Sidus Space - Q1 2024

Transcript

Operator (participant)

Greetings, and welcome to the Sidus Space Q1 2024 Results Conference Call. At this time, all participants are in a listen-only mode. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Walter Pinto, Managing Director, KCSA. Thank you, Walter. You may begin.

Walter Pinto (Managing Director)

Good evening, everyone, and thank you for joining us for the Sidus Space Q1 2024 financial results conference call. Joining us today from the company is Carol Craig, Founder and Chief Executive Officer, and Bill White, Chief Financial Officer. During today's call, we may make certain forward-looking statements. These statements are based on current expectations and assumptions and as a result, are subject to risks and uncertainties. Many factors could cause actual results to differ materially from the forward-looking statements made on this call. These factors include our ability to estimate operational expenses and liquidity needs, customer demand, supply chain delays, including launch providers and extended sales cycles. For more information about these risks and uncertainties, please refer to the risk factors in the company's filings with the Securities and Exchange Commission, each of which can be found on our website, sidusspace.com.

Listeners are cautioned not to put any undue reliance on forward-looking statements, and the company specifically disclaims any obligation to update the forward-looking statements that may be discussed during this call. At the conclusion of our prepared remarks, we'll be answering questions submitted in advance. If we do not get to your question within the time frame allotted for this evening's call, please email our team at [email protected]. At this time, I'd like to turn the call over to Carol. Carol, please go ahead.

Carol Craig (CEO)

Thank you, Walter, and welcome everyone. We had an excellent start to 2024 with a milestone Q1 as we successfully launched and deployed our first LizzieSat from the SpaceX Transporter-10 rideshare mission on March 4. LizzieSat-1 is the first 3D printed, AI-enhanced, multi-mission, small satellite focused on geospatial intelligence solutions or Earth and Space observation through the combination of multiple technologies and on a single satellite. The successful launch, deployment, commission, and activation of LizzieSat is not a small feat, and the magnitude of this achievement cannot be overstated. LizzieSat-1 embodies our tagline of "Think outside the cube." At 275 pounds, her missions include commercial remote sensing using multiple imagers, messaging services, software solutioning, and artificial intelligence products, all in one satellite. LizzieSat-1 is the first of several planned satellites to launch into Low Earth Orbit.

Our successful first launch sets the stage for our future growth, with LizzieSat-2 and 3 currently in production and manifested for launch with SpaceX in the fourth quarter of this year. Production of satellites is on track, with initial payload and data contracts secured and additional contracts in the pipeline. What's particularly exciting about the planned launch of LS 2 and 3 on SpaceX's Bandwagon mission later this year is that LS-1, LizzieSat-1, is on a polar orbit, and LS 2 and 3 will be launched into equatorial orbits. And this gives Sidus the potential for increased revenue opportunity tied to placing multiple LizzieSats into similar orbits, enabling us to capture higher revenue-generating data by covering more populated areas, which then increases our potential for payload and data customers.

We believe that in combination with the inclusion of additional and higher resolution sensors and enhanced AI capabilities, these new orbits will add value as we systematically build our multi-mission constellation of 3D printed AI-enhanced satellites. With LizzieSat-1 now in orbit and circling the Earth approximately every 95 minutes, 16 times a day, and providing consistent two-way communication and data, our focus shifts to delivering results for our customers. And this includes data collection and expanding our Constellation-as-a-Service and satellite manufacturing operations. And, you know, most commercial satellite manufacturing over the last few years has been concentrated on smaller CubeSat operations, with fewer experienced companies successfully launching mid-size satellites in the 100-200kg range.

As technology advances and non-traditional industries show increased interest in space-based data, we anticipate a growing demand for experienced satellite manufacturers and operators with expertise in satellites larger than CubeSats, like ours. Our unprecedented success with LizzieSat highlights our capabilities, and it emphasizes the importance of long-term experience and heritage in the space industry. As we've always said, we're not only focused on low Earth orbit, but also the Moon, Mars, and beyond. And the Moon focus provides an opportunity to build an infrastructure that enables human permanence on the Moon and a transition to commercial operations past the Low Earth orbit and onto more distant destinations. Our research and development team is focused on expanding our offerings to include geostationary, pardon me, geostationary and lunar satellites.

To this point, we recently announced that we are part of NASA's Lunar Terrain Vehicle Services Award as a partner to Intuitive Machines, which involves heavier cargo delivery and Moon surface systems development and operations. While Q1 was largely focused on the launch of LizzieSat-1, we also closed on or were awarded several contracts related to sales of data, payloads, and manufacturing. These included a technology hosting payload contract with Aspina and an IDIQ contract with the National Geospatial-Intelligence Agency as a subcontractor to Solis Applied Science. That contract has a $794 million ceiling and a five-year base period, plus an optional two years.

