Anpanman - Accretive Opportunities to be Funded

[00:00:06] Speaker A: This is the AST SpaceMobile Podcast.
[00:00:09] Speaker B: 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. Hey everyone.
[00:00:27] Speaker A: Figured I'd start up this space because I think perhaps there's some confusion and of course some people need to be reassured, I guess, to be talked off a cliff. We looked on Reddit, a number of us, and there's clearly either panikins or people were trying to use some level of deception to, I guess, drive the stock price down. But But yeah, there's a couple of pieces of information that came out today. Let me just make sure that people can hear me. Let me kind of— before I start rambling again, give me a thumbs up if you can. Okay. Looks like people can hear me. Yeah. So we had some news come out today, which I think is important to kind of go over. Let's see. So the first piece of news, there was an 8-K filed earlier today, which I guess that was the first thing to hit the tape, and that was a new employee incentive plan, which includes, which will be up for a vote in November. And it basically, let's see here, I just want to make sure. Sorry guys, I'm just reading this now. The amount of shares that can be issued for the incentive plan is 14 million shares in this amendment. And then I think the total overall is 15 million shares, which includes some leftover stock, which is important to note, leftover stock from the 2020 incentive plan. So, you know, I saw some people freaking out on Reddit. They're like, oh my God, this solution. And it's, and I think it's important to understand that this is an employee incentive plan. And so when you have a And I'm kind of facepalming myself, like as a public market investor, people should know this stuff, but if they don't, yeah, as a growth tech company, oftentimes people are given incentives, either, you know, they might be restricted stock units or it could be stock options, but you actually have to authorize the underlying shares in order to do that. And why would a company issue restricted stock units or options for employees? Well, you want to align their incentives, right? So if an employee at AST SpaceMobile is working their ass off, which I know many are on the production floor, if you're working, you know, multiple shifts and call it 18-hour days or, or during crunch time, it might be, you know, up to that, that level. If you were just being paid a salary or hourly wage, then you would have little incentive to work harder because you're not really seeing the benefits of that labor. And so, you know, just like an hourly employee at McDonald's, they may not do their best, right? Because you don't get rewarded necessarily for doing better or having higher production or having great customer service. Now, if you're a waiter or waitress, oftentimes you will see those folks try to do their best because they are incentivized by a potential for tips, right? And so similarly here, for A16Z SpaceMobile or any type of tech company for that matter, and most regular companies, they grant these stock options or RSUs to incentivize employees because then employees are fully aligned with shareholders that if they meet deadlines, if they go above and beyond the call of duty for work, then their stock price, they should see appreciation, right? And not only do those folks, you know, make some level of salary or perhaps they're hourly workers, but if they do have stock incentives, then they will reap the benefits of the stock price doing well if they hit deadlines and, you know, the management executes. So that's just part of normal course business that, you know, you have a pool of shares that you're authorized to grant. Obviously you don't grant them all today. You grant, you know, when someone's hired, they might get a package of options And those might, you know, vest over 4 years based off of how long they've been. They might get ongoing grants as well. But, um, but yeah, for any normal thriving growth company, you have to, uh, grant, you know, folks equity incentives to properly align their work and reward them for that hard work. So that's, that's kind of, you know, I think people for whatever reason, and this is probably Reddit, um, misunderstood that, uh, this is a company raising money. No, it's actually just having the— increasing the authorizations to have the flexibility to, you know, grant ongoing equity, whether again options or RSUs to employees. Moving on to the second piece of news, the company did put in place, and this is something that we're all very familiar with because as Kuk has mentioned in previous Spaces, the company views at-the-money offerings as a very As a very great tool to raise capital from time to time. And this is something that I think Abel, as an owner-operator who owns, who obviously, whenever there is some level of dilution, he feels it the most because he owns a significant amount of the company. But the company views this as a very efficient method to raise capital. And as Kuk has mentioned in previous Spaces, you know, there is this belief with retail shareholders that, you know, during the difficult times when, whether it was, you know, short sellers or skeptics or whoever, you know, were giving the company a hard time and didn't believe, and this was during the 2022, 2023 period, you know, retail shareholders stuck with the company. And as part of that, the company