation (in thousands) | Category | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Commercial | $1,302 | $205 | $2,482 | $205 | | Government contracts | $7 | $5 | $17 | $256 | | Equipment sales | $112 | $6 | $121 | $6 | | Total revenue | $1,421 | $216 | $2,620 | $467 | Stock-Based Compensation Expense (in thousands) | Expense Category | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cost of goods sold | $539 | $54 | $1,183 | $54 | | Research and development | $1,506 | $128 | $3,300 | $272 | | Selling, general and administrative | $4,718 | $143 | $9,475 | $362 | | Total stock-based compensation expense | $6,763 | $325 | $13,958 | $688 | - The company adopted ASU 2016-02 (Leases) on January 1, 2022, recognizing operating lease right-of-use assets and liabilities of $13.4 million and $10.5 million, respectively, with a cumulative effect adjustment to retained earnings of $0.5 million[53] 3. Accrued Expenses and Other Current Liabilities Accrued Expenses and Other Current Liabilities (in thousands) | Category | June 30, 2022 | December 31, 2021 | | :-------------------------------- | :------------ | :---------------- | | Accrued salary and other employee liabilities | $2,086 | $2,423 | | Accrued legal and professional services | $283 | $1,540 | | Other accrued liabilities | $1,885 | $637 | | Total | $4,254 | $4,600 | - Accrued legal and professional services decreased significantly from $1.54 million to $0.283 million, while other accrued liabilities increased from $0.637 million to $1.885 million[56] 4. Leases Operating Lease Expense (in thousands) | Lease Cost (in thousands) | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 | | :------------------------ | :------------------------------- | :----------------------------- | | Operating lease cost | $945 | $2,052 | | Variable lease cost | $25 | $51 | | Short-term lease cost | $57 | $114 | - As of June 30, 2022, the weighted average remaining lease term for operating leases was 4.0 years, with a weighted average discount rate of 4.5%[59] - Future undiscounted lease payments total $9.7 million, with $1.737 million due in the remainder of 2022[60] 5. Warrants and Warrant Liability - As of June 30, 2022, NextNav had 18,749,990 warrants outstanding, comprising 9,999,990 Public Warrants and 8,750,000 Private Placement Warrants, each exercisable at $11.50 per share[62][63] - AT&T exercised its warrant on May 23, 2022, using a net settlement method, receiving 4,308,297 shares of common stock[67] 6. Fair Value Fair Value Hierarchy for Financial Assets and Liabilities (in thousands) | Item | Level 1 | Level 2 | Level 3 | Total | | :-------------------------------------- | :------ | :-------- | :-------- | :-------- | | June 30, 2022 | | | | | | Cash and Cash Equivalents - Money Market Funds | $9,930 | — | — | $9,930 | | Cash and Cash Equivalents - U.S. Government Agency Bonds | — | $65,125 | — | $65,125 | | Warrants | — | — | $4,725 | $4,725 | | December 31, 2021 | | | | | | Warrants | — | — | $28,875 | $28,875 | - The fair value of warrants (Level 3 liability) decreased from $28.875 million at December 31, 2021, to $4.725 million at June 30, 2022, primarily due to a fair value adjustment of $(24.150) million[69][73] Monte Carlo Simulation Assumptions for Warrants | Assumption | June 30, 2022 Values | December 31, 2021 Values | | :------------------ | :------------------- | :----------------------- | | Stock Price | $2.27 | $8.76 | | Strike price | $11.50 | $11.50 | | Holding Period/Term (years) | 4.33 | 4.80 | | Volatility | 72.00% | 52.90% | | Risk-Free Rate | 3.00% | 1.23% | | Fair value of warrants | $0.54 | $3.30 | 7. Common Stock and Convertible Preferred Units - As of June 30, 2022, NextNav had 101,386,973 shares of common stock issued and 101,386,800 shares outstanding[75] - All outstanding Class C and Class D Redeemable Preferred Units of Holdings converted into 5,365,566 and 42,286,068 shares of NextNav common stock, respectively, in connection with the Business Combination on October 28, 2021[82] 8. Commitments and Contingencies - On June 3, 2022, the Company entered into a Stock Investment Agreement to purchase 333,334 shares of MetCom Inc.'s Class B2 Preferred Stock for approximately $1.1 million, which closed on July 15, 2022[83] - As of June 30, 2022, the Company was not involved in any legal matters that management believes would have a material adverse effect on its business, financial condition, results of operations, or cash flows[84] 9. Income Taxes - A valuation allowance has been established against the Company's U.S. federal and state deferred tax assets, resulting in an annualized effective tax rate of 0% for U.S. operations[85] - For the three months ended June 30, 2022, the effective tax rate was 0.98% on a pretax income of $0.8 million, and for the six months, it was 0.29% on a pretax loss of $8.9 million, both primarily due to foreign tax activity[85] 10. Subsequent Events - Other than the MetCom share purchase disclosed in Note 8, no subsequent events requiring disclosure occurred through the date of this Quarterly Report on Form 10-Q[86] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on NextNav's financial condition and operational results for Q2 2022, including business overview, performance, and liquidity Overview - NextNav is a