As task orders are released, we expect to support Solis in many areas, and we're excited to demonstrate our capabilities related to geospatial intelligence solutions. One of our repeat customers that we're supporting is HEO Robotics, who's focused on space situational awareness with their non-Earth imaging services to provide on-demand imagery, including one of the best views of satellites in space. In fact, they recently released a spectacular image of the International Space Station from only 43 miles away, and we are flying HEO Robotics Holmes imagers on both LS-2 and LS-3, again, expected to launch in the fourth quarter of 2024. Our HEO contracts are an example of our Constellation as a Service offering, which combines technology hosting and long-term recurring data sales.

So as we focus on executing our mission to build a one-of-a-kind, multi-mission constellation and expand our reach globally and in space, we also expanded our leadership team with the addition of Richard Berman to our board of directors and Bill White as our CFO. Bill has more than 30 years experience in financial management, operations, and business development, and his experience and knowledge are proving to be invaluable during this time of exceptional growth for our company. Richard's extensive experience in venture capital, senior management, M&A, and public company board participation adds tremendous value to our board of directors, and we're delighted to have both Bill and Richard join our senior leadership team, and I'm looking forward to working closely with them as we propel the company forward.

As we look forward in 2024, our pipeline grows with increased interest in our satellite manufacturing, data offerings, and long-term partnerships. We're currently in discussions with industry leaders that include oil and gas companies and international partners that add to our current global contracts. We're progressing towards significant milestones related to our Netherlands TNO agreement, which includes a critical design review scheduled to occur in the next few weeks. The engineering teams from both TNO and Sidus work closely together to ensure that the TNO laser communication technology is successfully integrated into a future LizzieSat, and that TNO payload is currently manifested for our launch in Q1 of 2026. So with LS-2 and LS-3 currently in production, the team is on track to meet critical milestones leading up to a planned launch later this year.

A significant advantage of the LizzieSat architecture and design is its flexibility and ability to be quickly customized. 3D printing makes it easier to make modifications, and our engineering team incorporated lessons learned from LS-1 to improve on LS-2 and LS-3. In a traditional manufacturing environment, changes like these are complex, costly, and time-consuming, and that is not the case with our design. You know, everything we do is carefully planned and executed with a focus on lean and cost-efficient operations as we continue to deliver on our mission of bringing space down to Earth. I'll now hand the call over to Bill to discuss our recent successes and the impact on our business strategy and to discuss our financial highlights.

Bill White (CFO)

Thank you, Carol. It's a pleasure to be here today to discuss our Q1 2024 financial results and to provide an update on our business strategy. Successfully launching LizzieSat into orbit was a major achievement for the company and a key element of our strategies to shift Sidus both greater revenues and higher margin recurring revenue. As Carol mentioned, each of our satellites are capable of downloading a minimum of 100,000MB of data back down to Earth every day. This translates to Sidus being able to theoretically generate $14 million in high-margin, recurring revenue per satellite per year, assuming we sell 100% of the data a single time. This business model has the capacity to scale rapidly and generate meaningful, high-margin, recurring revenue as we launch multiple satellites into orbit. Now on to our Q1 2024 financial results.

Total revenue for the three months ending March 31, 2024, totaled approximately $1.1, a decrease of 1.2 million compared to total revenue for the three months ending March 31, 2023. This decrease was primarily driven by the timing of fixed-price milestone contracts and milestone payments related to satellite contracts, and fewer contracts with our related party entered into with its customers, requiring less outsourcing of its work to us than prior year. Gross profit margin decreased to 8% for the Q1 of 2024, as compared to 40% for the Q1 of 2023. This was largely driven by lower sales from our higher-margin satellite-related business. SG&A expenses for the quarter ended March 31, 2024, totaled $3.6 as compared to 3.5 million for the same period last year.

The slight increase was primarily due to fundraising expenses from two capital raises in Q1 2024, partially offset by a reduction in D&O insurance expense and marketing and investor relations expenses. Net loss for the three months ended March 31, 2024, was $3.8 as compared to a net loss of 3.4 million for the same period last year. Turning to the balance sheet, as of March 31, 2024, the company had cash of $6.2 as compared to 1.2 million at December 31, 2023. During the quarter, we strengthened our balance sheet by raising gross proceeds of $15.2 million, bolstering our financial position as we continue to expand our constellation through 2024 and beyond. With that, I'll hand the call back to Carol.

