Sidus Space Q3 2023 Earnings Call Transcript

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November 15, 2023

There are 4 speakers on the call.

Operator

Ladies and gentlemen, good morning, and welcome to the CytoSpace Third Quarter 2023 Earnings As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Walter Pinto, Managing Director, KC S. A. Please go ahead.

Speaker 1

Good morning, everyone, and thank you for joining us for the CytoSpace 3rd quarter 2023 earnings conference call. Joining us today from the company is Carol Craig, Founder and Chief Executive Officer and Theresa Burchfield, 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.

Speaker 1

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, www.cytospace.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 morning's call, please e mail our team at cituskcsa.com.

Speaker 1

At this time, I would like to turn the call over to Carol. Carol, please go ahead.

Speaker 2

Thank you, Walter, and welcome everyone. I'm pleased to provide an update on Sidus today at a truly pivotal time for both our company and the industry. We continue to execute our strategic plans as an innovative multifaceted space and data as a service company and we're laser focused significant catalyst for our business as we believe it will provide us with the opportunity to develop additional high margin revenue streams driven by the sale of both data and payloads on these missions. We expect the enhanced capabilities of these satellites to provide space infrastructure as well as critical data that will create a high margin rapidly scalable recurring revenue business model. The company is continuously working to secure agreements that will provide us with a predictable business model.

Speaker 2

Our goal is to secure additional high margin revenue generation opportunities through the revenue streams that we will develop even following our LIDISAT launch. As we move towards 2024, we are targeting 3 areas that we feel will positively impact the share price both in the short term and the long term. 1st, ensuring the success of not only the initial LIDISAT launch but subsequent satellites as well. 2nd, securing agreements to sell the data that we plan to collect from this constellation. And as mentioned above, we believe these agreements have significant revenue generating potential.

Speaker 2

And third, securing agreements to sell technology payload space on our upcoming LISVSAT missions and then working at the same time to convert those payload customers to data customers. We recently completed initial environmental vibration testing of the LIDISAT satellite, which is one of the critical steps necessary to validate LIDISAT. We've been concentrating on ensuring all necessary pre launch requirements are met so that we will be well prepared for this transformative milestone. We're also continuing to secure additional data customers. We believe that data as a service will provide some of the highest margins of our revenue streams, which also include technology hosting aboard our LISI Sat and mission critical hardware manufacturing.

Speaker 2

Delivery of that data is expected to begin 30 days after the deployment of LISI Sat. For our data as a service offering, we are targeting gross margins of 75% to 80% similar to software as a service margins. Our mission critical hardware manufacturing which we've been successfully operating for over 10 years targets gross margins of approximately 25%. During the Q3, we took the significant step of acquiring the assets of Exospace, a cutting edge California based firm specializing intelligence software and hardware for space applications. The transaction provides the opportunity for us to enhance our presence in the earth and space observations markets by providing actionable solutions for our customers' needs rather than just raw data.

Speaker 2

The acquisition of Exospace was highly complementary to our existing business model and also in line with our existing strategy. The additional revenue generating opportunities that Exospace's technology presents are enhancements to our prior offerings that will position Sidus to compete in the current market where AI led data driven services give us a significant competitive advantage. And in addition to raw data by applying our onboard feather edge AI near real time actionable intelligence will be available to our customers. This combination of advanced data collection harnessed from our adaptability that provides organizations with that heightened decision making capabilities and this leads to increased confidence, precision and accelerated insights for those customers. Citus augments this distinctive and unique data collection with adaptable analytics tailored to our customers' own needs and then also offers that subscription based access across multiple industries.

Speaker 2

Few companies know how to process data and with the additional AI functionality, Citus is able to provide not just data, but Through these decisive steps to integrate AI, we're leveraging the potential of AI technologies within our own service offerings which expand our services, amplifies our market presence and then also our customer relationships. One advantage of our business model that I want to highlight is our flexible agile service offering that allows us to control our production and our launch cadence in coordination with customer demand. As customer requirements and the industry landscape changes, we're able to strategically evaluate varying scenarios related to launches and orbits and focus on the most economical solutions that support our path to profitability. When combined with the inclusion of additional sensors and enhanced AI capabilities, we expect the new orbits to add value as we get closer to initiating these launches and developing these new high margin business lines. And therefore our agile model ensures we're lining up our launches with the most valuable demand and doing what's in the best interest for company and shareholders.

