| Summary of Significant Accounting Policies | 2 Summary
of Significant Accounting Policies Basis
of Presentation The
unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany
transactions and balances have been eliminated in these condensed consolidated financial statements. The
consolidated assets, liabilities and results of operations prior to the reverse recapitalization are those of Holdings. The outstanding
shares and corresponding capital amounts, and losses per share, prior to the reverse recapitalization, have been retroactively restated
in accordance with Accounting Standards Codification 805, Business Combinations. Unaudited
Interim Financial Information The
condensed consolidated financial statements as of June 30, 2022 are unaudited. These interim financial statements of NextNav have been
prepared in accordance with U.S. GAAP and SEC instructions for interim financial information and should be read in conjunction with NextNav’s
Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”), which the Company filed with the
SEC on March 23, 2022. The
unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements
and reflect, in management’s opinion, all adjustments of a normal, recurring nature that are necessary for the fair statement of
the Company’s balance sheets, results of operations, and cash flows for the three-month periods, but are not necessarily indicative
of the results expected for the full fiscal year or any other period. There
have been no changes to the Company’s significant accounting policies described in the 2021 Form 10-K that have had a material
impact on these condensed consolidated financial statements and related notes. Use
of Estimates The
preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts
of income and expenses during the reporting period and accompanying notes. These estimates include those related to the useful lives
and recoverability of long-lived and intangible assets, valuation of common stock warrants, income taxes and equity-based compensation,
among others. NextNav bases estimates on historical experience, anticipated results and various other assumptions, including assumptions
of future events, it believes are reasonable under the circumstances, the results of which form the basis for making judgments about
the carrying value of assets, liabilities, equity, revenue and expenses, that are not readily apparent from other sources. Actual results
and outcomes could differ materially from these estimates and assumptions. Revenue The
following table presents the Company’s revenue disaggregated by category and source:
Three Months Ended Six Months Ended
2022 2021 2022 2021
(in thousands) (in thousands)
Commercial $ 1,302 $ 205 $ 2,482 $ 205
Government contracts 7 5 17 256
Equipment sales 112 6 121 6
Total revenue $ 1,421 $ 216 $ 2,620 $ 467 Contract
Balances Accounts
receivable are billed and unbilled amounts related to the Company’s rights to consideration as performance obligations are satisfied
when the rights to payment become unconditional but for the passage of time. As of June 30, 2022 and December 31, 2021, the Company’s
accounts receivable balances were comprised of $1.0 million and $1.7 million, respectively. Contract
liabilities relate to amounts billed in advance, or advance consideration received from customers, for which transfer of control of the
good or service occurs at a later point in time. As of June 30, 2022 and December 31, 2021, the Company’s contract liabilities
were $10 thousand and $1.6 million, respectively. Equity-Based Compensation Measurement of equity-based
compensation with employees is based on the estimated grant date fair value of the equity instruments issued. The fair value of stock
options is determined using the Black-Scholes option pricing model. The fair value of restricted stock awards is based on the closing
price of NextNav’s common stock on the date of grant. NextNav recognizes equity-based compensation on a straight-line basis over
the requisite service period of the grant, which is generally equal to the vesting period. NextNav accounts for forfeitures as they occur. The following details the
amount of stock-based compensation included in cost of goods sold, research and development, and selling, general and administrative
expenses:
Three Months Ended Six Months Ended
2022 2021 2022 2021
(in thousands) (in thousands)
Cost of goods sold $ 539 $ 54 $ 1,183 $ 54
Research and development 1,506 128 3,300 272
Selling, general and administrative 4,718 143 9,475 362
Total stock-based compensation expense $ 6,763 $ 325 $ 13,958 $ 688 Basic and Diluted Net Loss per Share Basic loss per share (“EPS”)