Carol Craig (CEO)

Thank you, Bill. The launch of LizzieSat-1 is a significant corporate milestone that marks the beginning of an exciting new era for Sidus and demonstrates our ability to execute on our strategic priorities. Our 3D-printed, AI-enhanced LizzieSats are at the core of our high-margin Data-as-a-Service business model, with the capability to integrate multiple technologies into a single satellite. Our satellites facilitate simultaneous data collections for agriculture, maritime, oil and gas, and other industries, and we intend to expand further into these industries to generate additional revenue, resulting in increased value for our shareholders. We truly are just getting started in a pivotal year for the company. I'm highly encouraged by the success of our initial phases of operation, and I could not be prouder of my team's dedicated hard work to ensure mission objectives continued to be met.

Most initial launches in the industry involve a prototype satellite, and I'd like to emphasize that LizzieSat-1, otherwise known as Thelma, is much more than a prototype. LizzieSat-1 is a functional satellite, and we've begun activating our payloads now that the commissioning phase is complete. I'll also add that most initial launches in the industry are followed by a bit of a lapse of time before a follow-on launch. As I mentioned earlier, our next two satellites are already well in production and manifested for launch. We're executing our plan to build a unique multi-mission constellation, and the steps we took early on, like securing a multi-launch agreement with SpaceX and purchasing subsystems with long lead times, are making it possible to deliver this steady cadence of launches to meet the customer demand that we promised.

The success we've already achieved with our very first satellite has built the confidence of our team, our industry, our current customers, and potential customers, as well as our shareholders. And I wanna thank all of our shareholders for your continued support of Sidus. For those that have been with us from the very beginning to those that have just joined us, you're all part of our story as we create access to space that has not been available before. And I remain committed to restoring shareholder value, and I look forward to the higher revenue streams that we believe our satellite manufacturing and space data constellation will create. And we'll now move on to the Q&A portion of the call. We've received a couple submitted questions from investors that we'd like to address. The first is: how is Sidus leveraging AI in its technology for customers?

So when we talk about AI, we often describe our solution as edge computing. Edge machine learning, or AI, involves the execution of machine learning algorithms on computing devices located physically near the source of data. And this enables faster, more efficient, more secure processing in various applications across different industries. And this is especially useful for satellite operations and space-based data solutions. Sidus's FeatherEdge product is a high-performance computing platform that enables edge AI for satellites and other assets that operate in harsh, remote, and often communication-constrained environments. Algorithms can be deployed on the platform to gain real-time insights or to make decisions and predictions on the satellite, which minimizes the time from image capture to data delivery.

One example where speed of delivery is important is monitoring or tracking illegal fishing activities, and there's a critical time component between detection of those activities and then the dispatch of authorities that plays a crucial role in the success of intercepting these vessels. FeatherEdge is a platform that enables these types of AI use cases, so it's a highly flexible system. It's capable of being reprogrammed after deployment on orbit, and this means that algorithms can be updated and swapped out directly to the satellite as markets or mission needs change. In the short term, we're leveraging a variety of data processing AI ML applications to deliver enhanced insights faster than our competitors, and in the long term, we'll additionally utilize AI and ML to optimize constellation operations and further improve on our data services.

Next question is: Can you talk through the data revenue model and what you project potential earnings could be? As a reminder, we are an emerging growth company. We don't give guidance, but we understand the interest in how our data revenue model generates revenue. Without speculating on potential earnings, I'll instead describe the components which allow you to draw your own conclusions about potential revenue. Our data acquisition costs are approximately $0.02 per MB, and we believe the market data pricing range is anywhere from $0.40-1 per MB. As Bill mentioned earlier, each of our satellites are capable of downloading 100,000MB of data back to Earth every day.

This translates to Sidus theoretically being able to generate $14 million in revenue per year per satellite, assuming we sell 100% of this data a single time. Now, revenue will fluctuate because we'll likely not sell a hundred, 100% of the data. However, we may sell the same data many times, so in a collect once, sell many model. We can and we plan to continue to secure data customers for the life of the satellite, therefore, building our customer base over time. Our technology payloads are often also data customers, and we can sell data that's generated from their technology to other customers as well. The next question is: which industries and sectors do you foresee being the biggest potential growth areas for Sidus to capitalize on?

One in particular, where we see a significant opportunity, is in the oil and gas industry, and especially with the new EPA rules coming into effect related to methane emissions. Our technology makes previously invisible emissions visible from space, and the use of satellites in addressing this serious environmental concern is critical. What's also key about this growth area is to develop partnerships, which we have with industry leaders, to ensure that we meet the needs of the customers from the very beginning. Thank you to everyone who submitted questions, and thank you to all of you for joining us today for Sidus Q1 2024 Earnings Conference Call. I'll now ask the operator to close the lines.

Operator (participant)

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.