kind of went down this path of of after doing one marketed offering, which was pretty brutal, decided that the at-the-money offering was probably a better tool that gave them flexibility. Like when you do a marketed offering, you basically have to go out for the complete nut, right? Whether you over, you go for a much bigger size or whatever it is, you do an offering, you place it with institutional investors, you know, depending on the quality of those investors, some percentage of them could be long-term fundamental investors and they actually hold the stock, they might buy more in the aftermarket. However, if you're placing it with hedge funds, like, you know, their capital markets desks who are looking to make some spread, you know, the offering gets priced at some discount. For good companies that might, that are well followed, it might be a 3 to 5% discount for, you know, more speculative companies that may not have institutional support. You're looking at pretty big discounts and depending on the capital markets environment, you know, that could be 10, 15, 20, 30% discount. And so I think the company has used the at-the-market offering as a very savvy and flexible tool to raise capital from time to time depending on what the needs are. And so we've seen this, and this has been pretty much the expectation now for investors that the company will have an ATM in place At specific moments in time when there is this need for flexibility. And I think given where we are right now, putting one in place, which today the company put in an $800, up to $800 million ATM in place, I think it's smart. And the reason why that is, is that first of all, let's take a step back. The market capitalization yesterday for the company was $26.1 billion and putting in place an $800 million ATM, that, let's just assume like they raised it all today, which they're not going to, but if they did, that would result in about 3% dilution, which is pretty de minimis. And so if the company, let's just say they put it in place, they don't raise anything today, and for whatever reason, you know, reformed trader who has been, by the way, like spot on in all of his calls, let's say if the stock price were to go to $500, The company would be stupid not to raise money at that price. And the reason why they would want to raise money, I know some people have hemmed and hawed about, you know, hey, management told me that the constellation, the, you know, 45 to 60 satellites is fully funded. Well, yeah, it is fully funded based off of our current capital position. I think there's some, obviously there's potential funding that's coming in, whether that's FirstNet, you know, import-export bank funding, other types of, you know, commercial prepayments. There's also, you know, defense awards, right? But at the same time, if you're a company that's in AST's position, and we talked about the different opportunities, whether that's on the commercial side or on the defense side, you know, in particular, Golden Dome or any of the other, you know, 10 potential use cases, A lot of these things actually require some level of CapEx upfront. And so while the initial constellation may be fully funded, there may be these other opportunities, many of which perhaps we don't really know about, which, I mean, Ligado is a prime example where no one expected the company to buy spectrum. And then lo and behold, they pulled the trigger in January and they were fortunate enough to line up some credit, an SPV that they could draw down on debt basically to help pay for that. But then they also issued some warrants and then there's ongoing cash payments as well. But that was an opportunity that was ahead of its time that no one really foresaw and it required capital. And then you fast forward a few months later, Starlink pays in cash and stock $19 billion to go buy EchoStar's AWS-3, or sorry, AWS-4 and H-block spectrum. And so for a company in AST SpaceMobile's position, you're going to want to have the ability to tap funding for some of these things, like the global S-band rights. We paid some shares for that. That was small enough where you could do that. But then if you're looking to If it's acquisitions and Rocket Lab holders will know this quite well because the company's been very acquisitive. Some of these targets are going to want actually cash instead of stock as consideration, especially if they're VC-backed or private equity-backed. But I think in AST SpaceMobile's situation, I think it's important to note that for some of these government opportunities, if you get an award, you are going to get some money upfront, but then you're going to have to fund some level of CapEx as well. And so it's important to go back and look at what the company's done recently. You know, they've expanded space in Spain, production facilities in Spain, also Homestead 4, which I think is very strategic in terms of location. And I think the production facility there is basically You know, in anticipation of some of these defense awards, and that facility's going to have to be built out. And then as Scott mentioned recently in Midland, which was news to us, they've expanded space there and they will have the ability to ramp up production now. Of course, you got to buy equipment and hire people, but, you know, we originally thought that the top end of satellite production was 6 per month, but now they have the ability potentially to go to 