Anpanman - AST SpaceMobile's $4 Billion War Chest: AI, Defense, and the Spectrum Land Grab

[00:00:06] Speaker A: This is the AST SpaceMobile Podcast. It will just basically come to your phone and be seamless regardless of where you are. We don't want the user even to know that it's connected by satellite. Listen, the opportunity that we have is very, very, very large.
[00:00:27] Speaker B: All right, everyone, thanks for joining. Apologies, uh, for earlier. I was actually out with family and I just got back. Well, after putting the kids to sleep, I had about maybe 40 minutes to take a look at all this stuff. And I did read a little bit of what people had posted online as well, which was helpful. But, um, yeah, let's, let's get into it. And so I took a few notes. I reviewed some of the disclosures from the company. I actually got some color as well from the company. And so I'll split this into 2 things. And so some initial thoughts and then some of the color that I heard. So where should we start here? So yeah, the company this evening after the market closed, they announced that they were doing an overnight $1 billion, 10-year paper. convert, 10-year meaning the maturity is 10 years. And so this convert, I believe, will have a 2% coupon. The conversion premium, actually, I think I missed that. I think it's probably like around 20%, but we'll find out the deal terms tomorrow. I think they did price it this evening, although I didn't see price stock listed on Bloomberg just yet, but we'll find out soon enough. From what I heard, Yeah, sorry, it is 20% conversion premium. And so if they priced it off of the close today, which was around $96, the 20% conversion premium means that the convert can be converted into equity at around $115 per share. But yeah, so they're doing this convert on an overnight basis. They brought people over the wall confidentially. And so people got restricted, you know, convert investors, and then they did a quick marketing. I think it was like a 20-minute call from what I heard. And so they closed the books at 5 o'clock and this thing will get priced tomorrow, right? And one thing I would say is that this is really powerful for the company in that they've become a very seasoned issuer. And so they have a very deep convertible investor base. And so it's, you know, for the company to be able to do a drive-by overnight, $1.15 billion, you know, the extra $150 million is if they exercise the overlotment option, which they certainly will as long as, you know, the convert, there's enough demand and the stock price performs reasonably well. But having a very deep and liquid convert market is very powerful because you can go raise money on a dime. And that's, you know, these are people who are a mix of, you know, long-only fundamental guys convert ARBs, but, you know, people who have credit backgrounds. This also is going to open up the path to eventually raise straight debt, you know, high yield bank loans, you know, eventually once the business really gets going. And so having access to this market is very helpful because you want to have the ability to tap markets when investment opportunities arise. If there's like an acquisition or something that comes up, maybe you want to buy some spectrum. It's helpful to have the ability to do this. And it also minimizes dilution, which I'll talk about a bit later. When you— I was talking about this with Ryan in the chat. We were like, oh, so what's the dilution impact from the company issuing stock to retire some of their The existing convertibles and then the, what they're about to raise and the potential dilution. So of course when they retire some of the existing bonds, I think they are going to potentially issue up to, what was my math, like 2.6 million shares for $250 million worth of converts that they're planning to retire. If you take that number and then the potential shares that might be issued from this this convert that they're doing overnight, which is, you know, up to 9.98 million shares, that total potential issuance is 12.6 million shares. And so when you look at that compared to shares outstanding, that's 3.4% dilution. Like it's really tiny. It's not that much. And so that's the luxury of having a company that is Now at $36 billion in market cap, you can go raise effectively, what is it, $1.4 billion and do that at 3.4% dilution. Like, it's tiny. And that's, by the way, I always make this comparison, but if you look at AST SpaceMobile in April of 2024, the market cap in totality was $760 million. And so why we've come a long way. But yeah, so I do want to go into the change in the wording of the use of proceeds. I think that's a very big tell, and I was told like that was very, very deliberate in terms of the language used there. And so maybe we'll just start there. In any of these, you know, offerings, you're going to have a use of proceeds section. And so previously, as Space Mob member Keys had pointed out in October when the company had issued their last massive convert, which is a $1.15 billion, 2%, basically the same terms, right? 10-year paper. They, the language that was in there beyond just general corporate purposes was this. They also included this language, including without limitation funding the deployment of AST SpaceMobile's worldwide constellation of satellites and in anticipation of adding incremental strategic markets for its space mobile service. And so that was very deliberate. And, you know, we pulled apart that language back then, but that was expanded upon and updated for this offering. And so the new language is this, including without limitation, accelerating the deployment of our controlled spectrum bands on a global basis, monetizing the capabilities of our proprietary technology to capture the evolving commercial opportunities related to artificial intelligence, Comma enhancing investments in government space opportunities in the U.S., comma reducing higher interest debt—that's pretty straightforward—comma and pursuing opportunistic investments to accelerate our space mobile service and capabilities. And so I wanted to talk about those each one of those sections and discuss what what could that be. And so first. Acceleration of deployment of controlled spectrum bands on a global basis. And so what that tells me is a number of things. One, if you are— the controlled spectrum bands that the company has on a global basis is primarily Legato, the L-band spectrum here in the US, which is what they acquired out of bankruptcy from Legato. That's the 1.5 gigahertz spectrum band, which is great for It's 25 megahertz of dedicated spectrum here in the US and also in Canada. And that is going to be very good for carrying data. It's also unencumbered in the sense that there's no terrestrial service that's being used on that spectrum. And so once the company lights that spectrum up, it can be used anywhere. It can be used all across the US, all across Canada. It's not limited to dead spots. It's going to overlap with the terrestrial network. And so AST is going to have the ability to go to Verizon, AT&T, Bell Canada and say, hey, not only are we going to provide even better broadband coverage in dead spots, but we're going to help you augment your network in areas where you do have terrestrial coverage because then you can offload some of the traffic on this network. Additionally, the company can sell, has the opportunity to sell other uses on top of that spectrum, whether it's like IoT, other types of data services, you name it. But having the flexibility to deploy that spectrum is going to be key. But that's L-band. And then of course, the company is pursuing S-band spectrum globally, right? So they purchased the spectrum rights for S-band recently, and with that, they're going to go pursue opportunities globally. And so what does that mean? Just to give you an idea, so there's probably like 3 avenues of how you could acquire additional L and S-band spectrum. One would be through partnerships. And so a very easy example of that is Saudi Telecom. People maybe have already forgotten that we signed a commercial agreement with Saudi Telecom for 10 years where they provided an upfront $175 million prepayment, which hit the books in December. I think, by the way, that potentially could be included in our pro forma cash number, which I'll talk about later. But that partnership with Saudi Telecom, interestingly, Saudi Telecom already has L-band spectrum rights in Saudi Arabia. And so their allocation of L-band is actually pretty big. I think it's 60 megahertz. So it's 30 megahertz by 30 megahertz. 