Sidus Space Q2 2024 Earnings Call Transcript

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August 19, 2024

There are 3 speakers on the call.

Operator

is now my pleasure to introduce your host, Bill White, the CFO. Thank you.

Operator

You may begin.

Speaker 1

Good evening, everyone, and thank you for joining us for SidedSpace's Q2 2024 Earnings Conference Call. Joining us today from the company is Carol Craig, our Chairman and Chief Executive Officer and myself, Bill White, Chief Financial Officer. During today's call, we 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 obligations to update the forward looking statements that may be discussed during this call. At this time, I'd like to turn the call over to Carol Cray. Carol, please go ahead.

Speaker 2

Thank you, Bill, and welcome, everyone. For those of you who may be new to our company and our mission, CytoSpace is a provider of comprehensive space infrastructure solutions that include space based data as a service on our proprietary on orbit satellite platform. We are U. S. Founded and based in Cape Canaveral, Florida near Kennedy Space Center, where we operate from a 35,000 square foot manufacturing facility.

Speaker 2

We support space manufacturing for other companies, while also managing our expanding constellation focused on AI enabled data as a service. Our mission control center is located in Merritt Island, Florida, also part of the Space Coast. As the space economy evolves from a niche sector to a mainstream industry, it's generating value across various fields and addressing global challenges such as military support, space exploration and climate change. The impact of space in the satellite industry is becoming increasingly recognized, driving a growing demand for space derived data and solutions. What sets us apart is our holistic approach to addressing our clients' most pressing challenges.

Speaker 2

We offer cost effective solutions with deep expertise across the entire space lifecycle, from hardware manufacturing to space based data delivery and mission planning and operations. Unlike other constellation operators who focus on a single business line, such as specific earth observation sensors or particular customer segments like the Department of Defense, we have the benefit of optionality. We're not dependent on a single line of business or customer. This diversity mitigates risks associated with external factors like macroeconomic shifts or technological disruptions. Our flexibility allows us to adapt swiftly to market changes, supporting growth across all our business lines.

Speaker 2

We're currently generating revenue and have been for well over a decade and are growing our pipeline across all our businesses. The hard work of the last couple of years has led us into a period of tremendous activity and excitement for Cytus space. In March, we achieved a significant milestone with our first launch success of our LYSYSAT-one. Our technology is now proven, patented and validated and we're moving forward executing our vision and expanding our full stack space business. We had an outstanding start to 2024 and I'm pleased to report that operationally and technically we've had another milestone quarter as we continue the positive momentum from LOVESat-1 successful deployment via SpaceX Transporter-ten rideshare mission.

Speaker 2

LISVSAT-1 has performed very well in its 1st 5 months in orbit, meeting mission objectives and activating sensors. Notably, we believe LISVSAT-1 is the first of its kind hybrid 3 d printed AI enhanced multi mission satellite and remains unique in its technology and multipurpose capabilities. It lays a solid foundation for future growth as we continue with plans to expand our constellation. LUSY SAT 2 and 3 are in final stages and as of today everything is on track and moving according to the latest schedule, which is dependent on launch dates. We are on target for 2 launches in the next 6 to 9 months with the first currently manifested for the Q4 of this year with SpaceX.

Speaker 2

Of course, launch schedule is subject to many factors, including several outside of our control. In the space industry, delays are common and do not necessarily indicate issues. Some delays are completely out of our control like launch provider schedule changes. As we continue to build and launch our constellation, we expect to make changes to schedule launches and technologies as driven by market and customer needs. Sometimes a business case supports a strategic schedule change like an opportunity to integrate an advanced technology or customer payload.

Speaker 2

As a reminder, our satellites have an expected lifespan of about 5 years and consideration is always given to maximize return on investment and drive shareholder value for the life of the satellite. Weighing in around £225, LVSAT is a more advanced and versatile satellite compared to typical cubesats, which are of smaller size and weight. Our larger size LVSAT supports a range of missions and applications, allowing for simultaneous multi sensor data collection. This design optimizes payload capacity and mission flexibility, supporting various customers and industries with a single cost effective satellite. Our focus on diversity from the start has been integral to our strategy.

Speaker 2

Looking back on what we've accomplished since the start of Q2, there are a lot of firsts beside us, our customers and space in general. In addition to launching and deploying the first 3 d printed AI enhanced multi mission satellite, this past quarter, we successfully completed the mission contracted by NASA for an on orbit demonstration of an autonomous systems hardware software payload developed at NASA Stennis. This marks the first time NASA Stennis has ever flown a hardware software payload in this space recognized as a historic milestone by the NASA Stennis Center Director. We were contracted by NASA to not only integrate and fly the technology and software, but to handle launch and satellite activation and onboard data collection. Another first relates to our high performance artificial intelligence delivery platform, feather edge.

