Sidus Space Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 15, 2023

There are 5 speakers on the call.

Operator

Greetings, and welcome to the SidusBase Second Quarter 2023 Results and Business Update Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Walter Pinto, Managing Director, KCSA.

Operator

Thank you, Mr. Pinto. You may begin.

Speaker 1

Good morning, everyone. Thank you for joining us today for CytoSpace Q2 2023 earnings conference call. Joining us today from the company is Carol Craig, Founder and CEO and Theresa Burchfield, Chief Financial Officer. During today's call, we may make forward looking statements. These statements are based on current expectations and assumptions and as a result are subject to risks and uncertainties.

Speaker 1

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 at cyto space.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. We want to thank everyone who submitted their questions ahead of today's call.

Speaker 1

At the conclusion of our prepared remarks, we'll be answering questions submitted within the timeframe allotted for this morning's call. If for some reason we do not get to your question today, please email our team at cituskcsa.com. At this time, I'd like to turn the call over to Carol. Carol, the floor is yours.

Speaker 2

Thank you, Walter. During the Q2 of 2023, we achieved several key milestones across virtually all facets of our business. Our mission is bringing space down to earth. We are a space data as a service and defense as a service satellite company focused on mission critical hardware manufacturing, multidisciplinary engineering services, satellite design, production, launch planning, mission operations and in orbit support. During the Q2, we made further progress on several fronts to produce our advanced hybrid 3 d printed satellite constellation for a diverse customer base.

Speaker 2

Through our advanced technology, we expect to provide a commercial U. S. Spaceborne source and method for collecting customizable coincident or multi sensor driven geospatial intelligence and architecture for adaptable on orbit AI processing to meet government and commercial mission requirements. Over the next 18 months, we have 9 LISI Sat missions scheduled with our current launch provider SpaceX. Recently, SpaceX announced that it will start launching a series of missions dubbed Bandwagon that will complement its existing transporter line of rideshare missions.

Speaker 2

The bandwagon missions will deliver payloads at altitudes of 550 to 605 kilometers and inclinations of approximately 45 degrees. Those will be in addition to the transborder missions that SpaceX has been flying since 2021, which have gone to sun synchronous orbits. We executed a multi year, multi launch contract with SpaceX that manifested our satellites on 5 launches for 9 satellites originally planned for the Transporter missions. The addition of the bandwagon missions is exciting because with our existing contract in place with SpaceX, we have the opportunity to modify our launch cadence and positioning of satellites in order to collect even more valuable and more broadly desired space based data from our sensors. The option to place multiple LISVSATs in these dissimilar orbits, 45 degree equatorial inclination and polar orbits in 2024 gives us the opportunity to improve our earth imagery refresh rate and provide more valuable and higher revenue generating data for our customers.

Speaker 2

Dissimilar orbits actually increase the frequency of LISISTAT's revisit rate over the same earth location, especially in the mid latitudes where most of the population resides, which we believe translates to more customers. All of the steps we are now taking as we get closer to initiating these launches are to move forward towards developing new high margin revenue streams driven by the saleable data and payloads on these missions. In line with our focus on developing higher margin revenue streams, during the Q2 of 2023, we significantly expanded our margins period over period and nearly doubled our gross margin to 37% year over year. The increase in gross margin was a result of an increase in our satellite revenue. For the 6 months ended June 30, 2023, our satellite revenue was over 100% higher than full year 2022, illustrating the meaningful steps we've taken towards advancing this new business model.

Speaker 2

A key factor to achieving this growth is the in house development of our 3 d printed satellite, LitiSat. Our ability to provide space infrastructure as well as critical data is expected to create a high margin, rapidly scalable, recurring revenue business model. Our medium sized LISVESAT satellite is different from smaller QSAT satellites and that it allows for multiple sensors and therefore multiple industries and customers to be served from a single satellite. In addition to combining what has traditionally been single source of satellite revenues, we're planning on providing co incident data from multiple sensors imaging the same piece of the earth at the same time. This collection approach is special because it breaks the mold of single use, single sensor satellites that many companies deploy.

