Ladies and gentlemen, thank you for standing by. My name is Shubro and I will be your conference operator today. At this time, I would like to welcome everyone to the NextNav Q3 '23 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the call over to Erica Bartsch. Please go ahead.

Good afternoon, everyone, and welcome to NextNav third quarter 2023 earnings conference call. Participating on today's call are Gary Parsons, NextNav's Chairman, Ganesh Pattabiraman, NextNav's Co-Founder and CEO; and Chris Gates, NextNav Chief Financial Officer. Before we begin, please note that during today's presentation, the Company may make forward-looking statements either in our prepared remarks or in the associated question-and-answer session. In particular, such forward-looking statements may include statements about NextNav's business plans, objectives, expectations and intentions to drive growth in its 3D geolocation businesses and expansion of its next-generation GPS platform to maximize the value of its IT portfolio and spectrum, its international business as well as NextNav's partnerships and the potential success thereof, NextNav's estimated and future business strategies, competitive position, industry environment and other potential growth opportunities. These statements are based on current expectations or beliefs. However, such forward-looking statements are subject to known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside NextNav's control that could cause actual results to differ materially from the results discussed in the forward-looking statements. 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, anticipated demand and acceptance of our services, prospective performance and commercial opportunities and competitors, the timing of obtaining regulatory approvals, commercial partnership acquisition and retention, products and services, pricing, marketing plans, our ability to realize the anticipated technical and business benefits, associated acquisitions and any subsequent mergers, acquisitions or other similar transactions, factors relating to our future operations, projected capital resources and financial position, estimated revenue and losses, projected costs and capital expenditures and expectations about international markets, projections of market growth…

Thanks very much, Erica, and good afternoon, everyone. Welcome to NextNav third quarter call. As Erica mentioned, joining me on today's call is Ganesh Pattabiraman, NextNav's Co-Founder and CEO and Chris Gates, NextNav's Executive Vice President and Chief Financial Officer. This past quarter saw a significant progress on a number of our key initiatives, both on the spectrum front and with continued public safety and GPS resiliency efforts. Ganesh will provide more detail on like individual contracts and government agency activities, but from an overall strategic perspective, I'm frankly pleased with the ongoing traction of our government and public safety efforts, both on the E911 three-dimensional geolocation front, and with the growing consensus on GPS vulnerabilities and the true need for PNT or GPS resiliency to protect critical infrastructure. NextNav is the acknowledged leader in this area. And we see growing opportunities to expand that leadership position, both here in the United States as well as around the world. A number of these resilient GPS or position navigation and timing PNT initiatives or either demonstration programs or initial implementations that are expected to lead to expanded deployment in future phases. Chris will get into that in more detail in his section. Additionally, as we've shared in prior quarters, the specifics of some of these programs, including the contracting agencies, all remain confidential at this stage due to national security issues, but we will try to share as much insight as we can consistent with those non-disclosure responsibilities. As the team will discuss in more detail, several of these opportunities involve partnerships, either with state and federal agencies or leading research universities, responding to RFPs or RFIs in advance of the executive order 13905 finalization. From a purely political standpoint, it probably is worth reiterating a substantial bipartisan support that continues…

Thanks, Gary, and good afternoon, everyone. It's been another productive quarter, and we're seeing growing momentum out of key partners and federal and state government agencies as the need for solutions tied to PNT resilience grows in importance. Notably, in September, we participated at ION or the Institute of Navigation Conference in Denver where we demonstrated our TerraPoiNT hybrid systems timing and 3D positioning capabilities, leveraging LTE signals from cellular operators. While at the conference, we were able to meet with government officials from the Department of Transportation, Department of Homeland Security and Department of Energy and other partners and held very productive conversations. This reinforced our belief that the government is now actively moving from discussion towards tangible action phase. At this same conference, the Department of Transportation announced its complementary PNT action plan. The plan lays out the key milestones, time lines and establishment of a PNT services clearinghouse or PNT marketplace. As part of this framework, we see DOT issuing RFPs in the coming months that will sponsor several initial implementations of Brazilian PNT systems like TerraPoiNT in critical infrastructure providers equipment. This is to establish a framework for complementary PNT systems to operate in conjunction with GPS and GNSS systems that may be in operation today. A good example of this is in the telecommunication systems; we could see both GPS and complementary PNT systems-based timing to be integrated as part of the core infrastructure of the operator and to ensure that the two systems can function in a seamless manner. The DOT also plans to establish a clear designated clearinghouse for federal users and critical infrastructure operators. This would be a place to find a list of vetted and qualified complementary TNT providers like NextNav, to help advance their resilient PNT needs and procure services…