Speaker 2

We also continue to progress on accelerating our manufacturing plan, developing mission critical hardware manufacturing to support multiple large organizations. During the Q3, we continued to establish relationships with new and existing significant customers and we announced several contracts that we were awarded further validating Sidus' ability to deliver mission critical hardware to our key partners and vendors. Earlier this month, we announced that we had signed an additional agreement to sell data that we expect to collect from Liby's App. We believe we will continue to expand these opportunities as our constellation grows. While we're often prohibited from releasing the details of our client agreements, we plan to continue to update our shareholders on our progress as we build these new revenue streams that will result from the launch of our LizzySeth constellation.

Speaker 2

And in another complementary strategic move, we recently signed a contract to provide services to a U. S. Owned company in support of their commercial lunar program. This new contract will provide another revenue generation opportunity for the company and while the lunar contract will not replace our lower earth orbit strategy, we do recognize the potential importance of lunar missions to build an infrastructure that enables human permanence on the moon and a transition to commercial operations past lower earth orbit and on to more distant destinations. In line with these key areas of our strategic focus, we recently reorganized our leadership structure to ensure operational efficiency and resourcing in the right places.

Speaker 2

In September, we announced the appointment of Leonardo Rivera to the position of Chair of the Board. Leo's significant Board experience will be invaluable in managing governance and other related matters and this will provide me with an increased ability to focus on the execution of our commercial development strategy to build value for our shareholders. We also promoted Jared Novick to the role of Chief Operating Officer, Lindsay Waite to LISSEY SAT Program Manager and appointed Jessica Curry as our Senior Vice President of Supply Chain. And as we gear up for the launch of LidZYSTAT in 2024 and scale up production of our LidZYSTAT satellite, these roles will be critical in ensuring our success. These changes will not only allow for more streamlined and efficient management of technical and operational aspects within Cytus space, but also ensure that we're right sized and efficiently resourced to achieve our launch program.

Speaker 2

And I will now hand the call over to Teresa to discuss the financial highlights.

Speaker 3

Thanks, Carol. It's a pleasure to be here today to discuss our Q3 2023 financial results. You can find more details on our results in our Q3 Form 10 Q filed with the SEC on Tuesday, November 14, 2023. As we progress towards the LYSYSAT launches, we are focused on conserving capital to ensure that we have everything in place to execute upon our strategy. Citus achieved revenue of approximately $986,000 for the quarter ended September 30, 2023, compared to $1,320,000 for the same period last year.

Speaker 3

While revenue declined period over period, primarily due to timing of fixed price milestone contracts, our higher margin satellite revenue continued to increase. From a year to date perspective, it's important to note that for the 9 months ended September 30, 2023, our satellite revenue has continued to increase and was up 135% versus the same period last year. Our gross profit was approximately negative $96,000 or negative 10 percent for the quarter ended September 30, 2023, compared to approximately negative 86,000 or negative 7% for the Q3 of 2022. It's key to note that also gross profit was down 12% versus prior year, This was based on 25% lower revenue and reflects the positive gross profit impact as we continue to increase the percentage of our higher margin satellite related revenue. As we've mentioned before, our gross margin will be lumpy when looked at quarter to quarter, which moves out when looked at over time.

Speaker 3

For the 9 months ended September 30, 2023, our gross margin as a percent of revenue was 28% versus 25% last year and was almost $68,000 higher on $344,000 less sales year over year, again a reflection of increased percentage of our overall revenue coming from our higher margin satellite side of the business. 3rd quarter operating loss was $3,870,000 which was comparable with the Q3 of last year. Overall, operating expenses decreased slightly $11,000 for the 3 months ended September 30, 2023 versus prior year. To provide investors with additional information in connection with our results is determined in accordance with GAAP. We also included in our Q3 Form 10 Q non GAAP measures to determine our adjusted EBITDA.

Speaker 3

We use adjusted EBITDA in order to evaluate our operating performance and make strategic decisions regarding the future direction of the company. We define adjusted EBITDA as net income as determined by U. S. GAAP adjusted for interest expense, depreciation and amortization expense, acquisition deal costs, severance costs, capital market and advisory fees, equity based compensation and warrant costs. These non GAAP measures may be different from non GAAP measures made by other companies since not all companies will use the same measures.

