NextNav(NN) - 2023 Q4 - Annual Report

PART I Business NextNav is a market leader in next-generation Positioning, Navigation, and Timing (PNT) solutions, designed to complement and overcome the vulnerabilities of GPS - NextNav provides next-generation PNT solutions, Pinnacle and TerraPoiNT, as a resilient alternative to GPS, utilizing its licensed 900 MHz spectrum[22] - The company is evolving its technology to align with 5G NR standards, which will enable the simultaneous delivery of PNT and high-bandwidth data services, potentially increasing the value and utility of its spectrum assets[22][31] - Pinnacle, the company's altitude service, covers over 90% of commercial structures taller than three stories in the U.S. and is used by major carriers like AT&T (for FirstNet) and Verizon for E911 services[25] - TerraPoiNT, a terrestrial-based 3D PNT system, is designed to be more robust than GPS, offering reliable service indoors and in urban areas, with high resistance to jamming and spoofing. It received the highest scores in U.S. Department of Transportation testing for GPS backup solutions[26] - As of December 31, 2023, the company holds approximately 186 issued patents globally (121 in the US) and has 94 pending patent applications (43 in the US)[64] Risk Factors The company faces significant risks from substantial net losses, reliance on third parties, intense competition, regulatory dependencies, and potential dilution from future capital needs - The company has a history of significant net losses, reporting $71.7 million in 2023 and $40.1 million in 2022, and expects to incur future losses, potentially requiring additional capital[84] - Business operations are heavily reliant on third parties, including a network hosting agreement with AT&T for the Pinnacle network, which expires in 2026, and the use of Amazon Web Services (AWS) for its cloud platform[103][110] - The company's services depend on access to radio spectrum licensed by the FCC. These licenses are subject to renewal, end-of-term build-out requirements, and potential interference from other services sharing the same frequency band[138][140][142] - As of December 31, 2023, executive officers, directors, and 5%+ stockholders beneficially owned approximately 56% of the outstanding common stock, allowing them to exert significant control over corporate matters[173] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - Not applicable[181] Cybersecurity NextNav maintains a comprehensive cybersecurity program, overseen by the CISO and Audit Committee, with no material incidents reported in the last year - The company's cybersecurity program is based on the NIST Cybersecurity Framework and includes continuous threat monitoring, periodic audits, and employee training[183] - Oversight is provided by the Chief Information Security Officer (CISO) at the management level and the Audit Committee at the board level, with the CISO providing quarterly reports to the committee[187][189] - The company is not aware of any cybersecurity risks that have materially affected or are reasonably likely to materially affect its business, and it experienced no material cybersecurity incidents in the last year[190][192] Properties The company operates with a distributed workforce, maintaining its principal executive office in McLean, Virginia, alongside other key global facilities - NextNav's principal executive office is in McLean, Virginia, with other key facilities in Sunnyvale, California (technology development), and locations in France and India (software development and R&D)[193] Legal Proceedings The company is involved in litigation from time to time but does not believe any current matters will have a material adverse effect on its business, financial condition, or results of operations - The company is not currently involved in any legal proceedings that are expected to have a material adverse effect on its business[194] Mine Safety Disclosures This item is not applicable to the company - Not applicable[195] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities NextNav's common stock and warrants trade on Nasdaq, with no cash dividends paid, and a share repurchase occurred in October 2023 - The company's common stock and warrants are listed on The Nasdaq Capital Market under symbols "NN" and "NNAVW"[198] - The company has never paid cash dividends and does not intend to in the foreseeable future, retaining earnings to finance business growth[200] | Period | Total Number of Shares Purchased | Average Price Per Share | | :--- | :--- | :--- | | October 1 – October 31, 2023 | 128,035 shares | $5.16 | | November 1 – November 30, 2023 | - | - | | December 1 – December 31, 2023 | - | - | | Total | 128,035 shares | | Management's Discussion and Analysis of Financial Condition and Results of Operations NextNav reported a net loss of $71.7 million in 2023, primarily due to warrant fair value changes and increased interest expense, while maintaining sufficient liquidity Results of Operations In fiscal year 2023, revenue remained stable, but the net loss significantly widened to $71.7 million, primarily due to warrant fair value changes and increased interest expense | Metric (in thousands) | FY 2023 | FY 2022 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $3,862 | $3,926 | ($64) | (1.6%) | | Total operating expenses | $67,391 | $69,462 | ($2,071) | (3.0%) | | Operating loss | ($63,529) | ($65,536) | $1,993 | 3.0% | | Interest income (expense) | ($3,664) | $901 | ($4,565) | (506.7%) | | Other income (expense) | ($4,321) | $24,491 | ($28,812) | (117.6%) | | Net loss | ($71,735) | ($40,116) | ($31,619) | (78.8%) | - Selling, general and administrative expenses decreased by $6.6 million (18%) primarily due to a $4.5 million decrease in stock-based compensation and lower professional services and insurance