Thanks, Ganesh, and good afternoon, everyone. Thank you for joining us for our third quarter earnings call. As both Gary and Ganesh highlighted, we made important progress in our efforts to expand the utilization of our spectrum licenses in the third quarter and are starting to see tangible results from the PNT resiliency programs underway in the federal government. With respect to our financial results, third quarter revenue increased 104% to $1.0 million compared to $500,000 in the prior year period, primarily due to an increase in recurring revenue from technology and services contracts with commercial customers. Sequentially, revenue was up $200,000. Year-to-date, revenue decreased 15% to $2.7 million versus the prior year period, driven by decreased integration revenue, partially offset by an increase in recurring service revenue from technology and services contracts with commercial customers. Our operating expenses were $15.6 million, down from $18.4 million in the same period last year, with much of the difference due to lower stock-based compensation expense, partially offset by higher depreciation and amortization. Excluding stock-based compensation and depreciation and amortization, operating expenses were $10 million compared to $10.9 million in the prior period and $10.3 million in the second quarter of 2023. Year-to-date, operating expenses were $46.3 million, down from $54.1 million in the prior year, with the reduction driven by the same drivers. Excluding stock-based compensation and depreciation and amortization, year-to-date operating expenses were essentially flat at $30.1 million in the current period and $30.9 million in the prior year. Third quarter net loss was $23.2 million compared to a loss of $18.7 million in the prior year. The primary drivers for the increase were net interest expense of $1.7 million and a change in the fair value of our warrant liability of $6.7 million compared to net interest income of $0.3…

[Operator Instructions] Our first question comes from the line of Griffin Boss with B. Riley Securities. Griffin, your line is open.

So just first, can you give a little bit more color on where you're at with regards to the testing and collecting the requisite data for the FCC? I know you said you hope to finish this testing by the end of the year, but I guess, what would -- what could happen that would push the testing process into 2024? Or what's your level of confidence that you can gather the appropriate data by then?

Thanks for the question, Griffin. -- obviously, the results of that testing, we won't prematurely announce. I mean we'll announce that when we essentially include the results of that with the filings we'll make with the FCC. So at least from your own planning purposes of when we'll be public about that, that's when we would do that. It's -- quite frankly, I'm very pleased with how quickly we were able to both secure approval from the FCC for the changes that we requested for the experimental license, and then also, I mean, I know you guys have been around telecom operators turning up networks and 5G networks. -- our ability to actually design it, procure the equipment and get it in place there in the Palo Alto area over literally a three- or four-month process, I'm very pleased with. So, the network itself has only turned up, and we're in the process of testing. That testing and you can -- if you've reviewed our experimental license approvals from the FCC, you'll see that we're actually going to be testing a number of different configurations, including eight contiguous, as we've talked about before, which could be used as, say, a supplemental downlink configuration or 5-megahertz band at the lower end of our band, the middle and the upper end of our band, we'll be looking at different power levels. including the existing power levels that we're authorized for as well as higher power levels that we believe we can still do without creating undue interference to neighbors. So, it is a pretty good combination of testing programs. So, I don't want to -- that's why I said, largely complete by the end of the year; that's what we're hoping to do. If we see results from that that cause us to want to change power levels, duty cycles, whatever else it may be, then it could trickle over a little bit more than that, but it's going on at a pretty good pace, and we're pleased with where it stands right now. Again, I won't comment on the results of that testing until it's complete, and we do make the necessary filings with the FCC.

Sure. Yes. Okay. That makes sense. And so, would there be a delay, let's say, like in terms of the -- whenever you complete testing, are you -- would you expect to file those filings with the FCC immediately? Are you working on those concurrently? Or is it going to take some time in order to --

Let's see. As immediately as is possible. Clearly, we are working on those filings already, so we are doing that on a parallel basis is what we would expect to file, but as you can imagine, some of the actual finalization of what we would request and how we would best like it configured is going to depend on the results of the testing. So, we will have to wait to get the final of that into place before we finalize the thing, but candidly, I think it's something that would not take too much longer beyond the completion of testing before we actually put in and also likely to be a licensed waiver. I know some people have talked about doing petitions for rulemaking and going through a notice of proposed rulemaking, that may be required. The FCC may require us to do that, depending upon how extensive the waiver request might be. But we also think it's not a major lift to have some of the changes that we're looking to have, and some of those may well be able to be done at bureau level through a waiver process. So those are not things I can give you a hard and fast and firm answer to, right now, but I don't think, for example, multiple months of writing up an FCC request following the testing, I think it would happen pretty quickly after the testing completion.