30 MHz downlink, 30 MHz uplink. So once the Block 3 constellation is up and running, they can just go to Satellite Telecom and say, hey, we'll light up that spectrum for you and we'll figure out a good use for it. And so one way to do that is through partnership. The other way is to actually get an allocation from regulators. And so I tweeted about this earlier today, but the EU has been trying to work on their own constellation to wean themselves off of having to use Starlink or some of these other providers. And so interestingly, Orange, who is a partner of AST and Deutsche Telekom, they are 2 primary, I guess, contributors into this whole IRIS-2 constellation. And then they recently in this article said, hey, we're not really confident that that thing's going to get off the ground. And even if it does, if the performance is not comparable to Starlink, then we're not interested in doing it. And so right before our eyes, we're seeing Iris 2 already starting to fall apart even before trying to start formulating a plan around that constellation. And so Iris 2 is probably, or at least previously was thought to be well positioned to get an allocation of what is going to be a reallocation process for the 2 GHz S-band spectrum that the EU basically doles out to different players. That's going to come up for reallocation in 2027. The existing holders, the key ones that people know are EchoStar and Viasat, there's probably a very good chance that they are not going to get new allocations in 2027. And so Iris was expected to get one. I think AST SpaceMobile in their SatCo JV with Vodafone, I think they're very well positioned to get an allocation. And perhaps, you know, maybe Starlink, although it depends on if, it depends on, I guess, you know, what Musk's political relationship is with Europe at that time. But, you know, we still have about a year and 3 months before that happens, but I think AST is pretty well positioned. But that would be like an allocation process. And then I think once you get the spectrum allocated, you've got to work with each EU member on a country-by-country basis to properly deploy that spectrum. And then the third avenue would be acquisitions. And so the map or the market for S-band and L-band spectrum is pretty fragmented all around the world. And so this was historically a backwater, this satellite spectrum that wasn't being properly used around the world. And so there's now probably going to be this kind of a land grab, but there's only 2 players that can really utilize it properly, and that would be AST SpaceMobile and it would be Starlink. And so I think there's some ambitions from other players hoping to develop these legacy guys who initially, say 5, 6, 7 years ago, and of course even as late as 2022, 2023, poo-pooed the idea of direct-to-device as a market. But now everybody's talking about it, whether it's ViaSat or Telesat or any number of legacy companies that are trying to stay relevant, SES. They all kind of view this, they see like the interest in where the market is going, and so they're trying to pivot. But, you know, when you have SpaceX that is looking to go public and is going to amass a pretty large war chest, and then of course the company tonight based off of their raise, you know, I think they're going to have, in addition to, you know, some capital that they used, they utilized from their preexisting ATM, They're gonna have $4 billion of cash, which is pretty insane. You know, $4 billion in cash is, I compare that to the company's market cap again back in April of 2024 of $700, $800 million. I mean, yeah, it's pretty crazy. But given the opportunities in front of the company, like you want to be well capitalized, you want to have the ability to pursue growth opportunities when they present themselves. And that also means pulling forward and accelerating the pursuit of those opportunities. And so within this part of the disclosure, this acceleration of deployment of controlled spectrum bands on a global basis, I also read into it that they're probably looking to pull forward the production or design and production of Block 3 constellation, right? Because to accelerate the deployment of that controlled spectrum, you need to build constellation. And so the mid-band Bluebirds would be part of that equation where you can go acquire spectrum, but hey, let's put that constellation up sooner than expected. And so the way that the company was capitalized previously, they felt good about being able to deploy 90 to 100 satellites and standing up the service, whereas this additional capital means that they can start thinking about the next shell and being aggressive in executing against that. The next part of that disclosure, monetizing capabilities of proprietary technology to capture evolving commercial opportunities related to AI. This screams data centers to me, and it also means exploring work with strategic partners and helping some of these AI companies When thinking about edge compute and of course compute out in space, working on those relationships. But I think it's important to note that the company just unfolded the largest phased array in low Earth orbit, and that satellite can generate what is the Kardashev level 2 utilization requirement of 100 kilowatts per satellite. That's happened already. Like there's even SpaceX is like, hey, we're going to, go pursue that. And the V3 satellite, I think, can do 20 kilowatts. But, you know, they're talking about the ability to eventually get to 100 kilowatts. Guys, we're already there. We're already at 100 kilowatts. And so the fact that we successfully deployed this new spacecraft that can generate, and I think, you know, some of us have speculated that it's actually more like 120 kilowatts with the solar tail. But we're already there. And so if you can imagine the types of conversations where if it's Google or Amazon, Blue Origin, Microsoft, I mean, OpenAI, you name it, there's probably people calling, emailing, texting, hey, we're interested in figuring out if we can utilize some of your technology to go do this stuff. I'm sure there's plenty of conversations that are happening right now. And so as we've said many times, the company has the patents, it has the building blocks, the expertise. The key thing is expertise, right? Because space is hard, as we all know. And you can't take engineers that are working in whatever applications terrestrially to say, hey, you go become an aerospace industry engineer and figure stuff out. There's an experience, a time to get that experience to make mistakes and learn from the folks with the white hair and all that. I mean, I remember going to the BlueWalker 3 launch and being in an elevator with Cook and there were some like AST SpaceMobile engineers in there. These were some of the graybeards. And I remember I've told this story a lot of times, but asking them like, hey, this is the night before the launch. It's like, hey, are you guys nervous? Is there anything that is keeping you up, keeping, or that would make you, I guess, yeah, stressed about the launch tomorrow? And they both, these 2 engineers are like, no, no, we've, we've been there, done that. Uh, pretty much like they, they're, they were confident. They were so confident that they had planned for any type of situations and that there was