Speaker 2

By imaging the earth at the same moment in time across several sensor modalities from the same platform, we increased the value of our data services by reducing costly false positives that customers experience and also by reducing collection timelines and costs for customers to obtain the similar data sets. Now that may sound complex, but the value is simple and best illustrated via analogy. Would you rather walk around during your day with just your eyes or how about just your ears or how about both of your eyes and your ears? And Lidysat's planned coincident collection will have both eyes in our imaging payloads and ears with our AIS payloads as an example, and that combination is tailored to market needs. This combination of the same platform is our special way to approach large markets with valuable same point in time datasets.

Speaker 2

And with multiple satellites in production at this time, we've made very meaningful progress toward the launch of our LIDISAT constellation. Our years of experience designing and manufacturing bespoke complex space hardware for multiple government agencies and large prime contractors prepares us for the production of our initial cluster of multi mission satellites. Our integration of edge computing artificial intelligence on our satellites was announced in June and is combined with our plans to provide hyperspectral and multispectral imaging and other sensor data. Equipping our multi mission LISVSATs with these sensors will enable us to provide monitoring services and solutions to multiple sectors and industries in addition to providing rideshare or Constellation as a service solution to additional customers on the same satellite. Our plan is sub-five meter ground sampling distance, multispectral coupled with sub-ten meter hyperspectral imagery capabilities provides us with a competitive advantage in serving the $55,600,000,000 small satellite market.

Speaker 2

Our Lidysat satellite with its 5 year design life is expected to provide a return on investment within months of launch. At a cost of $1,750,000 to $2,000,000 per satellite including sensors along with our low and fixed overhead, single satellite profitability can be achieved with only a fraction of available data being sold. We believe, however, that there's a demand for all available data and at full capacity, the data collected from each satellite is expected to provide a 5x revenue return on the cost of the satellite within 1 year. We also have the ability to offer our data at a significantly lower price than what's available in the current market because of the unique infrastructure we are building to provide this near real time data transmission from our satellites back to earth. And artificial intelligence is a key component of this.

Speaker 2

Early in the quarter, we announced our plans to integrate exospace's feather edge AI data processing platform into Lidysat and their AI technology combines both novel hardware approaches and proprietary software techniques to create an edge AI capability available on every satellite bus starting with our LIVISAT-one. We view the successful integration of Exospace's feather edge platform into Lidysat as an important milestone to our success. In our pursuit of business expansion and the creation of shareholder value, we're taking decisive steps to leverage the immense potential of AI technologies within our service offerings. Through AI integration, we're expanding and enriching our services and amplifying our market presence and customer relationships. The integration of exospaces, feather edge AI and belivisat ushers in onboard edge AI capabilities encompassing real time data processing, image analysis, anomaly detection, data compression, automated decision making, privacy, security and customization.

Speaker 2

This strategic leap marks a pivotal moment for the company as we now become poised to attract broader interest and elevate our market influence. This combination of advanced data collection harnessed from our adaptable LYSYSAT constellation empowers organizations with heightened decision making acumen, bolstered confidence, precision and accelerated insights. Cytus augments this distinctive data collection with adaptable analytics tailored to individual needs, offering subscription based access across industries. The cumulative impact of CytoSpace's LizzySAT constellation into various industries holds the potential to help how organizations operate and make informed decisions. We plan to monetize the imagery and sent the data collected by our Lizzycat both through existing end user contracts and through agreements with announced partners such as SkyWatch and others to sell on their storefronts.

Speaker 2

We also plan to begin offering hyperspectral and multispectral imaging from our first production satellites. Learning from our industry partners is important. And as we analyze the space ecosystem landscape, we continue to believe that production of satellites with the right amount of testing, experienced techniques and attention to long term reliability are the most important factors for the long term success of our mission. Our track record of building complex production hardware for satellites, rockets and future space missions provides us with the necessary foundation to execute our launches and successfully build our LISI SAT constellation. And over the last several months, our customers have grown along with our pipeline for each of our multiple revenue generating capabilities.