Speaker 3

Therefore, these non GAAP measures should not be considered in isolation or as a substitute for relevant U. S. GAAP measures and should be read in conjunction with the information presented on a U. S. GAAP basis.

Speaker 3

Moving now to our capital structure. Close the end of the quarter on October 11, 2023, the company executed a registered direct offering in which the company sold an aggregate of 2,000 shares of Series A convertible preferred stock, as well as a concurrent private placement of warrants to purchase up to approximately 19,700,000 shares of Class A common stock. The preferred shares are convertible into approximately 19,700,000 shares of our Class A common stock. Gross proceeds from the offering were approximately $2,000,000 Please reference our September 30, 2023 10 Q for additional details. We are using the proceeds to continue to execute our strategic plan, including continued satellite development at an accelerated pace and to fulfill a steady launch cadence.

Speaker 3

We remain focused on managing our operating expenses closely with only a small amount of debt on our balance sheet. And with that, I'll hand the call back over to Carol.

Speaker 2

Thank you, Theresa. Before we move on to the Q and A portion of the call, I'll address the topic of our stock's performance. We recently received a delisting notice from NASDAQ since our Class A common stock was trading under $0.10 for 10 consecutive trading days. NASDAQ provides a hearing process and we have requested a hearing which will stay any delisting by NASDAQ. In order to comply with NASDAQ continuing listing rules, we've secured board and shareholder approval for a reverse stock split of our outstanding common stock which we expect to occur in December.

Speaker 2

We have filed an information statement with the SEC which details the specifics of the proposed reverse split. I want to thank our shareholders for your continued support of Citus. I wholeheartedly share your frustration with regards to the performance of our stock. I want to assure you that everyone at Citus is laser focused on preparing for the upcoming LIDISAT launches and we are working diligently to build new revenue streams which we believe will result in renewing shareholder value. I believe that we are approaching a transformative event for our company with our first LizzySet launch and with it we will begin to benefit from our hard work.

Speaker 2

We'll now move to the Q and A portion of the call. We've received some submitted questions that we would like to address. And so the first question is, how is the exospace acquisition that you announced in August going? So the Sidus AI team, which is comprised of former Exospace employees, is integrating seamlessly with our overall organization. They're currently focused on providing input for mission operations, customer onboarding and then also developing new sales leads.

Speaker 2

And these efforts will ensure that the AI data services brought over from the former exospace team will generate revenue as soon as Lizzy sets on orbit and operational. And then in parallel to the AI technology integration, the team has continued to execute on the commercial and government contracts that were part of that asset purchase consideration. And these contracts include a subcontract from NASA for rapid fire detection solutions and a subcontract from the Defense Innovation Unit for payload hosting and then also the primary contracts with private organizations for computing hardware and on orbit. Next question is, will you be able to use exospace's edge AI in other applications? And so, yes, the underlying feather edge technology can be implemented practically anywhere and it's particularly useful in communication scarce or denied locations.

Speaker 2

And there's a specific focus on unmanned craft, which could be operated in aerial, ground or maritime environment in addition to space. And there's great value to be added by the FeatherEdge system anywhere that data is generated for these ultra low latency insights. Next question is also related to AI. Will the team that you're acquiring required be able to do other AI projects beyond the Edge AI? And so our AI team's focus is primarily on the underlying technology that enables the implementation of intelligent data analytics applications at the edge.

Speaker 2

And that being said though, there are numerous ways in which this technology can be implemented and that ranges from situational awareness to predictive maintenance and then these use cases will continue to expand as the commercial space industry develops. Next question is how are you using 3 d printing? Do you expect to see metal 3 d printing becoming part of the offerings in the future? So 3 d printing is currently being used to support development of our primary

Speaker 3

the launch vehicle launch loads, while still providing

Speaker 2

a lightweight option the launch vehicle launch loads while still providing a lightweight option comparable to metal. And at present though metal 3 d printing has not been used in the current bus configuration, but it can be incorporated into future designs based on customer payloads and other subsystem changes that might necessitate it. And that's all the questions that we have. So I want to thank you very much to everyone who submitted questions and thank you to everyone for joining us today for CytoSpace's 3rd quarter 2023 earnings conference call.

Operator

Thank you. Ladies and gentlemen, the conference of CytoSpace has now concluded. Thank you for your participation. You may now disconnect your lines.

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