enough redundancy and they're like, no, it's just going to work. And And I remember like feeling my blood pressure. I mean, I was excited and nervous at that time. It was the night before launch, but I remember my blood pressure just going down and be like, wow, these guys are really confident. Like they're not nervous and they're not scared. And so that's what expertise and experience brings you, right? And so as I mentioned before, the company has 3,800 patents. It's got all the building blocks in place. I mean, they're basically Chunky up a, chucky up a, an orbital compute satellite out there now. That's Bluebird 6 in block, you know, Bluebird 1 through 5. But that, that satellite is with all its processors and, and solar power and batteries and all its glory is focused on communications. But you could easily see that being reconfigured, optimized for something else. And so that's why, you know, we've talked about like how the company is pretty conservative in their disclosures. And so for this to be put in there, like, I don't think there's any other way to explain it. I mean, there's got to be the— to capture evolving commercial opportunities related to AI. Yeah, it's pretty blunt. It's— that's— they're saying that there's opportunities there. And what does that mean? Does that mean like the company's going to develop its own constellation and manage it for somebody else? No, but they're going to have production capabilities, you know, eventually going from 6 satellites right now to 12. And they're procuring more space to do that. They're going to build more shells. And then eventually once those constellations are up, that they're going to have this production capacity, like where are they going to, what are they going to do with it? Right? So maybe they'll go build satellites for someone else, or maybe they will build satellites and own them and then outsource or be almost like compute as a service, or who knows, right? Like there's any number of possibilities. But yeah, I think that that's a pretty big disclosure, which it's not something that you do lightly because then going forward, the company, In their ongoing disclosures in the quarters, and of course they're going to get questions asked by investors and all these things, right? They just opened up this big can of worms, and it's for a very specific reason because they want to talk about it, and it's real. So let's see enhancing investment in government space ops, and so I think that's pretty straightforward. I mean, there's it's funny like we probably have already forgotten like the fact that the company is. has an IDIQ for Golden Dome and they're working towards that. But when pursuing these government contracts, if you have the ability to go to SDA or MDA, any of these acronyms, these government agencies and say, hey, we're serious in pursuing this work and we've got $4 billion of cash to go execute on it, that's going to get their attention, right? As opposed to some startup. Yeah. You know, there's, I think one of the criticisms of people kind of going through these award lists is like, hey, everybody and their brother is like on this list and it's all these little small companies. That's all fine and good. But when it comes to actually delivering and winning hard contracts, you're going to need money to do that. And I think the Department of War, like Peter Hegseth, has emphasized this, like the old days of cost-plus contracts to your old school primes where they got to live off the government teat and they got to develop things in a slow process and you had cost overruns because basically there was like no capital at risk, right? And those programs were very, yeah, they're very wasteful. and they didn't deliver what they needed to on time. Whereas now I think there's this shift to having neo-primes, like your new prime contractors, like you need to go develop these capabilities. Here's the RFP, you need to go develop the capabilities and take risk, spend your own money and then come back and then we'll reward you with the contract. And so that's kind of the new model. And that's why you've gotta have money to go pursue them. So I think, I think enhance, you know, that, that specific language is obviously, you know, lo and behold, we've got 2 satellites, FM-1 and FM-2, or BB-6 and BB-7, one of which is out in space right now. But those 2 satellites are basically government satellites, SDA HALO satellites, and there's a number of different research that's happening around those 2 satellites. And so in order to commercialize, you know, what comes out of that testing, we're going to need money for it. And, you know, I've talked a little bit about how for Golden Dome, there is this idea within the space mob that there's one potential area of use would be that the Bluebird satellites would actually quarterback Golden Dome. Quarterback meaning you're going to need command and control out in space that can do AI compute, but those satellites need to generate a ton of power and communicate effectively. And what better asset than a Bluebird satellite, which can do all those things? And so yeah, that could be one way forward. for Golden Dome aside from all the different use cases, whether it's radar sensing, electronic warfare, jamming, spoofing, all that stuff, you know, the backup GPS. I mean, again, the company back in the last investor conference talked about 10 different use cases. And so yeah, you pick your poison. There's a lot of opportunity there. Reducing higher interest rate debt. And so I think the company's consolidating all of its paper that converts down to— the 2 primary issues will be this new convert, which is going to be $1.15 billion, a 2% coupon, 10-year paper. And then the previous one that they raised, which is exactly the same. And then they're looking to retire the 4.25% convert. I think there's only like $50 million of face value left in that issue because they retired quite a bit of it already. And so, you know, the company talked about using $50 million of cash on the balance sheet to cash purchase some of those bonds. And then they're also going to issue $250 million of stock at the closing price, which was $96. They'll do that to retire some of the 2.375% convert, which there's like I think it's $575 million outstanding. And so the 2 key issues that will be outstanding will have 2%, and that will be like, what, $2.3 billion in size, and it's got 10-year maturity. So plenty of time. Like if the convert doesn't convert to equity, you're going to have 10 years to basically go refinance or pay it off. Let's see here. So yeah, reducing the higher interest rate, I mean, that's an economic benefit. And of course, as I mentioned before, this company's gonna have $4 billion of cash on its balance sheet, and that's as of 12/31. And so some people might be— might ask, well, why do they need that much money? As I said before, you want to have absolute financial flexibility to go execute. And on top of that, the company's spending a lot of money. And so to build satellites and then to pay for launch providers and all those, you know, go pursue government contracts, it takes a lot of money. They are also looking to expand production. So we're at 500,000 square feet. They're looking to expand that even further. And so it takes money. It takes money to make money. And sometimes people forget that. And I think sometimes also, people are in this mind— like, I saw some Twitter responses from people that were like, oh, they're raising in Kerrera. Like, why do they need the money? We're talking about like a $1.15 billion issue for a company that has a market cap of $36 billion. Like, this is not really that much. And for a company of that market cap to have $4 billion of pro forma cash, like, that's important because cash is Having a large war chest is a weapon that you can use offensively, right? Especially for a growth company. And then for a growth company that is still on the cusp