Speaker 2

LidZysat's hyperspectral and multispectral imaging capability will provide potential data solutions for a variety of market verticals in the Earth observational market that's expected to reach $25,000,000,000 by 2,040. Key industries that will benefit and provide markets for this imaging include agriculture, climate change, renewables, mining and oil and gas. And along with the aforementioned technological developments and with the help of an industry consultant, we recently completed an updated go to market analysis to characterize the largest opportunities across addressable earth observation market segments. And unsurprisingly, the defense segment embodies the largest market opportunity representing an estimated $3,100,000,000 in market size by 2,031. In comparison, the next 4 largest market segments combined also represent $3,100,000,000 by the same timeframe and those include mapping infrastructure, natural resources, climate intelligence and insurance and finance.

Speaker 2

To address these large markets, we have a vision and plan to capture both government and commercial business. Our plan is to win the government, win the market, a strategy that's proven successful across industries as the commercialization of formerly government technology has now become more available to the private sector. And to capture this business, we've concentrated on mindfully growing our sales force with the talent needed to continue to secure government business as well as commercial. During the Q2, we continued to establish relationships with key new and existing customers with several significant partnerships announced and contracts awarded, further validating Sidus' ability to deliver mission critical hardware to our key partners and vendors. We were awarded an additional hardware manufacturing subcontract to support NASA's Artemis program and Space Launch System Manned Vehicle or SLF.

Speaker 2

Sidus will be responsible for the fabrication of the umbilical quick disconnects on the universal stage adapter for the SLS, which is a super heavy lift launch vehicle that provides the foundation for human exploration beyond Earth's orbit and is key to NASA's Artemis program. The SLS will send the Orion spacecraft, astronauts and cargo directly to the moon on a single mission, while also being designed to be flexible and evolvable for deep space destination. Our experience with multiple NASA and defense programs spanning 2 decades gives us an advantage as we pursue opportunities related to not only LEO, but Moon, Mars and beyond. Sidus was also selected by Airbus OneWeb Satellite to design and build machine satellite hardware. The space rated hardware will be integrated into the portfolio of aero commercial small satellites manufactured by OneWeb.

Speaker 2

OneWeb is producing satellites for Airbus in support of U. S. Government programs. In July, we were awarded a new subcontract to produce hardware in support of Parsons Corporation's launch manifest systems integration contract. Under the terms of the agreement, Cytus Space will fabricate a master harness assembly and test tables for Parsons.

Speaker 2

Our successful delivery of hardware for Parsons in the past resulted in this additional contract and we will continue to support this partnership as they execute on their multi year contract to integrate and operate rideshare payloads in the national security and other U. S. Government missions. These projects underscore our strong position in the space community, where we are playing an increasingly vital role as a manufacturing partner with many of the U. S.

Speaker 2

Space Force and NASA's leading prime contractors. In June, Sidus was awarded contracts for 2 projects with Israeli partners, Maristech and Lula Space by Space Florida under the Florida Israel Innovation Partnership Program. This is the first time Sidus has received 2 awards from the same round of projects from the Florida Israel Innovation Partnership. Our work with 2 separate Israeli companies demonstrates the diversity of Sidus' capabilities and capacity for technological advancement. We're collaborating with Merastec on developing a system for peripheral photography, recording, transmission and artificial intelligence for nano satellites and space tools.

Speaker 2

The platform will allow cameras in space to take and transmit high quality video and still images and implement edge artificial intelligence algorithms in real time, a key component of our emerging high margin data as a service recurring revenue streams. Citus is partnering with Lula to research, develop and demonstrate the benefit of event based star trackers, which are planned to be included in our 4th planned LIVISAT mission. Early in the quarter, we announced our initial collaboration with LULAS Space to provide a complete guidance navigation and control solution for both lunar satellite and lunar lander missions. The agreement will bring their next generation GN and C solutions to the U. S.

Speaker 2

Market with 2 companies offering a robust customized for the unique requirements of each mission. We also recently announced Sidus will host the Star Tracker developed by Solar MIMES on its 4th planned LISI SAT mission as part of our payload rideshare program. Sidus will provide payload space for Solar Mains star tracker along with launch support, testing and the ability to conduct experiments over the expected 5 year timeline of the mission with the goal of evaluating the Star Tracker's capabilities for the broader satellite sensor market. And Solar Moon is another example of our On orbit technology hosting revenue stream. During the quarter, we selected Atlas Space Operations to expand our ground station services.