excludes dilution for common share equivalents and is computed by dividing net loss available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS is based on the weighted-average number of shares of common stock outstanding
during each period, adjusted for the effect of dilutive common share equivalents. Restricted shares are included
in the computation of basic EPS as they vest and are included in diluted EPS, to the extent they are dilutive, determined using the treasury
stock method. Outstanding options and warrants are included in the computation of diluted EPS, to the extent they are dilutive, determined
using the treasury stock method. The determination of the
diluted weighted average shares is included in the following calculation of EPS:
Three Months Ended Six Months Ended
2022 2021 2022 2021
(in thousands, except per share amounts)
Numerator
Net loss (income) $ (827 ) $ 38,975 $ 8,884 $ 66,043
Less: cumulative change in redemption value of preferred
units — 5,643 — 13,831
Net loss (income) attributable to common stockholders $ (827 ) $ 44,618 $ 8,884 $ 79,874
Denominator
Weighted average shares – basic 101,071 7,346 99,886 7,346
Weighted average shares – diluted 102,381 7,346 99,886 7,346
Basic (earning) loss per share $ (0.01 ) $ 6.07 $ 0.09 $ 10.87
Diluted (earning) loss per share $ (0.01 ) $ 6.07 $ 0.09 $ 10.87 The following details anti-dilutive
unvested restricted stock units, as well as the anti-dilutive effects of the outstanding warrants, stock options and preferred units:
Three Months Ended Six Months Ended
Antidilutive Shares Excluded 2022 2021 2022 2021
(in thousands) (in thousands)
Warrants 18,750 17,667 18,750 17,667
Stock Options 616 2,061 2,399 2,061
Unvested Restricted Stock Units 3,207 112 3,251 112
Unvested Restricted Stock Awards — — 1,276 —
Preferred units — 47,652 — 47,652 Cash and Cash Equivalents The Company invests excess
cash primarily in U.S. government agency bonds and money market funds. The Company classifies all marketable securities that have
stated maturities of three months or less from the date of purchase as cash equivalents on the Condensed Consolidated Balance Sheets.
The Company determines the appropriate classification of investments in marketable securities at the time of purchase and reevaluates
such designation at each balance sheet date. The Company’s marketable securities are classified as trading and are measured at
fair value with the related gains and losses, including unrealized, recognized in interest income (expense). Leases NextNav leases office space
under a non-cancellable lease as well as site leases for towers and shelters under operating leases related to its network under construction.
Site leases are entered into throughout the United States under which NextNav receives the rights to install equipment used to transmit
its services over its licensed spectrum. The Company, at the inception of the contract, determines whether a contract is or contains
a lease based on assessment of the terms and conditions of the contract. The Company classifies leases with contractual terms longer
than twelve months as either operating or finance. The Company has elected not to recognize lease assets and liabilities for its short-term
leases, which are defined as leases with an initial term of twelve months or less. The Company’s leases
may include options to extend or terminate the lease. The option to renew may be automatic, at the option of NextNav or mutually agreed
to between the landlord and NextNav. Lease terms include the non-cancellable term and periods under options to extend or terminate the
lease when it is reasonably certain that the Company will exercise that option. The Company’s lease
agreements generally contain lease and non-lease components. Payments under the lease arrangements are primarily fixed. Non-lease components
primarily include payments for utilities and maintenance. The Company combines fixed payments for non-lease components with lease payments
and account for them together as a single lease component which increases the amount of the Company’s lease assets and liabilities.
Certain lease agreements contain variable payments, which are expensed as incurred and not included in the lease assets and liabilities.
These amounts include payments for common area maintenance. Lease assets and liabilities
are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine
the present value of the future lease payments is the Company’s incremental borrowing rate, because the interest rate implicit
in the Company’s leases is not readily determinable. The Company’s incremental borrowing rate is estimated to approximate
the interest rate on a collateralized basis with similar terms and payments, and in economic environments where the leased asset is located.