of commercialization and is not at a point where revenues can meet all their costs, that's important. And so at this point in time where the company is, having the ability to go raise that money and keep cash above a certain level, Because you don't ever want to get below a certain level, gives you a lot more flexibility and it's just smart corporate finance. Let's see. And then the final one is pursuing investments to accelerate space mobile service and capabilities. I think this is kind of the stuff that we already know, which is ramping up production. So again, going from 6 satellites to 10 to 12 technology development. I talked about this before. But like the whole idea of you know the company already thinking about Block Four, Block Five satellites, but then also what else can the satellites be used for? Like I think that's that's a very important thing that perhaps and this is like what we we discuss, which is you know the Nvidia example where you have the satellites that are used for a specific application, but then And this has already played out, like the fact that initially the satellites, we all thought, oh, it'll be for direct-to-device communications. But then the dual use case of having the ability to use that phased array for all these other applications for military just opens up new markets for you, right? And so how can you leverage some of that technology for other use cases? And so I think technology development is another thing that the company will continue to pursue. And we joke around like maybe they should create like a skunkworks group and think about, for example, some of these AI data center applications. And then finally acquisitions. And so the company has not been acquisitive. Everything has been pretty much homegrown. The only time that they've actually acquired anything, and it wasn't really acquire, but when Astra had acquired this this company that made Halon, I think it's Halon thrusters. I don't know if I'm pronouncing it correctly, but when they couldn't deliver on producing those thrusters, the company then acquired a license to make those thrusters themselves so that they could get to this point of, you know, 95% vertical integration and not worry about suppliers failing. And so there, potential acquisitions, you know, tuck-in acquisitions, that's always a possibility. But at least to date, the company hasn't really gone out and done that. So yeah, they're raising this $1.15 billion convert. As I mentioned before, they're also repurchasing some of the existing issues. And so the company disclosed that they're going to spend $50 million in cash to retire some of the 4.25% converts. I think that issue is so tiny, it's probably like 1 or 2 fundamental holders that own that paper. You're just going to take them outta that paper, maybe pay them a small premium, and then they're going to issue $250 million of stock to retire some of the 2.375 converts, which there's $575 million outstanding. And so they're just cleaning up some of these issues. And I think the interesting thing to note is that the company, because they have, they were so well seasoned and they've got like this large investor base on the convert, market. They can do a drive-by. What I mean by that is like they're pricing this thing overnight. They did a 20-minute investor call and they were able to raise $1.15 billion just like that. I mean, that's really powerful. And so by having these issues out there and like the 2 anchor pieces of paper at 10 years, they can go back out and raise if they need to at some point in time in the future, they can go raise 7-year paper, they can raise 5-year paper. Like people are going to want different maturities to invest in this company depending on like, you know, what their risk tolerance is. And so that's really powerful. Let's see here. So yeah, those are some initial thoughts. I mean, I think I weaved in a little bit of some of the feedback that I got. And I think just taking a step back, I mean, as I mentioned before, Before this raise, the company was fully funded for 90 to 100 satellites and the business is fully funded through 2027. However, this just adds additional firepower and they're able to pursue additional opportunities and then perhaps accelerate the Block 3 satellites. I think from what I understand, the company is the last 3 months, they've signed a number of commercial contracts. Obviously, you know, Saudi Telecom was the key marquee one, but, you know, they feel really good about their pipeline. And I think based off of, you know, the feedback that they're getting from the market, they are the partner of choice. It's either for the next 10 years, it's either you partner with SpaceX or you partner with us. And we all know that Starlink Starlink in particular, their fixed wireless service, which is the McDishey terminal that you hang out, the dish that you hang outside of your home, or I guess for the crazy people on top of your car, that fixed wireless service competes with the fiber business and the 5G home business of the wireless carriers, so the MNOs. And so yeah, they view, and obviously with all the news recently about Elon potentially being interested in releasing his own phone and competing service, they all feel threatened, right? And so the conversations that the company is having right now with MNOs around the world, I think it's for them, it's a matter of how do you sequence it, right? Like how do you sign the right partnerships initially? What are the economics? And then how do you stage those things? Because everybody wants to work with you, but then Do you have the ability to properly execute on those commercial agreements if you sign them? And so, and it's not as if once the constellation's up, like you can turn everybody on at once. Like you're going to do it in a staged fashion where you're going to do the most important markets or the most strategic markets and then kind of grow from there. And so at this point, it's a matter of how do you manage that, which is not an easy problem. But it's a good problem because when there's a lot of demand and people want to work with you, that's good. That's good. You don't want to be, you don't want to have the problem where no one wants to work with you and there's no demand. But I think, but yeah, it's, I think the company's in a great position. Obviously we've talked about it before where, you know, that this whole idea of inevitability where Yes, the company is very deliberate and they've gotta take their time in doing things right. And things are gonna slip. And as I mentioned earlier in my space today, you know, are they gonna get to 5 orbital launches by March? At this point, that's not looking likely, but are they gonna be able to get to 3? Probably. 4? Maybe. But we'll see. But at that point, I mean, having a pushback in timeline Or depending on how, I guess, how they sequence all this, pushback in timing of a month or 2 is not really that big of a deal when your closest competitor, the technology is inferior. The existing service, which is the 650 direct-to-cell satellites, and then the future service based off V3 is still going to be inferior based off of what we know. and the technology that we're about to deploy in space. On top of that, I will point out that just from my observations, like the fact that, I mean, imagine like if you're a SpaceX investor today and then, you know, there was this like major fanfare, hey, you're going to merge with xAI and it's going to be great. Like they're going to be integral to the data center in space idea and you know, you're going to be able to extract some value from it. I'm not exactly sure how they pitched it internally, but then, you know, you walk in today and it's like, okay, several of the co-founders have left. They're restructuring the company. And I think they're letting, I don't know like how real some of the news is on X, but it's like, hey, they're letting go 50% of the