- Shares of next-generation position, navigation, and timing solutions provider NextNav Inc. (NN) are down over 70% from their opening trade conducted in late October 2021.
- After impressive projections through FY26 were given on its September 2021 roadshow, the company is no longer providing any forecasts, significantly eroding investor confidence.
- With next to zero accounts receivable, yet compelling GPS 2.0 technology and half its market cap in cash, the recent beneficial owner buying merited a deeper dive.
- An investment analysis follows in the paragraphs below.
"I may not have gone where I intended to go, but I think I have ended up where I needed to be ." - Douglas Adams
This week, we do a deep dive on a once-promising small-cap GPS concern. The company has not lived up to expectations since coming public less than a year ago, and the shares are deep in 'Busted IPO' territory. The company has a large cash balance and some recent insider buying from a beneficial owner. A full analysis follows below.
Company Overview:
NextNav Inc. ( NN ) is a McLean, Virginia based provider of next-generation position, navigation, and timing ((PNT)) solutions that overcome the limitations of space-based GPS (Global Positioning System). The company has deployed two commercial products, owns a global intellectual property portfolio consisting of more than 130 patents, as well as FCC licenses encompassing 93% of the U.S. population. NextNav was founded in 2007 and went public in October 2021 via a reverse merger into special purpose acquisition company (SPAC) Spartacus Acquisition Corporation, with its first trade executed at $11.05 a share. The stock trades just below three bucks a share, translating to a market cap of roughly $195 million.
Products
NextNav Pinnacle . The company's first product, NextNav Pinnacle, was launched during early 2021 in partnership with AT&T ( T ). Its network provides "floor-level" altitude detection to over 90% of commercial structures over three stories covering 4,400 cities in the U.S., essentially enhancing conventional two-dimensional longitude and latitude data. The technology leverages the barometric sensors already available in phones, tablets, and many other devices by comparing the device data to local conditions, subtracting the weather and other factors to leave behind a highly accurate altitude measurement, which exceeds an FCC mandate for three-meter accuracy. It is easily integrable, only requiring a simple software upgrade to a device that has a barometric sensor. Likewise, developers can easily add it to their apps.
With obvious applications in 9-1-1 situations, its launch was fortuitously timed with the FCC requiring wireless carriers to provide accurate, floor level z-axis data for 9-1-1 calls. To that end, NextNav inked a deal with one of the nation's largest wireless carriers - yet to be named - for such a service. It is also part of commercial apps and app development platforms, such as Atlas Earth, Unity Engine, Eco3d, and Qualcomm ( QCOM ) . It also has applications in the gaming, mass marketing, and augmented reality spaces.
NextNav TerraPoiNT . The company's second offering is a land-based radio positioning and timing network that acts as a supplement/backup service to GPS known as NextNav TerraPoiNT. It employs a terrestrial network of transmitters to deliver resilient PNT capabilities, including indoor and urban environments where GPS is deficient. This dynamic is possible because the proximity of TerraPoiNT's transmitters amplifies the signal strength by ~100,000 times over GPS. With applications for driverless cars and drones in urban areas, as well as asset tracking, it has been deployed in 51 domestic markets.
Other GPS backup systems include eLoran, a hyperbolic radio navigation system employing very low frequencies, which is more suitable for rural and maritime environments; low earth orbit satellite systems, which, although stronger than GPS, still provide a weak signal; and commercial location systems, such as 5G transmitters, which typically have a limited service area and are relatively inaccurate. Furthermore, in a study published by the Department of Transportation on resilient PNT solutions in 2021, TerraPoiNT was the only one that could deliver all six measurable functionalities while ranking number one in each functionality.
The Market
With superior technology, the opportunity for NextNav is seemingly boundless. Management estimates the domestic public safety and 9-1-1 market at $4 billion; the autonomous vehicle, UAV (unmanned aerial vehicle), and eVTOL (electric vertical takeoff and landing vehicle) market at $10 billion; the mass market and mobile apps (such as food delivery) at $24 billion; and enterprise, IoT, and critical infrastructure at $11 billion. NextNav projects its international opportunity at north of $50 billion.
Stock Price Performance
That said, its stock has been an abject disaster, down 82% since going public. The reason is very simple: transparency. After painting a rosy picture on its roadshow that included EBITDA forecasts of $233 million on revenue of $506 million in FY26 - quite ambitious considering the initial FY21 EBITDA projection of negative $46 million on revenue of $2 million - the company has been mum on any updated outlook. NextNav has not mentioned the word EBITDA since going public, but with an FY21 operating loss of $42.4 million on revenue of $0.8 million, it didn't matter. Considering the roadshow presentation in question was made in September 2021, the 60% miss at the topline was a bit head scratching. Blamed on lumpiness of revenue recognition manifest in its network integrations and with its stock already down ~35% at the time of its 4Q21 report in March 2022, the market initially gave it a pass.
However, its biggest sin was the absence of a forecast going forward, meaning that its roadshow presentation FY22 revenue estimate of $24 million was in obvious doubt. That nagging realization, the overall market decline, the looming (late April 2022) lock-up expiration, and the bloodbath in high growth, no-profit stocks began a second leg down in late April, which continued after the company reported 1Q21 earnings. The stock has rebounded nicely since the market started to stabilize in mid-June, it should be noted.
1Q22 Earnings
On May 12th, 2022, NextNav announced an operating loss of $16 million ($7.9 million cash) on revenue of $1.2 million. Even though the topline was up significantly from $251,000 in the prior-year period, working off such a low base does not allow for any meaningful extrapolation. Furthermore, a cursory view of the accounts receivable line on the balance sheet would suggest that nothing was billed in 1Q22, which certainly does not bode well for 2Q22.
Management chose to focus on its operational wins achieved after the close of the quarter that included partnerships with GeoComm and Last Mile Technology - what those are worth is anyone's guess.
Again, management provided no outlook for FY22, only to say that it "expect[s] to finish 2022 with a meaningful revenue run rate".
Balance Sheet & Analyst Commentary:
On the positive side of the ledger, NextNav held cash of $93.8 million and no debt as of March 31, 2022.
Despite its terrible stumble out of the gate, the three Street analysts who follow NextNav remain positive, featuring one outperform and two buy ratings with a rapidly outdated median price target of just under $15.
Beneficial owner Timothy Presutti, representing the interests of WOCAP Global Opportunity Investment Partners, agrees with the Street, purchasing over 850,000 shares of NN in June 2022 and adding more than 450,000 shares so far in July as well.
Verdict:
From this tale, it is clear that NextNav should have executed another round of funding before going public. That injection would have provided the company with additional visibility regarding its technology launches and its financial performance. Instead, the market is left with a company that produced revenue of $1.2 million in 1Q22 and has essentially zero accounts receivable, yet on its roadshow, it stated that $24 million would be generated in FY22. Simply put: no credibility. A bull could point to NextNav having nearly $1 a share in cash while just under $3.00 a share. The bet here is that it will need to tap the capital markets again - possibly via debt - but hopefully after it can offer investors some shred of confidence concerning its future operational and financial performance.
To be sure, its technology is impressive, and the market opportunity appears significant. That said, the recommendation is to pass on this stock until management starts to deliver on its promises.
"Complete freedom is not what a trail offers. Quite the opposite; a trail is a tactful reduction of options ." - Robert Moor
For further details see:
NextNav Inc.: Navigating Through The Storm