Lease assets are reduced by landlord incentives, plus any direct costs from executing the leases or lease prepayments reclassified from
“Other current assets” upon lease commencement. Operating lease assets and
liabilities are included on the Condensed Consolidated Balance Sheet beginning January 1, 2022. Operating lease expense is recognized
on a straight-line basis over the lease term. Monthly rent expense includes any site related utility payments or other fees such as administrative
or up-front fees contained in the lease agreements that are determinable upon execution of the lease agreement. Adopted Accounting Pronouncements In February 2016, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“ASU
2016-02”), which requires lessees to recognize lease assets and lease liabilities on the Consolidated Balance Sheet for those leases
classified as operating leases under current U.S. GAAP. ASU 2016-02 requires that a lessee should recognize a liability to make lease
payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term on the
Consolidated Balance Sheet. The new guidance also requires qualitative and quantitative disclosures related to the nature, timing and
uncertainty of cash flows arising from leases. In July 2018, the FASB amended the new lease standard which, among other changes, allows
a company to elect to adopt ASU 2016-02 using a transition option whereby a cumulative effect adjustment is recorded to the opening balance
of its retained earnings on the adoption date. The Company has elected to use this modified retrospective transition option and recorded
a cumulative effect adjustment to retained earnings of $0.5 million, net of tax, as of January 1, 2022. The Company also elected certain
practical expedients permitted under the transition guidance, including to retain the historical lease classification as well as relief
from reviewing expired or existing contracts to determine if they contain leases. The adoption of ASU 2016-02 resulted in the recognition
of operating lease right-of-use assets and liabilities of $13.4 million and $10.5 million, respectively. The standard did not have a
significant effect on the Condensed Consolidated Statements of Comprehensive Loss and Cash Flows. See Note 4 for additional lease disclosures. In December 2019, FASB issued
ASU 2019-02, Simplifying the Accounting for Income Taxes (Topic 740) (“ASU 2019-12”), which is intended to improve consistency
and simplify several areas of existing guidance. ASU 2019-12 removes certain exceptions to the general principles related to the approach
for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax
liabilities for outside basis differences. ASU 2019-12 is effective for the Company’s fiscal year beginning January 1, 2022. The
Company adopted this ASU as of January 1, 2022. The adoption did not have a material impact on the consolidated financial statements. Recent Accounting Developments Not Yet Adopted In June 2016, FASB issued
ASU 2016-13, Financial Instruments — Credit Losses (Topic 326) (“ASU 2016-13”), which requires that an entity measure
and recognize expected credit losses for financial assets held at amortized cost and replaces the incurred loss impairment methodology
in current U.S. GAAP with a methodology that requires consideration of a broader range of information to estimate credit losses. The
guidance also modifies the impairment model for available-for-sale debt securities. ASU 2016-13 is effective for the Company’s
fiscal year beginning January 1, 2023. The Company is continuing to assess the potential impacts of ASU 2016-13 on its financial statements. | 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). All intercompany
transactions have been eliminated in consolidation. The consolidated assets, liabilities and results of operations
prior to the reverse recapitalization are those of Holdings. The outstanding shares and corresponding capital amounts, and losses per
share, prior to the reverse recapitalization, have been retroactively restated in accordance with Accounting Standards Codification 805,
Business Combinations. Use of Estimates In preparing the consolidated financial statements in conformity
with U.S. GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of income and expenses during the reporting period and accompanying notes. These estimates
include those related to the useful lives and recoverability of long-lived and intangible assets, valuation of common stock warrants,
income taxes and equity-based compensation, among others. NextNav bases estimates on historical experience, anticipated results and various
other assumptions, including assumptions of future events, it believes are reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying value of assets, liabilities, equity, revenue and expenses, that are not readily apparent
from other sources. Actual results and outcomes could differ materially from these estimates and assumptions. Cash and Cash Equivalents Cash and cash equivalents include all cash in banks and highly
liquid investments with an original maturity of three months or less when purchased. The combined account balances held on deposit at
each institution typically exceed Federal Deposit Insurance Corporation (“FDIC”) insurance coverage and, as a result, there
is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. The Company reduces this risk by
maintaining such deposits with high quality financial institutions that management believes are creditworthy. Restricted Cash Restricted cash represents deposits held in escrow in exchange
for a letter of credit. The obligation under the letter of credit was satisfied in the current reporting period, with the restriction
on the deposits removed. Property and Equipment and Network under Construction Property and equipment, net of accumulated depreciation and network
under construction are recorded at cost. Employee-related costs for construction of network assets are also capitalized during the construction
phase. Expenditures for maintenance and repairs that do not materially extend the useful lives of property and equipment are charged
to cost of goods sold (“COGS”) and selling, general and administrative (“SG&A”) as incurred. When property
or equipment is retired or otherwise disposed of, the related property accounts are relieved of costs and accumulated depreciation and
any resulting gain or loss is included in the Consolidated Statements of Comprehensive Loss. NextNav records asset retirement obligations associated with the