employees. Like, wait a second. I just agreed to give them X and X and X AI, 20% of the company, and right off the rip, like half the people are being like, or they walked out. Like, I don't feel that good about that. And so I think, you know, I have a tremendous amount of respect for Elon Musk, but as a business person, you know, at one point, do you hit this level of diminishing returns where it's like, okay, you're getting pulled in all these different directions and You've got a lot of ideas and your ability to execute at some point starts to suffer, right? And so I think today when I was reading the news about all the internal turmoil at xAI, and depending on where you read it, it's like, oh, it's being positioned as good or it's being positioned as something bad. That seems like a pretty good thing for SpaceMobile, right? Because then this company's being distracted. On top of that, SpaceX, in order to fund the ongoing massive cash burn of xAI, like they're going to have to really ramp up the commercial side of the business, like Starlink and also launch. Like I remember a lot of bears would say, well, SpaceX, they can just like decide not to launch your payloads. And that was never the case, but it's definitely not going to be the case going forward. Like They are going to need every external dollar to feed the AI beast over there. And then on top of that, they're going to need to fund the data center in space, all the R&D that goes around that. But I think it was like, I think there was an article saying that xAI was burning like a billion dollars every month. That's pretty insane. Right. And xAI, you know, I know some people use Grok. I use it sparingly, but I primarily use ChatGPT and Gemini. But, you know, as a 4th player in the AI race, and then of course you've got the Chinese and any number of other players as well, like that's a huge, massive arms race that is not going to, I don't know. The one thing that's— That I've thought about is like, in the AI arms race. It's great for consumers and for industries that are not being disrupted by it, which are like this whole idea, if you want to survive AI, you need to be able to move around atoms. Caterpillar is probably going to survive AI, right? Because building machines, AI can't do that yet. But this whole idea of You know, for SpaceX, it's like they're going to be burning a ton of cash and they're going to be distracted and they're going to need every piece of commercial cargo that they can to go launch it in space. But then the endgame for all these companies that are investing in AI, like, I guess a philosophical question is like, is it going to be a Pyrrhic victory? Like, if you win, do you end up being a loser? And that's a key question, which we don't know now, and we're probably not going to know for quite some time because I think how powerful AI is, is undeniable and the utility people get from it, obviously it's there. I will say, and this, I'll get off my soapbox after I say this, but it is making people lazy in a sense that even on X over the last 2 or 3 days. Like, there's— I'm just going to give you guys an example. There was this one person who was like, um, clearly every— and they don't hide it. They're like, everything I do is powered by Gemini. Like, I asked Gemini to analyze this situation 3 times, and based off that, I'm going to do this or that. And they were kind of arguing with me. Well, like, well, Gemini said this, so what do you think? And, and I think, you know, and I was talking to Cook about this too, it's like Gemini doesn't have judgment. poor experience. And maybe it'll get better, or sorry, yeah, maybe it'll get better at some point. But if you talk to any AI agent or chatbot and you ask it to help you do something or you ask it advice, like it's going to tailor the advice to what you are seeking, right? And so, but what it lacks is judgment. And so it's I don't know, it can be frustrating to see some people who solely rely on it, right? Like it's a crutch. Like, okay, I don't have experience in finance, so whatever Gemini or ChatGPT tells me, like it's almost like a religion. It's like, okay, this is, I'm going to trust what it says, or it's God, like it's all-knowing and what it says is what I should do. And that's the dangerous part. But anyway, I went on a tangent there, but I think going back to SpaceX, I think it's going to be a pretty big distraction. And I'm not sure, I don't know how that's going to impact the company and then the competitive landscape, but it does seem like it's going to be something good for AST SpaceMobile because there's a few things to take away from it.
[00:41:53] Speaker A: Yeah.
[00:41:55] Speaker B: Starlink and what they're doing, how many engineers are going to get pulled from direct-to-cell and then go focus on data centers? On top of that, it's going to be a distraction, right? Like xAI, you're going to have some potential for infighting and people who were working at SpaceX are like, oh man, now we own a bit of xAI and it's somewhat of a cash burn today. It's unclear what it's going to add. And so I think there's a little bit of that distraction. But then on top of that, the big part is that from a competitive perspective, it makes AST SpaceMobile a much more attractive partner because there's Musk and then there's everyone else, and we happen to be an important piece of everyone else. And everyone else is like a very large ecosystem of companies that are very important. And so that's a good place to be. And it's not just companies that are important, it's like a ton of M&Os. It's also governments, countries, it's a whole host of things, right? And so that's a good place to be. The other thing is that I do think, and it's a matter of timing exactly when the company might you know, talk about this more, but, you know, it seems like everybody wants big stuff in space now. And so, as I mentioned before, like the unfolding of BB-6, I think has opened a lot of people's eyes, whether that's from the government, but also potential strategic partners. And so the company now has this platform, this, this, like this spacecraft, they've got The FM1, FM2 spacecraft, they still have Block 1 spacecraft, but now they have Block 2. And so, as I mentioned before, you know, you can populate FPGAs, ASICs, GPUs, whatever you want on that. And so that's a very powerful platform. You can use QV backhaul, you can use the antennas for low-band, mid-band, C-band spectrum, high-band spectrum, depending on how you architect that. You can use laser links, there's a whole host of things you can do. And hey, it has built-in thermal management and radiating capabilities. Now, obviously, in my opinion, like, I think the satellite probably, you probably might have to add additional radiators to the satellite if it's going to be in the sun constantly versus currently Bluebirds go in and out of the sun. And so the need to dissipate heat is probably not as high, but these are all things that you can work on, right? And that's what's exciting. But yeah, I think the company having a platform is very valuable and it's something that the market perhaps doesn't see yet, but it will. Let's see here. And I think the other thing is that as we've seen in the past, the company has raised They've learned this strategy where when they raise money, they do it ahead of really big catalysts. And so we'll see what lies ahead. Now, is something going to get announced tomorrow or Friday or Monday or Tuesday? Who knows, right? But what we do know is that VB-7 is going to get launched and so are the other satellites. And of course the company's working on a whole host of other things. And so at any point, Things can get announced. And so I will say that I actually thought this evening before doing this space, I was like, should I even do a space? Because I kind of want the stock to go down because if you get like people too excited and the stock doesn't go down, then there's like, there's