10 to 12. And so that money, you may have a fully funded business to do 6 a month for the first 45 to 60 satellites, but then if you are planning to potentially pull forward production and raise capacity, and the reason why you might do that is you might want to get to commercial service faster and/or going back to the defense capabilities, if the Department of Defense, or sorry, Department of War comes to you and says, hey, we actually want to build our own constellation utilizing your technology. can you build these satellites for us? We'll give you a bunch of money, but that's going to be money doled out over time, but you're going to have to put forward the upfront CapEx to do that. Yeah, you're going to pre-fund that CapEx and you're going to build it out because it's going to be highly accretive, right? And so I think those are, you know, some potential uses. The other thing I mentioned before is spectrum. Where, you know, I think given where the company is right now, a lot of the opportunities for SBAM globally are going to be, you know, going to regulators and giving them a package of, hey, this is what we're going to do. This is why it's going to be beneficial. We're working with this MNO. And so oftentimes those are going to be just a regulatory process where you get granted the spectrum for use. But then there might be situations where You might actually have to go acquire the rights. If there's a preexisting player who's not really using the spectrum, or maybe they're not utilizing them properly, you might have to pay some cash or whatever it is to get that done, right? So I think for the company, having a flexible war chest is important, especially at this point in time where, I mean, quite candidly, there's almost like this insurmountable wall of opportunity where you've got a number of things on the commercial side, a number of things on the government side. I mean, we haven't even talked about FirstNet. You know, that I assume we'll get, you know, some level of funding for FirstNet. I mean, we'll find out. But then on the defense side, you know, there's all these different applications that will require some level of upfront investment. And then overall, I think, The other thing I forgot to mention is that, you know, because we have Ligado spectrum and we're pursuing S-band spectrum, that, so our current Block 1 Bluebirds can address low-band spectrum, 600 to 900 megahertz, but then you will have to put up a new satellite, which is what will be what we call Block 3, which will be, I think, in terms of form factor, similar in size or perhaps smaller. You actually don't need as big of an array for, to utilize mid-band spectrum, but they might keep the same form factor.
[00:14:51] Speaker B: Yeah.
[00:14:52] Speaker A: which would actually improve the efficacy of those satellites. But there will be another constellation. And so while I know the company has been, you know, they've worked on 4th and 5th generation type of satellites. Yeah, you have designs, but then you're going to need to start procuring materials and start planning for production of that other constellation. And I think actually going back to what Scott was saying, which is potentially getting up to 12 satellites, per month in terms of production. I think he's probably, you know, let's put the defense angle aside because I think, you know, a lot of these satellites are going to end up being dual use case. If he's talking about 12 satellites a month, then they're probably thinking about pulling forward the production of the mid-band Bluebirds, right? So Block 3. So while we're putting up the first shell of low-band Bluebirds, Block 2 Bluebirds over 2026, I wouldn't be surprised if we, in the next quarter or 2, the company starts talking about expanding the production facility to start manufacturing mid-band inverts. Because I mean, right now, you know, we're at this period of time where, you know, there's this tremendous opportunity and one of the key limiting factors or 2 key limiting factors are, you know, one is human, which is management bandwidth and hiring enough people to execute on the opportunity. And then the second one is capital, right? I mean, you can, up to a certain degree, you can throw money at something to accelerate production and roll out. And so I think the company is putting this in place to have that flexibility. And it's important to note that they may not tap it or they may tap all of it. I mean, who knows, but it's up to them. It's up to their discretion. I would assume that Given the run-up in the stock price, the company wants to have this in place for flexibility. And what changes in terms of how the market perceives this is that, you know, in the past for AST SpaceMobile, you know, if the ATM was put in place, and this is when you had, I guess, like it was more a retail ownership, and then of course a lot more uncertainty in the business. just given the level of development, then the stock may have sold off quite a bit. Whereas now, given where we are and people, I mean, it's like very, at least for retail shareholders, I can't say the same for most institutions, although there are a few who are pretty savvy. I think we all know the menu of opportunities that are in front of us and all those require capital, right? And so now we've kind of shifted from the market reacting in a negative visceral way that, oh my gosh, it's Lucid and there's still uncertainty