market leader in next-generation positioning, navigation, and timing (PNT) solutions, addressing limitations of GPS for applications like public safety, autonomous vehicles, and the app economy[89] - The Pinnacle network provides 'floor-level' altitude detection to over 90% of commercial structures over three stories in the U.S. and is used by FirstNet® for public safety and various commercial apps[90] - The TerraPoiNT system, deployed in San Francisco and 51 other markets, broadcasts an encrypted PNT signal on licensed 900 MHz spectrum, offering GPS redundancy and improved performance in urban/indoor environments[91][92] Public Company Costs - As a public company, NextNav expects to incur additional annual expenses for directors' and officers' liability insurance, director fees, and increased internal/external accounting, legal, and administrative resources[96] Key Components of Results of Operations - Revenue is derived from 'floor-level' altitude location data, PNT products/services, wireless carrier contracts, application developers, government contracts, equipment sales, and technology licensing[97] - Operating expenses include Cost of Goods Sold (personnel, site leases, equipment maintenance), Research and Development (personnel, software/hardware development, cloud hosting), Selling, General and Administrative (personnel, professional services, D&O insurance, marketing), and Depreciation and Amortization[98][99][100][103] - Interest income/expense relates to cash and cash equivalents balances and the senior secured loan facility (fully repaid in Q4 2021)[104] Results of Operations Consolidated Statements of Operations (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $1,421 | $216 | $2,620 | $467 | | Total operating expenses | $18,437 | $8,853 | $35,684 | $21,714 | | Operating loss | $(17,016) | $(8,637) | $(33,064) | $(21,247) | | Interest income (expense) | $109 | $(3,077) | $109 | $(5,858) | | Other income (expense) | $17,726 | $(27,248) | $24,097 | $(38,910) | | Net profit (loss) | $827 | $(38,975) | $(8,884) | $(66,043) | Comparison of the Three Months Ended June 30, 2022 and 2021 - Revenue increased by $1.2 million (558%) to $1.4 million, driven by commercial technology and services contracts[107] - Total operating expenses increased by $9.584 million (108%) to $18.437 million, primarily due to increases in stock-based compensation across COGS, R&D, and SG&A[106][108][109][111] - Interest income improved by $3.186 million, shifting from an expense of $3.1 million to income of $0.1 million, due to debt repayment[113] - Other income (expense) saw a positive swing of $44.974 million, moving from an expense of $27.2 million to income of $17.7 million, mainly due to changes in the fair value of warrants[114] Comparison of the Six Months Ended June 30, 2022 and 2021 - Revenue increased by $2.2 million (461%) to $2.6 million, primarily from commercial technology and services contracts[116] - COGS decreased by $3.6 million (37%) to $6.0 million, mainly due to a $5.3 million decrease in contingent rent expense related to warrants, partially offset by increased stock-based compensation[117] - R&D expenses increased by $3.2 million (66%) to $8.2 million, driven by a $3.0 million increase in stock-based compensation and higher payroll[118] - SG&A expenses increased by $13.2 million (202%) to $19.7 million, largely due to a $9.1 million increase in stock-based compensation, higher D&O insurance, and payroll[120] - Interest income improved by $5.967 million, shifting from an expense of $5.9 million to income of $0.1 million, due to debt repayment[122] - Other income (expense) saw a positive swing of $63.007 million, moving from an expense of $38.9 million to income of $24.1 million, primarily due to changes in the fair value of warrants[123] Liquidity and Capital Resources - NextNav has incurred recurring losses and negative cash flows, historically relying on debt and equity financings[25][125] - All outstanding debt under the senior secured loan facility was repaid and terminated in connection with the Business Combination in Q4 2021[126] - As of June 30, 2022, the company had $82.5 million in cash and cash equivalents and an accumulated deficit of $657.3 million[127] - Management believes current cash and cash equivalents will be sufficient for working capital and capital expenditure needs for the next 12 months, with longer-term needs met through existing balances, operations, or future equity/debt offerings[127] Pandemic Impact - The full impact of the COVID-19 pandemic remains uncertain, affecting duration, economic recovery, supply chain disruptions, and labor availability/costs[128] - Management actively monitors financial condition, liquidity, operations, and workforce, expecting these factors to continue affecting operations through the remainder of 2022[128] Cash Flows Summary of Cash Flows (in thousands) | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash (used in) operating activities | $(16,774) | $(21,659) | | Net cash (used in) investing activities | $(785) | $(918) | | Net cash provided by financing activities | $47 | $16,647 | Cash Flows from Operating Activities - Net cash used in operating activities was $16.8 million for H1 2022, primarily from a net loss of $8.9 million, adjusted for