no buying opportunity. And so I think I'm at a point, I don't know about you guys, but I'm at a point, and Kook I think is also at this point too, where I have trust in management. Like they've been great stewards of capital and they've spent in the right areas and they've executed. And yeah, timing has slipped, but they just unfolded the largest phased array in space, you know, a 5-ton satellite, and they've got more in the works and they're the only guys that can do this. Like we talked about this, this morning and last night, like aside from NASA and a few government entities, like no one has been able to pull this off. And that includes SpaceX. So that's really valuable. And if the company wants to raise $1 billion because they see some opportunities or they want to beef up the war chest because any number of things could pop off, go ahead, do it. Do it. Like, If you, if the potential dilution, not the actual dilution, but the potential dilution is 3%, then go raise it. Like the company, I think it's important for people to understand, like the market is giving the company a mandate right now to, you know, you guys are the perceived leaders in direct-to-device and these are the other applications. We're going to give you this valuation and this market cap. And so with that, Through being a good steward of capital, you can go raise money and pursue opportunities. And so I think like some of the, again, some of the accounts, Twitter, X, or Reddit, people kind of have a small mindset. They're like, oh, this company is still $500 or $600 million in size and they should only maintain a $100 million cash balance. No, you've got to think beyond that. Like we are so far From that, you know, this company is talking to, having conversations with every global MNO. It's having conversations with governments, the US government, European governments, governments in Asia. It's doing very important military work. This is not some small, tiny, you know, de-SPAC company. It's doing important stuff and it needs capital. And that's okay. Just going through some of my notes here. Oh, so one thing I wanted to highlight, let's just talk about some of the numbers here. Or maybe before I do that, I will say, you know, given the opportunities out there, it's important for the company to raise some money, even though, you know, one of the criticisms I saw online was like, well, Why don't they wait until they've launched more satellites and the stock price is higher? That's not how capital markets work. If you want to do it properly and reward investors, you do it ahead of positive catalysts, right? And so you give them the incentive to buy today and get a position, and perhaps that might be at a discount, but you execute that offering and with the idea that hey, and we are going to have these big catalysts in a few weeks' time, months' time, which is why you want to get in, right? And so you don't do it off the back of something, which I think the company learned the hard way back in the day when they were like, oh, you know, we're going to try to be like a biotech company where you announce positive results and then you go raise money, which that's how it typically works in biotech. But for space, you want to raise money before the big event, 'cause you want to give people the incentive to get in. So I think, you know, this raise is no different. I think there's going to be some positive events that are coming. I don't know exactly what they are except for, of course, the launches, but then, you know, I can rattle off any number of things like the fact that BB6 unfolded successfully, that increases our probability of getting our US commercial market access application granted. That went up pretty materially from BB-6 being unfolded successfully. And so there's, again, there's a whole host of catalysts, which maybe I'll try to update it, maybe not tonight, but tomorrow I'll update it and send that out. Let's see here. Just going through my notes. Oh, one interesting nugget that's an aside. There was someone who reached out to me anonymously who I believe has done some recruiting work for the company. And they were just telling me that they've done, they've had a ton of business from the company where they've picked off a lot of people from SpaceX and Level 3 and a bunch of primes, and they've placed people at AST. So that was a fun nugget. When I heard that, it made me smile quite a bit because I think obviously it's, if you think about like Midland, Texas, it's kind of out in nowhere and there's not a ton of stuff to do there. It's probably a super nice town, but it's not going to be some of these hubs of innovation because it's back in the day it was like, or it historically has been an oil and gas driven economy, but to attract like the cream of the crop, aerospace defense, RF engineers, production managers, all these kinds of people from companies in the sector to attract them to Midland, Texas is not easy. And so it's not just going to be like cash compensation, which the company doesn't pay much stock compensation. That's great. That's a great incentive for people and for a company of this size, like with the growth opportunities ahead, there's still a lot of upside in the stock. But aside from all the financial incentives, like joining a company that you believe in where you can make a difference, like that is going to be for especially, I mean, young people, that's going to be a real reason why you go join a company. And for the company to attract people to Midland, it's not easy. But that should give you guys some level of comfort that, hey, what these guys are doing is pretty special. And the fact that people are leaving these great cushy jobs, and we talked about some 2 executives from Raytheon that joined recently. Yeah, that's huge. But going to the numbers, I did want to point out a few things. So the disclosure today, because they raised the convert, they did have to pre-announce a few numbers. And so one cool nugget that came out is the fact that the company is going to, it hasn't been finalized yet, but they are going to do about $63 to $71 million of revenue, which was in line with guidance. The guide for the year was $50 to $75 million. And so, hey, we're not a pre-revenue company anymore. We're going to generate somewhere between $63 to $71 million. Someone asked, you know, why isn't that number more firm? Well, there's still, even though the year ended, you know, they still haven't finalized the books. And so, but, you know, we are going to fall within that range. And I believe, you know, due to some timing issues, there was the potential to potentially beat that range. But it is what it is. Like, company's going to to make that money or report revenue within that range. The other thing is adjusted operating expenses, which doesn't take into account stock-based compensation, is going to come somewhere in between $275 and $263 million, which is quite a lot. And so as I mentioned before, the company's spending a lot of money in this stage of the process. And so you know, raising additional money is going to give them a lot more cushion to go execute. Cash and equivalents at the end of December were $2.8 billion, and I think pro forma for this offering and also some use of the ATM will get us to about $4 billion pro forma. Again, a really big number, but also not that big when considering the market cap of the company is about $36 billion. And so when people ask about dilution, the shares that are being issued directly, so the direct issuance that the company talked about today for $250 million, that at the closing price of $96, that's only 2.6 million shares. And then when you take into account the convert, which is what, if you assume the overlotment option is exercised, that's 1.15 million shares. billion at a 20% conversion premium to $96, that's $115. The potential issuance of shares from the convert, if they, you know, at some point exercise in