contractually required removal of property and equipment assets from leased properties. When an asset retirement obligation is identified,
NextNav records the fair value of the obligation discounted at present value as a liability. The fair value of the obligation is also
capitalized as property and equipment, which is amortized over the estimated remaining useful life of the associated asset. Accretion
expense on the liability is recognized over the estimated life of the related assets. Asset retirement obligations for the years ended December 31,
2021 and 2020 were:
Year Ended
2021 2020
(in thousands)
Beginning Balance $ 590 $ 501
Liabilities incurred 185 55
Liabilities settled (36 ) (37 )
Accretion 236 71
Ending Balance $ 975 $ 590 Depreciation is computed using the straight-line method over the
estimated useful lives of the assets as follows:
Pinnacle and TerraPoiNT network assets 5–8 years
Office equipment, furniture and software 2–5 years
Leasehold improvements Shorter of the useful life or lease term Software Development Costs Research and development costs to develop software to be sold,
leased or marketed are expensed as incurred up to the point of technological feasibility for the related software product. NextNav has
not capitalized development costs for software to be sold, leased or marketed to date, as the software development process is essentially
completed concurrent with the establishment of technological feasibility. As such, these costs are expensed as incurred and recognized
in research and development costs in the Consolidated Statements of Comprehensive Loss. Software developed for internal use, with no substantive plans
to market such software at the time of development, are capitalized and included in intangible assets in the Consolidated Balance Sheets.
Costs incurred during the preliminary planning and evaluation and post implementation stages of the project are expensed as incurred.
Costs incurred during the application development stage of the project are capitalized. In 2021 and 2020, the Company capitalized $0.2
million and $0.7 million, respectively, of development costs related to internal use software. Internal use software is amortized over a 3 year useful life. Amortization
was $0.3 million and $0.1 million for the years ended December 31, 2021 and 2020, respectively. Long Lived Assets NextNav’s property and equipment and network under construction
are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If
circumstances require a long-lived asset or asset group to be tested for possible impairment, impairment is determined by comparing the
carrying value of these long-lived assets to management’s probability weighted estimate of the future undiscounted cash flows expected
to result from the use of the asset or asset group. In the event an impairment exists, a loss is recognized based on the amount by which
the carrying value exceeds the fair value of the asset group. Indefinite-Lived
Intangible assets NextNav
holds wireless Multilateration Location and Monitoring Service (“LMS”) licenses. Certain general regulatory requirements
apply to all licensed wireless spectrum, including, for example, certain build-out or “substantial service” requirements,
which generally must be satisfied as a condition to the license. NextNav is actively engaged in either meeting such requirements currently
or seeking an extension of such requirements from the Federal Communications Commission (“FCC”) for each of its LMS licenses.
Although licenses are issued by the FCC for only a fixed time, ten years, such licenses are subject to renewal by the FCC, based on the
achievement of certain milestones and a finding that such renewal would serve the public interest. Upon renewal, the licenses are granted
for additional ten-year periods. All of NextNav’s licenses are up for renewal at the same time. Renewal of NextNav’s licenses
has occurred previously and at nominal cost. As a result, NextNav treats its wireless LMS spectrum licenses as an indefinite-lived intangible
asset. NextNav reevaluates the useful life determination for wireless licenses each year to determine whether events and circumstances
continue to support an indefinite useful life. Costs incurred to maintain the FCC licenses are recorded in operating expenses. NextNav
assesses indefinite-lived intangible assets for potential impairment annually as of October 1 or during the year if an event or other
circumstance indicates that NextNav may not be able to recover the carrying amount of the asset. In evaluating indefinite-lived intangible
assets for impairment, NextNav first assesses qualitative factors to determine whether it is more likely than not that the fair value
of the asset is less than its carrying amount. If NextNav concludes that it is not more likely than not that the fair value of the asset
is less than its carrying value, then no further testing is required. However, if NextNav concludes that it is more likely than not that
the fair value of the asset is less than its carrying value, then NextNav performs a two-step impairment test to identify potential impairment
and measures the amount of impairment it will recognize, if any. Based
on its qualitative assessment performed for the years ended December 31, 2021 and 2020, NextNav concluded that it was not more likely
than not that the fair value of its indefinite-lived asset is less than its carrying amount, and as such, no impairment exists. Revenue NextNav
derives its revenue from indoor and dense-urban positioning technology, products and services including revenue generated through technology
demonstration and assessment contracts with customers, support services provided to customers, sales of equipment, and licensing of proprietary
technology. The
Company recognizes revenue when an arrangement exists, services, equipment or access to licensed technology are delivered, the transaction
price is determined, the arrangement has commercial substance, payment terms are determined and collection of consideration is probable. The
Company sells software licenses and services through arrangements that may bundle software, equipment, and other services. When the Company
determines that it has separate distinct performance obligations, the Company allocates the bundled contract price among the various
performance obligations based on each deliverable’s stand-alone selling price. If the stand-alone selling price is not directly
observable, the Company estimates the amount to be allocated for each performance obligation based on observable market transactions.