Speaker 2

Adding Atlas ground stations to our existing global network allows Sidus to deliver high value critical satellite data to our customers within minutes after collection. This increase in LIDISAT constellation, high quality rapid data transfer to customers solidifies Cytospace as a leader in space and defense service solution. And in May, we signed a service agreement with Lease Space, another leading provider of ground segment as a service solution. This agreement progresses the broadening of our ground station network and extends the availability of our earth observation data to both established and emerging markets. LeafSpace's autonomous scheduler technology allows us to access 17 additional global ground stations, reducing latency and improving the overall quality of our service.

Speaker 2

We also signed a memorandum of understanding with SkyServ, an in space edge computing solutions company offering satellite based insights for core industries and solution providers through their insights as a service platform. The MoU will expand our ability to leverage the latest advancements in artificial intelligence and machine learn based analytics to provide our customers with the most advanced satellite imagery services available today. And another highlight to mention is our mentor protege relationship with L3Harris. In April, we announced that Sidus was selected as a protege with L3 Harris Technologies for the Department of Defense Mentor Protege Program, which helps businesses expand their footprint in the defense space contracting space by partnering with larger companies. We've been supporting L3Harris for many years building satellite hardware and other mission critical components for their divisions.

Speaker 2

Our support for L3 Harris has grown over the years and continues to do so as we expand our manufacturing facility to 3 shifts. Moving now to corporate highlights. During the quarter, we strengthened our Board and management team. In April, we announced the appointment of Leonardo Rivera to our Board of Directors. With more than 35 years of experience in Investment Banking and Funds Management, we were pleased to welcome Leo onto the Board.

Speaker 2

We also recently appointed Jessica Curry as Senior Vice President of Supply Chain. With over 20 years of experience in the aerospace sector, Ms. Curry brings a wealth of knowledge and experience to her new role. As we scale up production of our AI driven hybrid 3 d printed LISI FAT satellites, we are focused on streamlining and maintaining a reliable supply chain. And in June, we appointed Jared Novick as our Senior VP of Strategy and Special Projects.

Speaker 2

Mr. Novick has a diverse and extensive work experience spanning various industries and roles. He started his career in 2002 as a research scientist and experimentalist at the National High Magnetic Field Laboratory. From 2004 to 2,008, he worked as an intelligence community civil servant collaborating with the U. S.

Speaker 2

Intelligence community, Department of Defense and foreign partners. In 2,008, he joined the Office of the Secretary of Defense focusing on managing special projects and supporting a portfolio of special capabilities across the Department of Defense and U. S. Intelligence Agencies. Continuing his career in 2,008, he became a part of NASA's high altitude operations and research team, where he contributed to the organization's operations and research efforts until 2015.

Speaker 2

And an entrepreneur as well, he founded Curvesky, a company that was later acquired by SRI International. Now before I turn the call over to Teresa for a review of our financial results during the quarter, I want to address the inquiries we have received from shareholders regarding our recently filed Form S-three registration statement. After the 1 year anniversary of our IPO, we became eligible to have a Form S-three shelf registration statement on file. After consideration of the industry trends related to S-three filings, our team and our Board found it prudent as a public company with eligibility to have the shelf registration statement filed to provide our company with further financing optionality for growth if we decide to use it. I also want to address our plan for NASDAQ compliance.

Speaker 2

Similar to some of our other public space peers, we received a deficiency notice from NASDAQ related to the trading of our share price for 30 consecutive business days below the $1 minimum closing bid price requirement. We were provided a compliance period of 180 calendar days to regain compliance with the applicable requirements and have until September 11, 2023 to regain compliance. We currently meet the market value of publicly held shares requirement for continued listing and all other initial inclusion requirements for the capital market apart from our market price. If we are not in compliance by September 11, 2023, we may qualify for a second 180 calendar day compliance period. We continue to be focused on managing our expenses to remain lean even as we grow and approach the most significant milestones in our company history with our upcoming launch schedule.