the future and they're in the money, that would be about 9.9 million shares. So in total, everything comes out to 12.6 million shares, which is about a day of trading, which is not that much. And the implied dilution based off of shares outstanding, which is 369 million shares is only 3.4%, which is really nothing. And so I saw the stock price like move down and it's going to trade heavy tomorrow because you're going to have convertible ARBs that are going to, you know, so there's a bit of a bounce where if they, let's say they placed all 100% of the convert with what we call fundamental long-only holders who Own the convert. They like the credit, they like the fundamental story, they like the potential upside of the stock price. And so they would just buy the issue and then not hedge anything. Whereas if you were to place it fully with convert ARBs, then, you know, those guys would go out and hedge the underlying deltas of the warrant that you get in the convert. And so there you have like some level of shorting that happens. So based off of, let me just look here. I mean, if we assume like, I don't know, maybe 70% of the issue is given to convert ARBs and they're maybe on a 60 delta or so, I think, you know, they might need to short like 4 to 4.5 million shares to get hedged. And so that's not too bad, but you there's going to be some selling pressure. Some of that happened after the close today and it'll happen tomorrow. What I would recommend people do is like, if you are interested in buying at these prices, you know, you can kind of pick at it, but just wait and see like how it settles. And of course, you know, the market has been very volatile. The entire space sector was off today, which I, this is another reminder, like for people who are following single stocks, they're like, hey, what's wrong with the company? Something's going on. It's like, oh, you should look at the sector. 'Cause, you know, if the entire sector's down, there's, it's not just something that's company specific, although today is the exception. AST being down was, you know, pricing in this convert to a degree, although, you know, the unfolding news, the company was only down 1 or 2% for most of the day and closed just slightly off, which was good, right? Let me see here. Yeah, we were basically, And that's actually a testament to, you know, the fact that they marketed this confidentially and brought people over the wall. The fact that the stock actually hung in there is pretty impressive on a day where the space sector was off. Like, I don't know, you pick a name, like Intuitive Machines is down 9%. Carmen was down 13%. Let's see, Rocket Lab is down 3.4%. Firefly, 9, you know, basically 10%. The fact that the company stock price closed up today and they were marketing this convert, and of course after hours, you know, the stock fell, but that's pretty impressive even, you know, on the back of positive news. And so anyway, I guess my point is that there will be some downward pressure from hedging tomorrow, but you know, it's not, it shouldn't be that bad. And then you'd expect maybe after Handful of days, 2, 3 days, like that's going to subside. And then, and then we're depending on what's, you know, what news comes, we're off to the races again. So anyway, I think that's pretty much what I had to cover. Let me just look and see if there's any questions. Let me look here. By the way, if anyone has any questions, you can put them in the comments. Haven't listened yet, but could those buying puts been prepping for this? I wonder if anyone had prior knowledge. So let's see, did anyone have prior knowledge? Yes, people definitely had prior knowledge. But when you're restricted, when you're brought over the wall, that's Wall Street speak for like, hey, are you interested in doing this deal? If you are, Or if you want to hear about a deal, we're going to bring you over the wall. And so what happens is like, they don't tell you who the company is or what's going on, but then if you're willing to be restricted, then they'll say, okay, we're bringing you over the wall. You agree to be restricted. We're doing this convert offering for AST SpaceMobile. So what happens is like, if you get brought over the wall, you're not supposed to trade on it, nor is your firm supposed to trade on it. And if you do, you can get into a lot of legal trouble. And so, but oftentimes, even though that's the case, things will get leaked and people find out one way or the other. And that's where you see, you know, maybe the stock price comes under some pressure. Although today, as I mentioned before, because of the unfolding news, the stock closed up relative to the rest of the sector, which was down 3, 4, 5, 10, up to 10%. But yeah, there's probably going to be a few People out there who knew ahead of time and maybe they traded on it, but I will tell you this, like if you are in, in possession of material non-public information or you're restricted, like don't trade on it. It's not worth it. Let's see. How's the launch cadence? That's all I care about. If they can't hit that, I won't add to my position. The launch cadence is what it is, right? Like, as we've talked about, there is a backup in processing because there's, you know, there's, I think, and I'm not as close to this, but I think SpaceX, they're maybe 1 or 2 processing, you know, 1 or 2 pads are down right now and they're launching Dragon, I think on the 13th, or maybe that's been updated. And then you've got Artemis as well. And then of course you got Blue Origin New Glenn 3, which is our ride. And so that's going to happen no earlier than late February, and that probably slips into February or slips into March. And then the Falcon 9 launches like that we have lined up, those probably slip into late March and probably early April depending. And so I think we'll probably get 3 orbital launches by the end of March. But, um, but yeah, it's not, it's not great, but it's also not the end of the world by any means. I mean, as I mentioned before, it's inevitable, it's going to happen. And, um, sometimes things take longer than you expect, and that's quite all right. And oftentimes that's good, right? For space, you can't screw up, you can't fuck up. And so you don't want to send satellites up in space that get bricked and become You know, inoperable and people get upset. You want to send satellites that are working and you want things to go off flawlessly. At least that's the DNA of this company. Let's see here. Some other comments here. Someone is putting the Olympics on mute for this. Oh, thank you. You know what's kind of funny is like, I have not had any time to follow the Olympics. So I've missed most of it. Lulu says, just means dilution. Yeah, it does. But guess what? Dilution is not bad. Yeah, I think people are conditioned that dilution is bad. And I guess maybe folks have invested in really shitty companies before that maybe their MO is to just, you know, run the company to pay themselves and they just keep doing offering after offering. And I've seen some of those, by the way, not that I've invested in them, but this company in particular, you know, you've seen some critics say, well, they've raised a lot of money and they've deluded people. Yeah, they've had to raise a lot of money. They're putting up, they're doing something really hard. They've spent several billion, I think it's like $1.5 billion in developing the satellites. And they're about to launch commercial service and putting up satellites is not cheap. It's really expensive. But once you have that asset, that constellation floating out there in space, you can amortize the cost of that over multiple carriers. And of course, like you turn on subscriptions and it becomes a cash flow machine, right? And so it takes money to make money. And so when you see Flip these flip posts of, oh, it just means dilution. Well, okay, what does that— that's not helpful. Like, not all dilution is the