towards, hey, we're actually at this point of execution where more money actually helps. And even beyond that, there's these highly accretive opportunities to go execute against, but we need money. We need money to go do it. You have to spend money to make money, right? And so I think Now you're seeing an adjustment in the mentality of the market and how it perceives these things. And yeah, so I think it's important to understand that because these, and to credit to Rocket Lab shareholders, I think they understand this quite well because Rocket Lab in that situation, the company is trying to build an end-to-end space company and they're doing that through, I mean, you can only do so much organically. they're going out and buying great assets and they're taking advantage of a currency that's rewarding them for those acquisitions. And so they put in place an ATM, they're doing acquisitions and it fits the strategy and those acquisitions from the perspective of investors should be value creative and highly strategic. And so I think we can all agree that the one acquisition, I guess the company has done 2 acquisitions. The one key acquisition though is Legato that was highly accretive, right? And so, you know, we've talked about whether Legato is worth $12 billion, $15 billion, you know, once fully deployed, of course. But that spectrum is highly valuable. And so having the capital and currency able to do those acquisitions is important. I talked about Firefly yesterday. You know, we saw them actually go issue stock and acquire a business on the defense side. I think it's like defense software. I didn't really get a chance to read through that, but in that case, I feel pretty bad for those guys because, you know, they missed their quarter and then they announced this deal with the stock down pretty significantly. And so they suffered unfortunately more dilution. than they could have if they had put up a good quarter and then issued stock at $45, $50 versus, I guess, in the $20s. But yeah, just wanted to get people together to kind of go over what this ATM means, which I think, as Tutte would say, trust the process. I mean, the company has been a good steward of capital and, you know, the stock price, we joke, like, I know some people are upset that the stock price is down, what, 4%? But yeah, we haven't been at this price since Friday or actually early Monday. So anyway, yeah, if the company is raising money, you know, it's probably for good reason. If they're not raising money, they want to have it in place. You know, you want to have that flexibility in case we do hit the $500 mark or $100 mark, whatever it is, right? I think from being a fiduciary of the company and a responsible board, you do want to have these things in place for a growth company that's at this stage where the capital needs are pretty high until you get to the point where you're generating significant cash flows to cover your needs, which I think is going to start kicking in over 2026. And then as a reminder, I think once we have 25 satellites in place, that should cover our operating expense burn. But then obviously there's going to continue to be capital expenditures Until we launch the full commercial service, which at that point I think we can all safely say will be self-funding. But anyway, I guess the last thing I would note is that the other piece of news today that came out is Scotiabank. They have a price target of $42.90, which they've kept for quite some time. Interestingly, you know, I've followed the reports that that analyst has published, and I've talked with people who've talked with them, and that research analyst was quite bullish early on and been a big proponent of the company. But then I guess over the last few quarters, they turned markedly bearish. And from what I understand, there's a number of short sellers that have successfully converted this guy. And so when you look at his research, what it was literally, a few months ago to where it is today is like night and day difference. It's like the guy fully understood the thesis and was on board. And then for whatever reason, maybe commercial reasons, maybe Scotiabank services some of these hedge funds that are short. Now he's like negative. So today he came out with a report, which was he downgraded the company from neutral to sell. And obviously if you have a stock price targeted at $42.90, then that's probably not a bad thing to do if you truly believe in that. But anyway, you're going to have these research analysts that are going to kind of go back and forth. I always like to say for the research analysts that are neutral or that are negative, that's room for them to eventually change, to upgrade in the future when they're wrong, which I think this guy is wrong. But yeah, that's another piece of news that was out today. But I think for the stock to be down, what, 5% at one point, we were down just 2 to 3%. Again, this is potential dilution up to 3%. That dilution, by the way, changes like if the stock, you know, the company is not necessarily selling stock today, but you know, if the stock price were to rise, I'm just, you know, we're just making this up, but if the stock were to go to, if the stock were to double and go to $140, then the implied dilution is 1.5% if they sell there. So obviously it's like a, it's a moving thing depending on if and when a company decides to sell stock.
[00:23:39] Speaker B: Yeah.