Got it. Okay. Understood. And then so shifting gears, it's nice to see the DOT's action plan. I guess were there any surprises with that plan that you saw, whether that'd be timing of milestones or just general outline? Was it consistent with what you would have expected?

Ganesh, do you want to take that?

Yes, I can take a stab at that. No, I think the time lines, I think we had described in, I think, in the previous call, we did expect once the implementation guidelines released, they would go through the sort of the broader federal regular [indiscernible] approval process and which could take 12-18 months. And so, it does line up with the 2025-time frame. So, I don't think that was much of a surprise there. I think we were happy to see that the DOT actually is implementing or encouraging industry to adopt resilient PNT solutions and do tests in the 2024-time frame. So, when the implementation guidelines are more broadly adopted, then you have some baselines to go with. And this concept of the clearinghouse certainly was, I think, is a positive addition to the process because it creates a framework for more expeditious and wider adoption once you're part of that framework. So, I think overall, it wasn't -- it wasn't -- the time lines weren't too much of a surprise, but certainly, some of these additional features that they added as part of the implementation plan were positive.

Understood. Ganesh, appreciate it. I'll jump back in the queue.

Your final question comes from the line of Timothy Horan with Oppenheim.

It sounds like you're making a lot of progress. Could you just talk about what's the government's ultimate goal here? Are they looking to create like a GPS type system that's free that they fund, that anyone can use? Or is it-- and would it be nationwide? Or are they just looking for maybe just government users and first responders to use? What do you think they're ultimately looking to do?

I'll let Ganesh get into it because that is essentially a part of the business that he is very, very intimately involved in. But just on an overarching way, I don't think that they're [indiscernible] for example, I mean, they fly their own GPS satellite constellations and they provide GPS for free, okay? And that's used by critical infrastructure for timing and certainly by consumers for location and other things of that nature. I don't think they're looking to provide a secondary terrestrial one that they would own and they would provide, that hasn't been in the past. I think that they want to do everything that they can possibly to make it to encourage industry to do it, and for government users to be able to be the initial users of it to start that process, but eventually, they want critical infrastructure to hold them responsible for having a resilient-enough system that if GPS were to have problems, their overall critical infrastructure would continue to perform. And one of the key wedges that they have in order to achieve that is by requiring people that are bidding on government services to prove that they can do that, that they have adopted the technologies to make it happen. So, I never say never when it comes to the government, but I don't envision the situation where they contract with us to stand up a terrestrial PNT system. I think they do recognize and the DOT testing back a couple of years ago showed, there are places that different technologies provide a different or better service or capability. We talk sometimes about the eLORAN, the old LORAN networks that were principally used by Mariners, and that's great for out over the oceans, I mean we don't have beacons out there. And the same thing with satellites like the TELUS system. That's great more for rural areas or even some suburban areas, but it doesn't get deep inside building. So, I think the DOT testing and the government [indiscernible] large, understand that for them to provide their own complementary PNT capability, it would require a deployment of a variety of different technologies and a terrestrial build out, I don't think that's in the cards. I think that they --they may build out certain ones, and here, I think Ganesh can maybe kick in to start talking about some of the sandboxes or initial trials and pilots they're doing, they will be funding those deployments.

Yes. So, I think, Tim, as Gary mentioned, I mean, I don't think there's an appetite in the government to stand up another system that back up to GPS simply because there isn't really one answer that fits off, right? I think GPS from that perspective was somewhat unique. And I think we're at a point where there are different applications have different needs, and as Gary mentioned, eLORAN is perfect for the maritime and ocean types of applications, but it's not going to fit into your cell phone and certainly doesn't -- won't work in urban areas as well. And I think there's also a growing recognition that going from one point of failure to another would be a bad system choice. So, I think the government wants to have multiple technologies providing PNT resilience, and that was part of the recommendation from the Department of Transportation. And I think ultimately, what the government is trying to do right now is really be the first customer for resilient PNT systems across the entire federal government enterprise. And it's not specific sectors, et cetera, they want this across the board. The government does recognize that they're not a large purchaser of these types of systems and so, the hope is that by being that first adopter, they can encourage other critical infrastructure providers, wireless operators, electrical grid suppliers, et cetera, to also adopt these resilient PNT systems because it's very clear from what's happening around -- from around the world, be it the Ukraine conflict or the Israel-Hamas situation, GPS jamming is a standard feature now across the board. I think we saw it at the beginning of October 6th and we've continuously seen more activities around that. And so, there's a level of urgency to make every industry more…