Speaker 2

Having strong financial backing gives us the ability to accelerate and take advantage of opportunities as they arise. And as Teresa will discuss in more detail, our overhead is expected to continue to remain low relative to our peers, even taking into account our continued growth. And with that, I will turn it over to Teresa to discuss our Q2 financial highlights.

Speaker 3

Thanks, Carol. It's a pleasure to be here today to discuss our Q2 2023 financial results. You can find more details on our results in our Q2 Form 10 Q filed with the SEC Monday, August 14, 2023. Cytus achieved revenue of $1,400,000 for the Q2 ended June 30, 2023, compared to $1,800,000 for the same period last year. While revenue declined period over period, primarily due to the timing of fixed price milestone contracts, our higher margin satellite revenue increased 126% year over year.

Speaker 3

As Carol mentioned, our gross profit was approximately $508,000 or 37% for the quarter ended June 30, 2023, compared to approximately $347,000 or 19% for the Q2 of 2022, an increase of 1800 basis points. The increase in gross profit margin was primarily attributed to the mix of contracts and an increase in our higher margin satellite business. 2nd quarter operating loss was $3,500,000 compared to a loss of $2,400,000 for the same period last year. Overall, operating expenses increased approximately $814,000 to $3,600,000 for the 3 months ended June 30, 2023, as compared to $2,700,000 for the 3 months ended June 30, 2022. The increase is attributed to an approximate $470,000 increase in our payroll expenses to $1,900,000 from $1,400,000 for the 3 months ended June 30, 2022, a result of the expansion of our staff to support the needs of the business.

Speaker 3

An approximate $251,000 increase in professional fees for the 3 months ended June 30, 2023 to $383,000 primarily driven by increased general legal expenses related to being a public company as well as reviewing various corporate matters such as contracts and licenses supporting the growth of the business. Moving to our capital structure, we remain focused on managing our operating expenses closely with only a small amount of debt on our balance sheet. As of June 30, 2023, the company had debt of approximately $2,000,000 with cash of 7,900,000 dollars During the quarter, the company executed a common stock and warrant offering in which the company sold in aggregate of approximately 34,100,000 shares of our Class A common stock and common stock equivalents, as well as warrants to purchase up to approximately 34,100,000 shares of Class A common stock. Gross proceeds from the offering were approximately $11,200,000 Please reference our June 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, as Carol mentioned earlier.

Speaker 3

With that, I'll hand the call back to Carol.

Speaker 2

Thank you, Theresa. We will now move to the Q and A portion of the call. We received some submitted questions from investors that we would now like to address. So our first question is, what is your vision for the company over the next year? Well, we're working diligently to introduce new high margin recurring revenue streams to our 3 core business lines and those are Manufacturing Services, Space Infrastructure as a Service and space based data and insights.

Speaker 2

And the last 2 coincide with the proposed launch of our multiple LizzySat satellites into orbit. These launches will be a major step as we work to build a satellite constellation capable of delivering industry leading coincident data from multiple sensors, imaging the same piece of the earth at the same time to current and future customers with near real time data transmission. And we believe that this new revenue stream has the potential to significantly impact our profitability and as a result our stock is valued by the market. Our second question is with all the hype around artificial intelligence and your planned integration of edge computing, how Fitness based economy benefit from these technological advances? And I will let Jared Novick, our Senior Vice President of Strategy provide an answer to this one as it is a key part of our strategic plans for the next few years and beyond.

Speaker 2

Jared?

Speaker 4

Thank you, Carol. AI technologies provide immense potential for enhanced data collection and processing capabilities in particular. As Carol mentioned on the call today, we are focused on leveraging these technologies within our service offerings. By integrating AI technology into our constellation, like Exospace's Edge AI capability, we're expanding and enriching our services at the hardware and software level on orbit. These edge AI capabilities will facilitate real time data processing, image analysis, anomaly detection, data compression, automated decision making, privacy, security and customization.