costs[232] - Research and development expenses increased by $2.4 million (14%) mainly due to a $1.6 million increase in payroll-related expenses from higher headcount[231] - The significant increase in net loss was primarily driven by a $28.8 million unfavorable change in other income/expense, mainly related to the fair value of warrants[235] Liquidity and Capital Resources As of December 31, 2023, the company held $85.8 million in cash and marketable securities, bolstered by a $70.0 million debt issuance, deemed sufficient for future operations - The company had cash, cash equivalents, and marketable securities of $85.8 million as of December 31, 2023[236] - In 2023, the company issued $70.0 million in senior secured notes with a 10% fixed interest rate, maturing in December 2026, to fund its operations[238] - Management believes current cash and marketable securities are sufficient to meet working capital and capital expenditure needs for beyond the next 12 months[237] Cash Flows In 2023, net cash used in operations was $35.4 million, while financing activities provided $69.0 million, primarily from senior secured notes issuance | Cash Flow Activity (in thousands) | FY 2023 | FY 2022 | | :--- | :--- | :--- | | Net cash (used in) operating activities | ($35,440) | ($37,095) | | Net cash provided (used in) investing activities | $1,074 | ($15,736) | | Net cash provided by financing activities | $68,984 | $43 | - Net cash used in operating activities was $35.4 million in 2023, resulting from a net loss of $71.7 million adjusted for non-cash charges like stock-based compensation ($21.8 million) and change in fair value of warrant liability ($4.1 million)[241] - Net cash provided by financing activities was $69.0 million in 2023, primarily from the issuance of senior secured notes[245] Quantitative and Qualitative Disclosures About Market Risk The company's market risk exposure, primarily from interest rates on short-term investments and fixed-rate debt, is considered minimal, with credit risk actively managed - Interest rate risk is considered minimal. Investments are in short-term U.S. Government and Agency bonds, and long-term debt of $48.4 million has a 10% fixed interest rate[262][263] - Credit risk is managed by holding cash at major financial institutions and investing excess cash in U.S. government securities and money market funds[264] Financial Statements and Supplementary Data This section presents the company's consolidated financial statements for 2023 and 2022, along with the independent auditor's report - The consolidated financial statements and the report of the independent registered public accounting firm are included, beginning on page F-1 of the report[266] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on any matter of accounting principles, practices, or financial statement disclosure - There have been no changes in or disagreements with the company's accountants[267] Controls and Procedures As of December 31, 2023, management, including the CEO and CFO, concluded that disclosure controls and internal control over financial reporting were effective - Management, including the CEO and CFO, concluded that as of December 31, 2023, the company's disclosure controls and procedures were effective[269] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2023[270] Other Information This section discloses modifications to a Rule 10b5-1 trading plan for General Counsel Robert Lantz and the termination of a plan for former CEO Ganesh Pattabiraman - On December 12, 2023, General Counsel Robert Lantz modified a Rule 10b5-1 trading plan[273] - On December 20, 2023, a Rule 10b5-1 plan adopted by former CEO Ganesh Pattabiraman was terminated[274] PART III Directors, Executive Officers and Corporate Governance Information for this item is incorporated by reference from the company's 2024 Proxy Statement, to be filed within 120 days of fiscal year-end - Information required by this item will be included in the company's 2024 Proxy Statement and is incorporated by reference[280] Executive Compensation Information for this item is incorporated by reference from the company's 2024 Proxy Statement, to be filed within 120 days of fiscal year-end - Information required by this item will be included in the company's 2024 Proxy Statement and is incorporated by reference[281] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information for this item is incorporated by reference from the company's 2024 Proxy Statement, to be filed within 120 days of fiscal year-end - Information required by this item will be included in the company's 2024 Proxy Statement and is incorporated by reference[282] Certain Relationships and Related Transactions, and Director Independence Information for this item is incorporated by reference from the company's 2024 Proxy Statement, to be filed within 120 days of fiscal year-end - Information required by this item will be included in the company's 2024 Proxy Statement and is incorporated by reference[283] Principal Accountant Fees and Services Information for this item is incorporated by reference from the company's 2024 Proxy Statement, to be filed within 120 days of fiscal year-end - Information required by this item will be included in the company's 2024 Proxy Statement and is incorporated by reference[284] PART IV Exhibits and Financial Statement Schedules This section includes the consolidated financial statements and an index of exhibits, with financial statement schedules omitted as not applicable - The consolidated financial statements are filed as part of this Annual Report on Form 10-K[286] - All financial statement schedules are omitted because they are not applicable or the information is included in the financial statements or notes[287] Form 10-K Summary No summary is provided under this item - None[294]