So let's say, everything goes really, really well, I mean how large of a customer can the government be in four, five years as this is built out? Or how much money could you receive annually from the government, do you think?

I mean that's -- Chris you want to take -- I mean that's not clear right now. I mean -- but I think we can certainly say with the intention where we're seeing that it would be across the federal enterprise, I mean it touches right from the FAA procuring systems to the health and human services for emergency services, then getting into all the critical infrastructure providers, the telecom operators, the electrical grid folks, all of those users, if they have a need for either timing or position or navigation, would be required to have resiliency. And that obviously can grow to be a very large order of magnitude revenue source for us. I mean we already seeing initial elements of that with our government contract that we just signed. In this current phase, it's relatively a nominal amount but if this phase grows to the second phase, that could be our largest contract just in the matter of 12 months, and that can start dominating more broadly as 2025 kicks in.

Got it. And sorry, just last question. The -- any updated thinking on the highest best use of the spectrum and technology, I mean, do you think you would build out this network yourself and charge for usage on it? Or does it make sense to sell --

And I'll go ahead and take that one. I'm always reluctant to just speculate too widely because depending upon who it is that you may partner with on it, there are different configurations, which may be more desirable to one player versus another. I have mentioned the supplemental downlink is a very important one, but also, if you're able to get two-way capabilities, it opens up other potential partners. My own guess at this point, and I always hate the caveat as being a guess is that we wouldn't build it out. I think there's enough, particularly for dealing with one of the major carriers, it's far more likely that you would lease them the spectrum and have them building out. We would still be responsible obviously for providing the full PNT and E911 services because that's an essential part of the function that the government wants us to do. It's why we think that the government will be very favorably looking at what we will want to do because we are providing a very critical national security service. But I think because of that, the most efficient way would be either leasing or even if it was for an upfront onetime payment for a multiyear lease. That may be the best way it would be done. I don't see -- it's not that you couldn't envision scenarios whereby we would build it out, but I don't think there's any chance we would do that without a contracted party that was going to use it. I mean, we don't see ourselves right now as trying to create another nationwide carrier or something like that.

Do you have a sense of how easy it would be for a carrier to add this on to their existing infrastructure? I mean they seem to be doing a lot more carrier aggregation and a lot more so--

Well, absolutely. And carrier aggregation is absolutely the [indiscernible] I mentioned at either a supplemental downlink or even a supplemental uplink. The key with other existing spectrum is more of your likely implementation. It is a lot more of that being done today. And what configurations we are able to create and what power levels we're able to create will have a direct bearing on how easily it can be incorporated into, say an existing carrier's rollout plan. So probably not much more I can say on it at this point in time. Likely when we do make our filings with the FCC, you'll get a far greater granular visibility into what we think we'll be able to pull off. But yes, I mean, we think there's an undeniable spectrum value there, if utilized as a 5G data carrier, but exactly what configuration and what other spectrum it might be paired with in a network are things that we probably won't opine on today.

Yes. Got it. That's really, really helpful.

At this time, there are no further questions. I would like to turn the call back over to Gary.

Well, thank you very much, operator. And we certainly appreciate everybody dialing in today. And hopefully, you see -- I know we normally kick off these calls saying, "Hey, here our three strategic priorities to solidify our leadership position in 3D Geolocation and PNT resiliency to develop fully our spectrum assets to their highest and best use and commercial potential on that and to expand our global reach. I think, hopefully, you'll see out of today's call, we made significant progress on all of those this quarter, and once we complete our testing program and are able to file with the FCC, hopefully, you'll see far more progress on that front as well, too. So again, thanks, everybody, for your participation today, and we look forward to speaking to you again on our end of year call.

Thank you, ladies and gentlemen. That concludes today's conference. You may now disconnect.