non-cash charges like $14.0 million in stock-based compensation and non-cash income of $24.2 million from warrant fair value changes[132] - Net cash used in operating activities was $21.7 million for H1 2021, primarily from a net loss of $66.0 million, adjusted for non-cash charges like $38.8 million from warrant fair value changes and $5.5 million for contingent rent expense[133] Cash Flows from Investing Activities - Net cash used in investing activities was $0.8 million for H1 2022, mainly for network asset deployment and internal use software[134] - Net cash used in investing activities was $0.9 million for H1 2021, primarily for Pinnacle Network deployment[135] Cash Flows from Financing Activities - Net cash provided by financing activities was $47 thousand for H1 2022, mainly from stock option exercises[136] - Net cash provided by financing activities was $16.6 million for H1 2021, primarily from borrowing under the Fortress Facility[136] Critical Accounting Policies and Significant Management Estimates - There have been no material changes to the critical accounting policies and estimates as of June 30, 2022, compared to those outlined in the 2021 Form 10-K[137] Recently Issued and Adopted Accounting Standards - Information regarding new accounting pronouncements and their impact is detailed in Note 2 to the condensed consolidated financial statements[138] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there have been no material changes in the company's market risks since the disclosures in its 2021 Annual Report on Form 10-K - No material changes in market risks have occurred since those disclosed in Part II, Item 7A of the 2021 Form 10-K[140] Item 4. Controls and Procedures This section details the company's disclosure controls and procedures, confirming their effectiveness as of June 30, 2022, and notes that disclosure related to changes in internal control over financial reporting is ongoing for newly public companies Disclosure Controls and Procedures - The CEO and CFO evaluated the effectiveness of disclosure controls and procedures as of June 30, 2022, concluding they were effective[142] Changes in Internal Control over Financial Reporting - This Quarterly Report does not include disclosure related to changes in internal control over financial reporting, as the design and ongoing development of the framework is ongoing for newly public companies[143] Part II. Other Information Item 1. Legal Proceedings This section confirms the company's involvement in legal matters, none of which are expected to have a material adverse effect - The company does not believe any current legal matters, individually or in aggregate, will have a material adverse effect on its business, financial condition, results of operations, or cash flows[145] Item 1A. Risk Factors This section highlights key risks for NextNav, including intense competition, E911 adoption challenges, and geopolitical impacts - NextNav faces intense competition, especially from competitors offering free location services, which could hinder customer acquisition and retention[147] - The market for E911 services may be reduced if the FCC accepts statements that competitor solutions meet requirements, impacting NextNav's ability to sell its Pinnacle service to additional wireless carriers[147][148] - The company's ability to offer E911 services is dependent on wireless device manufacturers like Apple and Google incorporating its software, with no assurance of approval or adoption[149] - Military action in Ukraine and resulting geopolitical effects may increase risks related to supply chain, cybersecurity, foreign currency fluctuations, and other factors, potentially impacting the global economy and NextNav's operations[151] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports that there were no unregistered sales of equity securities or use of proceeds from registered equity securities during the reporting period - There were no unregistered sales of equity securities during the period[152] - There was no use of proceeds from the sale of registered equity securities during the period[153] Item 3. Defaults Upon Senior Securities This section indicates that there were no defaults upon senior securities during the reporting period - No defaults upon senior securities occurred during the reporting period[155] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable to NextNav Inc[156] Item 5. Other Information This section indicates that there is no other information to report - No other information is reported in this section[157] Item 6. Exhibits This section lists exhibits filed with the Quarterly Report on Form 10-Q, including organizational documents, certifications, and XBRL data - The exhibits include the Amended and Restated Certificate of Incorporation, Bylaws, CEO and CFO certifications (pursuant to Exchange Act Rule 13a-14(a) and 18 U.S.C. Section 1350), and Inline XBRL documents[160] Signatures Report Signatures This section contains the official signatures certifying the accuracy and completeness of the Quarterly Report on Form 10-Q - The report is signed by Christian D. Gates, Chief Financial Officer and Principal Financial Officer, and Sammaad R. Shams, Corporate Accounting Officer and Principal Accounting Officer, on August 10, 2022[166]