Speaker 4

The combination of advanced data collection and advanced processing will equip organizations with heightened decision making acumen, bolster confidence, precision and accelerated insights. This enhanced functionality of LizzySat will amplify our market presence and customer relationships. This will allow us to attract broader interest and elevate our market

Speaker 2

of this? And I mentioned this a little bit earlier. Our Lidusat satellite with 5 year design life is expected to provide a return on investment within months of launch At a cost of $1,750,000 to $2,000,000 per satellite including sensors along with our low and fixed overhead, single satellite profitability can be achieved with only a fraction of available data being sold. But again, we believe, however, that there is a demand for all available data and at full capacity, the data collected from each satellite is expected to provide a 5 times return on the cost of satellite annually. We also have the ability to offer our data at a significantly lower price than what's available in the current market because of the unique infrastructure we're building to provide the near real time data transmission from our satellites back to earth.

Speaker 2

And the amount of data is driven by the systems onboard LISI SAT and the number of ground stations available for transfer of data to earth. We expect to collect between 100,000 megabytes to 200,000 megabytes of data per day per satellite with the ability to process that data on orbit for a more targeted transfer of useful and high value data. Next question is, what contracts do you currently have with NASA? Well, we've been supporting NASA directly and indirectly through its large prime contractors for over a decade and we continue to do so today. One of our significant areas of expertise is the manufacturing of complex space rated end ground support hardware, including assembly, integration and testing.

Speaker 2

We manufactured several key pieces of assembly and integration equipment for the Lockheed Martin Orion program. We also developed manufactured, qualified and delivered systems for the universal stage adapter for the ARTEMIS program and we continue to support the follow on SLS programs. We manufactured and tested a significant number of electronic control cabinets and wire harness assemblies for NASA's Mobile Launcher 1 Launchpad and then we are currently today contracted to develop and deliver a number of electronic control cabinets and wire harness assemblies for NASA's Artemis Mobile Launcher 2. We also manufactured and tested the T-zero umbilical environmental control system and hazardous quick disconnect plus flight and ground wire harness assemblies for NASA's core stage of the SLS. We developed the Golden servicing system for the Boeing Starliner CST-one hundred, which provided thermal controls to vehicle electronic control systems.

Speaker 2

We developed a number of assembly and integration systems in support of the Dream Chaser vehicle for the International Space Station commercial cargo contract. We manufactured and tested multiple propellant and fluid pneumatic control systems in support of the Kennedy Space Center base modifications and upgrades, which followed the completion of the shuttle contract. And we completed thermal vacuum testing of newly developed space station lighting assemblies for NASA's International Space Station as well. We currently have multiple customers who are actively engaged in a variety of NASA contracts and for which Sidus is a manufacturer of hardware and equipment. And those include United Launch Alliance, SpaceX, Blue Origin, CACI, Collins Aerospace, Rockwell Automation, L3Harris, Jacobs Technologies, Northrop Grumman, Parsons and Peraton to name a few.

Speaker 2

When we strategically decided to expand our business by moving up the satellite value chain to become a provider of scalable on orbit infrastructure, which includes satellites and space based space and earth observational data, we signed a contract with NASA to integrate and demonstrate for the first time autonomous operations developed by NASA's Mars Campaign Division in a spaceflight environment on our LISI satellite. And that contract was followed by a contract for the next phase of this NASA autonomous satellite technology project, which we believe will provide us with a pathway for growth related to deep space missions. We've been tasked to support development of a NASA Stennis Communications Center, the Astra Payload Operations Control Center at the South Mississippi Center. And this operations control center will tightly integrate with the Sidus Mission Operations Center that's in Cape Canaveral during on orbit operations. And with that, I would like to thank you all for joining us today for CytoSpace's Q2 2023 earnings conference call.

Speaker 2

The progress we made over the Q2 demonstrates that we are advancing in our mission of bringing space down to earth. We achieved several key milestones across the business, particularly in production of our advanced hybrid 3 d print satellite constellation for our diverse customer base. We believe Sidus is positioned well for business expansion and value creation and we appreciate the support of our investors and partners. We look forward to providing further updates on our progress. And I will now ask the operator to close the call.

Operator

Thank you. This concludes today's teleconference.

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