When the Company determines the performance obligations are not distinct, the Company recognizes revenue on a combined basis as the obligation
is satisfied. To the extent the Company’s contracts include variable consideration, the transaction price includes both fixed and
variable consideration. The variable consideration contained within the Company’s contracts with customers may include discounts,
credits and other similar items. When a contract includes variable consideration, the Company evaluates the estimate of the variable
consideration to determine whether the estimate needs to be constrained; therefore, the Company includes the variable consideration in
the transaction price only to the extent that it is probable that a significant reversal of the amount of cumulative revenue recognized
will not occur when the uncertainty associated with the variable consideration is subsequently resolved. NextNav
recognizes equipment sales and the related costs when control of the equipment passes to the customer, typically upon shipment. The Company
has made an accounting policy election to account for shipping activities, consisting of direct costs to ship products performed after
the control of a product has been transferred to the customer, in cost of goods sold. Customers do not have rights of return without
NextNav’s prior consent. Revenue pursuant to licensing agreements for NextNav’s technology represents performance obligations
that are satisfied over time. NextNav recognizes support services ratably over the periods in which the services are provided; the related
costs are expensed as incurred. The
timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables, and deferred
revenue on the Consolidated Balance Sheets. The Company bills amounts under its agreed-upon contractual terms at periodic intervals for
services, upon shipment for equipment, or upon achievement of contractual milestones or as work progresses. Billing may occur subsequent
to revenue recognition, resulting in accounts receivable. The Company may also receive payments from customers before revenue is recognized,
resulting in deferred revenue. The
following table presents the Company’s revenue disaggregated by category and source:
Year Ended
2021 2020
(in thousands)
Commercial $ 400 $ —
Government contracts 303 416
Equipment sales 37 113
Other 23 40
Total revenue $ 763 $ 569 Contract
Balances Accounts
receivable are billed and unbilled amounts related to the Company’s rights to consideration as performance obligations are satisfied
when the rights to payment become unconditional but for the passage of time. As of December 31, 2021 and 2020 the Company’s accounts
receivable balances were comprised of $1.7 million and $0.1 million, respectively. Contract
liabilities relate to amounts billed in advance, or advance consideration received from customers, for which transfer of control of the
good or service occurs at a later point in time. As of December 31, 2021 the Company’s contract liabilities were $1.6 million.