[00:23:40] Speaker A: But anyway, that is my brief talk today. I don't know if anybody has any questions or, let's see here. I'm just looking at some of the comments. Someone's saying that will dampen the short squeeze. I don't, okay. I don't actually know if there's, I mean, yeah, I'm sure some short sellers have been covering, but I don't think it really matters at this point. I mean, there's, and the data feed that I get for short interest has been kind of wonky recently, so I haven't been able to get updates, but up till Friday, short interest had basically stayed the same. And so I don't think much of this run-up has been short covering. I think it's been like earnest buying or, you know, whether it's long only or momentum people or retail, but I think it's been buying. I don't think it's really been driven by short covering, which, you know, God bless the shorts. We like to use them as a whipping horse and a whipping boy. And like, you know, we like to play, I mean, I like to play with them because I think it's quite entertaining. And during quiet times when there's a dearth of news, I think it's always fun to just, you know, pick at shorts. But honestly, like, they actually are pretty important for us. they were bad for the company in terms of raising the cost of capital back when the stock price was lower. But now, I don't know, they're just kind of an interesting anomaly, right? And they continue to lose money and they continue to galvanize shareholders by spreading the FUD. And so it's similar to Reddit when people are pretty negative. Usually that's a sign to add risk to AST Spaceball to buy. And then when short sellers start taking victory laps like they did at 36 to 40, they're a great signal. Like I joke about Pivotal Capital and Onada Capital, whoever that guy is with the Japanese war criminal as his profile. But when those guys like start doing victory laps and say, I told you so, that's when you like back up the truck because they are great bottom signals. And I think it's important like to understand that any high-growth company, you're going to have these types of drawdowns. You're going to have a 30% drawdown, just like Reformed Trader had called successfully. It's just, you know, it's not a bug, it's actually a feature. Like that happens to all growth companies where there's some like uncertainty or doubt or people, I mean, it can be as simple as you have one or two large shareholders that are rebalancing it or looking to cut risk and so it moves the stock or you have sector beta, sector beta meaning like just movement of the overall markets. And every company has correlation, some level of beta and, you know, like relative to the markets. And so you're going to have this like washing machine where sometimes the entire sector moves down or entire sector moves up. And so I think shorts play an interesting role and they keep us entertained, but I don't think they've actually been a big part of this rally. And Unfortunately for them, they had the opportunity to, I think it was quite funny. I'd already covered this before, but for those that didn't hear, when Vodafone CEO came to visit Midland, and an interesting nugget from what I heard is that she came to actually sign FM1, the satellite, because it was done. And I think one of the cool things that Abel and management team are doing to really, you know, make these MNOs feel like they're part of the partnership, which they truly are because the service would be nothing without them. But inviting leadership to see the final product and personally sign each one of these satellites, I think is really cool. But yeah, it was funny when the company tweeted that, hey, Vodafone's here and they're visiting, like all these short sellers on Twitter were like, oh, see, like nothing's happening. They're not, they didn't get it shipped. And they're just, you know, spreading, they're just PRing this to to cover their ass and create some type of positive message when in fact nothing is happening. When in fact it was the opposite. They actually invited Vodafone over because the satellite was ready for the executive to sign and because it was ready for shipment and ready to go. And so the stock like dipped that morning. Short sellers were like, you know, doing victory laps. Reddit was like losing their shit. And of course the stock wasn't even down that much. I think it was down a dollar or 2. And then lo and behold, the satellite's ready to ship and the stock went from Oh gosh, let me take a look. I know I've got a bad memory, but it was just last week. I mean, the stock went down to like $48, $49, and then all of a sudden with the news, it closed the week at $60, basically $68, right? So yeah, I mean, if you're a short seller, you may, you're making your, I don't know wherever you shorted, but you're making your 4%. You should be covering right now. this is your opportunity. But because I think, as I mentioned before, at least for retail shareholders and folks who know the AST SpaceMobile story very well, an ATM is not a bad thing. It's actually a tool that the company uses. They're not going to go out and do a marketed equity offering ever, or I won't say ever. Maybe they'll do that eventually to bring in more institutions. But aside from convertible notes, which you actually have to go market those. From an equity perspective, this is just the normal course. And I think as I said, you know, there's a number of opportunities for them to pursue and that's why they're putting in place. So that's that. But anyway, that concludes my talk. I hope that's helpful. I'll, I guess I'll post this on Reddit to get people off the cliff, which as we joked, I mean, We're at a stock price not seen since Monday morning. So anyway, I hope everyone's doing well and yeah, well, I'm excited to see, I do think, and when I've alluded to this before, but I think we have like some big news that's going to be dropping any day now. And in particular, I think 2 M&Os, one starts with the letter V, the other one starts with letter B, and you can figure out from The 50+ that we have, I think the commercial definitive agreements are coming very soon. And so yeah, that's going to happen. But anyway, thanks for joining. I actually got to go to a dentist appointment here shortly, so I got to cut this off. But maybe I'll be back later when we have our positive news, whether that's today or tomorrow or the day after or imminently, which I know people like to use that word. But thanks for joining. Take care. Thanks for listening Thanks for listening to the AST SpaceMobile 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.
[00:31:02] Speaker B: We're doing something very, very big, and I think we need to know that we can really affect a billion lives. AST SpaceMobile is the only company that has proven technology to deliver cellular mobile 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 important Why don't you do the honors? Listen. Mmm, waffles.