same, right? And so if you were to say, you know, if you owned a piece of, I don't know, you pick any company like Facebook back in the day when Zuckerberg started it, and but he needed a few thousand dollars to get the thing off the ground. And if you were an existing investor and you owned, I don't know, you owned like 20% of Facebook back then, and then someone came in and said, hey, I'm going to give you $30,000 to get this company really off the ground, but I want to own like 10% or 20% of the company. And you're like, well, no, that's way too much dilution. It's worth more. Go screw yourself. And then of course, like the company never gets off the ground and doesn't become A trillion-dollar market cap company, like who's the bigger fool, right? So it takes money to make money and I think people need to kind of, they just need to get over this idea that raising money is bad. If that money is being raised for accretive opportunities, then it's good. Let me see here. Did you catch the AT&T Eptronic investment announcement? I didn't, but I will take a look at that. Let's see. I think those are most of the questions. So anyway, I hope this was helpful. I personally, you know, I think the stock is going to open, you know, in the morning, like there's going to be hedging and it's probably going to take a day or two, but the amount of hedging relative to daily trading is not that bad. And so of course, you know, who knows what the macro environment's going to bring, but I'm going to be looking to take advantage of this. And if we do fall heavily, then I'm going to try to look for some upside as well. But okay, Geek Street, do you think this will be the last raise? Well, that's, do I think it's going to be the last raise? Do I want it to be the last raise? Yeah, it would be great if it's the last raise, but if the company, I guess I'll pose it this way. If the company gets a $3 billion award from the US government and they're like, hey, in order to get that award, you need to go spend, I don't know, you need to go spend an additional $500 million. And the company's like, well, We've already allocated, you know, the $4 billion that we have, we've already allocated some of it for this and this and this. But we've, now the government's asking me to spend $500 million for a $3, $4 billion contract. You know what? I'm just going to pass on it. I'm not going to raise the money. I'm not going to, you know, $500 million, which is like what, 1.5% dilution? Eh, it's not worth it. No, of course not. The company is going to go raise the money. And in the future, what it will look like though is that as additional commercial contracts come in and you have prepayments, then those are gonna be non-dilutive payments. You still have this $500 million application for Ex-Im financing that's out there. Eventually, once the company gets, you know, stands up commercial service and has revenue that's of size, and, you know, they'll be able to go raise debt against it. And so it's, you're going to raise other forms of capital. But at this stage in the company, like you don't want, if there's accretive opportunities for them, you don't want to put a muzzle on them and say, hey, you can't go raise money. No. Like I think it's important like to understand if, and this is really important for any investment, if you don't trust the management, team, like if you don't trust the management or board to be good fiduciaries and stewards of your capital, then you should not be invested in that company. And this holds true for every company. And oftentimes I'll see on X where people are like, oh, I don't trust management. Like I don't know why they're raising money. And you know, it's like a knee-jerk reaction. The stock is down. I mean, it's not down that much. It's from the close, it was down what, And then of course, and let's see, let's check on Robinhood, which by the way, like these overnight markets, they're not that accurate 'cause it's not on much volume, but you know, stock's at what, $89? So it's down $7. Like it's not the end of the world. Like on any given day where you have some level of pullback in the sector, the stock could be down on its own that much anyhow. But yeah, when a company raises money, like Yeah, no, it doesn't feel good. Like this, you take a mark on the stock and it goes down. But for good raises, which, you know, the company, someone had pointed out earlier, every time AST SpaceMobile has raised money in recent, you know, in recent, what, I guess the last 2 years, the stock has performed quite well post-raise and has gone on to new highs, right? And so I don't expect that that dynamic to be any different. And that's why even today, you know, I had added some AST this morning and I felt good about it. And then of course, like they announced that they're doing a convert and the stock is down. And my initial knee-jerk reaction was like, well, that sucks. Like I bought some stock and I bought a little bit of options today and okay, so that I'm going to be down on that. But then of course my mind flipped immediately. It's like, well, what are they raising money for? And I looked closely at it and it's like, oh, I'm excited about this. And so I went from this sucks, I'm down to, okay, where can I buy more? And for example, for those that know, I have this like pretty large option position in Vodafone that's done quite well. And so I've been actually monetized a little bit of it today, but tomorrow I'm like, oh, maybe I should monetize more of it. Because I feel like if there's, if ASD drops enough, like I think that'll be a pretty good buying opportunity. But yeah, you know, as I mentioned before, like Kuk and I, when we were talking earlier today and, you know, we felt comfortable with the fact that the company's raising this money, it wasn't like, oh shit, why are they raising this money? It was more like, oh, they're raising a billion dollars. Like, I wonder what they're going to go do with it. Because nowadays, given everything that's in front of the company, it's something to be excited about. It's like, okay, they're raising this money because they want to go pursue some of these really huge opportunities that are going to be very accretive. And so yeah, I'll end the space with that thought. I'm sure overnight I'll probably think of other things too, but Yeah, I'm excited to see how the stock price reacts tomorrow. I personally am hoping that it opens pretty weak so that I can, you know, put on some trades, but we'll see. But anyway, I hope this was helpful. And yeah, I think if you believe in management, events like this should be very exciting because it is a foretelling of something that's going to happen. Companies don't raise money outta the blue. Good companies that have a lot of opportunities in front of them. These are these are events to be celebrated, right? Because they they they see opportunity and they want money to go pursue them. And that's how you should think about it. Anyway, that's it. Hope everyone has a good night and we'll catch up again tomorrow. Take care.
[01:11:17] Speaker A: Thanks for listening to the AST Space Mover podcast. If you enjoyed this episode and you'd like to Help support the podcast. Please share it with others, post about it on social media, or leave a rating and review. To catch all the latest news about AST SpaceMobile, make sure to subscribe. Thanks again, and I'll see you next time. We're doing something very, very big, and I think we need to know it. We can really affect billion lives. AST SpaceMobile is the only company that have proven technology to deliver cellular broadband connectivity directly from space to the everyday smartphone. People will just basically turn on their phone and be seamless. Regardless of where you are, we don't want the user even to know that it's connected by satellite. Our role is to bring this into reality, always in partnership with the NMO. Listen.
[01:12:17] Speaker B: Mmm, waffles.