The Company had no contract liabilities as of December 31, 2020. Cost
of Goods Sold COGS
consist of personnel-related expenses, including salaries, benefits and stock-based compensation, and allocated facility costs for the
Company’s operations and manufacturing teams. COGS also includes expenses for site leases, cost of equipment, and professional
services related to the installation and maintenance of the equipment at each leased site. Research
and Development Costs Research
and development expenses consist of personnel-related expenses, including salaries, benefits and stock-based compensation, and allocated
facility costs for the Company’s research and development functions. Research and development costs also include outside professional
services for software and hardware development, cloud hosting costs, and software licensing costs. Selling,
General and Administrative SG&A
expenses consist of personnel-related expenses, including salaries, benefits and stock-based compensation, and allocated facility costs
for the Company’s business development, marketing, corporate, executive, finance legal, human resources, IT and other administrative
functions. SG&A expenses also include expenses for outside professional services, including legal, auditing and accounting services,
recruitment expenses, travel expenses and certain non-income taxes, insurance and other administrative expenses. Equity-Based
Compensation Measurement
of equity-based compensation with employees is based on the estimated grant date fair value of the equity instruments issued. The fair
value of stock options is determined using the Black-Scholes option pricing model. The fair value of restricted stock awards is based
on the closing price of NextNav’s common stock on the date of grant. NextNav recognizes equity-based compensation on a straight-line
basis over the requisite service period of the grant, which is generally equal to the vesting period. NextNav accounts for forfeitures
as they occur. The
following details the amount of stock-based compensation included in cost of goods sold, research and development, and selling, general
and administrative expenses:
Year Ended
2021 2020
(in thousands)
Cost of goods sold $ 232 $ 893
Research and development 621 1,994
Selling, general and administrative 822 4,476
Total stock-based compensation expense $ 1,675 $ 7,363 Basic
and Diluted Net Loss per Share Basic
loss per share (“EPS”) excludes dilution for common share equivalents and is computed by dividing net loss available to common
stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is based on the weighted-average
number of shares of common stock outstanding during each period, adjusted for the effect of dilutive common share equivalents. Restricted
shares are included in the computation of basic EPS as they vest and are included in diluted EPS, to the extent they are dilutive, determined
using the treasury stock method. Outstanding options are included in the computation of diluted EPS, to the extent they are dilutive,
determined using the treasury stock method. The AT&T Warrant issued by NextNav entitles AT&T to purchase an aggregate of 4,320,133
shares of NextNav’s common stock at an exercise price of $0.01. The AT&T Warrant is expected to be net settled upon redemption,
resulting in an issuance of 4,315,813 of NextNav’s common stock. The exercise price represents little consideration compared to
the Company’s common stock and there are no other vesting conditions or contingencies associated with them. Accordingly, they are
included in the basic EPS calculation during the applicable period. The
Company has not considered the effect of the warrants to purchase an aggregate of 18,750,000 shares in the calculation of diluted loss
per share, since the exercise of the warrants are contingent upon the occurrence of future events and the inclusion of such warrants
would be anti-dilutive. The
determination of the diluted weighted average shares is included in the following calculation of EPS:
Year Ended
2021 2020
(in thousands, except per share amounts)
Numerator
Net loss $ 144,666 $ 137,336
Less cumulative change in redemption value of preferred units 13,831 33,072
Net loss attributable to common stockholders $ 158,497 $ 170,408
Denominator
Weighted average shares – basic and diluted 23,561 7,346
Basic and diluted loss per share $ 6.73 $ 23.20 The
following details anti-dilutive unvested restricted stock units, as well as the anti-dilutive effects of the outstanding warrants, stock
options and preferred units:
December 31,
Antidilutive Shares Excluded 2021 2020
(in thousands)
Warrants 18,750 16,287
Stock Options 1,950 2,025
Unvested Restricted Stock Units 2,896 168
Unvested Restricted Stock Awards 1,070 —
Preferred units — 47,652 Income
Taxes Income
taxes are accounted for using the asset and liability method. Deferred income taxes are provided for temporary differences in recognizing
certain income, expense and credit items for financial reporting purposes and tax reporting purposes. Such deferred income taxes primarily
relate to the difference between the tax bases of assets and liabilities and their financial reporting amounts. Deferred tax assets and
liabilities are measured by applying enacted statutory tax rates applicable to the future years in which deferred tax assets or liabilities
are expected to be settled or realized. Excess tax benefits and tax deficiencies are recognized in the income tax provision in the period
in which they occur. The
Company records a valuation allowance when it determines, based on available positive and negative evidence, that it is more-likely-than-not
that some portion or all of its deferred tax assets will not be realized. The Company determines the realizability of its deferred tax
assets primarily based on the reversal of existing taxable temporary differences and projections of future taxable income (exclusive
of reversing temporary differences and carryforwards). In evaluating such projections, the Company considers its history of profitability,
the competitive environment, and general economic conditions. In addition, the Company considers the time frame over which it would take
to utilize the deferred tax assets prior to their expiration. For
certain tax positions, the Company uses a more-likely-than-not threshold based on the technical merits of the tax position taken. Tax
positions that meet the more-likely-than-not recognition threshold are measured at the largest amount of tax benefits determined on a
cumulative probability basis, which are more-likely-than-not to be realized upon ultimate settlement in the financial statements. The
Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense. Foreign
Currency Translation The
functional currency of NextNav’s foreign subsidiaries is generally the local currency. Assets and liabilities are translated into
U.S. dollars at the exchange rate in effect at the Consolidated Balance Sheet date. Operating accounts are translated at an average rate
of exchange for the respective accounting periods. Translation adjustments resulting from the process of translating foreign currency
financial statements into U.S. dollars are reported as a component of accumulated other comprehensive loss. Transaction gains and losses
reflected in the functional currencies are charged to income or expense at the time of the transaction. Net
transaction gains (losses) from foreign currency contracts recorded in the Consolidated Statements of Comprehensive Loss were immaterial
for the fiscal years ended December 31, 2021 and 2020. The only component of other comprehensive loss is currency translation adjustments
for all periods presented. No income tax expense was allocated to the currency translation adjustments. Segments NextNav
operates as one operating segment. NextNav’s chief operating decision maker is its Chief Executive Officer, who reviews financial
information presented on an entity-wide basis for purposes of making operating decisions, assessing financial performance and allocating
resources. Substantially all long-lived tangible assets are located in the United States. For
the year ended December 31, 2021, three customers accounted for 40%, 31%, and 19% of total revenue. For the year ended December 31,
2020, three customers accounted for 53%, 27%, and 18% of total revenue. Adopted
Accounting Pronouncements In
August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06,
Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s
Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates
the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies
the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard
also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s
own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for
all convertible instruments. The Company early adopted ASU 2020-06 effective January 1, 2021. The adoption of ASU 2020-06 did not have
an impact on the Company’s consolidated financial statements. Recent
Accounting Developments Not Yet Adopted In
February 2016, FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”), which requires lessees to recognize
lease assets and lease liabilities on the Consolidated Balance Sheet for those leases classified as operating leases under current U.S.
GAAP. ASU 2016-02 requires that a lessee should recognize a liability to make lease payments (the lease liability) and a right-of-use asset
representing its right to use the underlying asset for the lease term on the Consolidated Balance Sheet. The new guidance also requires
qualitative and quantitative disclosures related to the nature, timing and uncertainty of cash flows arising from leases. The guidance
is effective for the Company’s fiscal year beginning January 1, 2022, with early adoption permitted. The Company will adopt
the standard using the modified retrospective transition method as of January 1, 2022 and will not apply the standard to the comparative
periods presented in the year of adoption. The Company will use the package of transition practical expedients outlined in the transition
guidance. In July 2018, the FASB amended the new lease standard which, among other changes, allows a company to elect to adopt ASU 2016-02
using a transition option whereby a cumulative effect adjustment is recorded to the opening balance of its retained earnings on the adoption
date. The Company has elected to use this transition option to record a cumulative effect adjustment to retained earnings as of January
1, 2022. The
Company is currently assessing the impact of the new standard on its financial statements and expects to recognize right-of-use lease
assets for operating leases of approximately $9.2 million to $9.8 million, related lease liabilities of approximately $10.2 million
to $10.9 million and cumulative adjustment to opening retained earnings of approximately $0.3 million to $0.7 million.
The Company’s estimate represents the net present value of lease payments from all lease obligations that are currently classified
as operating leases, such as real estate leases for corporate headquarters and site/shelter leases, that commenced on or before January
1, 2022. The Consolidated Statements of Comprehensive Loss and Cash Flows recognition of lease expense are not expected to significantly
change from the current methodology. In
June 2016, FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326) (“ASU 2016-13”), which requires
that an entity measure and recognize expected credit losses for financial assets held at amortized cost and replaces the incurred loss
impairment methodology in current U.S. GAAP with a methodology that requires consideration of a broader range of information to estimate
credit losses. The guidance also modifies the impairment model for available-for-sale debt securities. ASU 2016-13 is effective for the
Company’s fiscal year beginning January 1, 2023. The Company is continuing to assess the potential impacts of ASU 2016-13 on its
financial statements. In
December 2019, FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740) (“ASU 2019-12”), which is
intended to improve consistency and simplify several areas of existing guidance. ASU 2019-12 removes certain exceptions to the general
principles related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period,
and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 is effective for the Company’s fiscal
year beginning January 1, 2022. The Company is evaluating the impact of the adoption of this ASU and does not expect the impact to be
material. Management
does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material
effect on the Company’s consolidated financial statements. |