Speaker 2

AI and space simplifies data analysis by running algorithms directly on our satellites, reducing identification time from hours to seconds. The Lidusat-one mission demonstrated feather edge's ability to upload new algorithms post launch, run a machine vision algorithm on the hardware accelerator capable of processing data 300 times faster than the CPU and to downlink health and status data to our Sidus Mission Control Center in Marymount, Florida. Our Google powered AI processor sets the groundwork for substantial upgrades on future launches, which is expected to include NVIDIA powered AI accelerators with 25 times more computing power than our previous version of feather edge, resulting in what we believe will be the highest performance edge computing capability on orbit. The term edge computing is often used to describe a distributed computing system where data processing occurs close to where the data is generated. This reduces the time to receive data and allows for near real time data analysis, which is essential to providing the building blocks for data center scaled computing on orbit.

Speaker 2

So what does all that mean? Well, 1, Citus can successfully run high performance computers in space. These computers can be scaled and swapped incredibly fast on the order of weeks, not years, to adapt to customer and market demands for hardware. 2, we have a system flexible enough to support new customer missions post launch through software and algorithm updates, which allows Sidus to generate additional revenue on Lizzy sets that have already been launched. And 3, the feather edge technology is now providing traction in growth markets such as rapid fire detection.

Speaker 2

We demonstrated AI enhanced identification of fires on orbit using Sidus developed algorithms. Unlike traditional methods, which rely on infrared sensors to collect data and downlink it to the ground for processing, our FeatherEdge solution supports advanced algorithms trained on representative imagery to deliver market leading accuracy and reliability in thermal data acquisition and analysis. Of significance is that our algorithm was 98% accurate and took 5 milliseconds to process the image. Our full stack approach to space based services, vertically integrating manufacturing and operation of all spacecraft systems, including artificial intelligence enables us to provide what we believe is the most competitive space based computing solution on the market. As we've always said, we're not only focused on lower earth orbit, but also the moon, Mars and beyond.

Speaker 2

The moon provides an opportunity 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. Our research and development team has been working on expanding our offerings to include geostationary and lunar satellites. Over the next several months, we expect to see a ramp up in our support of cislunar and lunar needs. We've previously 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. This contract represents the first phase of developing a crude rover for human exploration of the moon surface.

Speaker 2

In addition to supporting other partners with lunar solutions, we've also designed a version of LISI Sat to meet the needs of lunar missions and the needs of our expanding customer base. So what does our future look like? Well, to begin with, interest in our satellite manufacturing, data offerings and long term partnerships continues to grow, especially following our successful launch and our revenue pipeline supports a strong growth outlook. Our proven ability to design, build, launch and operate 120 kilogram satellite is the obvious catalyst to the growth of our pipeline. Over the last few months, we submitted a range of proposals and responses to solicitations to government and commercial customers.

Speaker 2

These proposals are under valuation and we expect to receive the results of contract decisions in the next coming weeks months. We continue to grow our backlog and contract values and currently have approximately $100,000,000 in our pipeline. We have over 30 active customers in multiple divisions, several of whom are long term recurring customers and we continue to add new customers as we add more capabilities and services. Additionally, I'm excited as we look to advance discussions with new strategic partners, especially our global partners. In the Q2, we signed an MoU with Namasis Bahrain with plans to establish Sidus Arabia, a joint venture headquartered in Saudi Arabia to develop a satellite manufacturing facility and pursue joint initiatives.

Speaker 2

This partnership represents a framework that we will look to replicate in other global areas, seeking remote sensing capabilities for environmental and security solutions. As we continue to update our satellite designs with the latest technologies, we're also growing our own space product division. As a vertically integrated satellite manufacturer, we have the advantage of being able to design and build our own subsystem solutions for the space ecosystem if it makes economic sense. This drives our cost advantage and our flexible approach to manufacturing. Over the last 6 months, we invested in our next generation satellite design, which includes more powerful technological solutions, including a VPX open architecture system with simplified assembly and integration, reduced mass and better performance.

Speaker 2

The VPX system is just one of our solutions that we've designed in our manufacturing as we grow our product lines. Other products include flight software, satellite onboard computer, base rated graphics processing unit and an LVDS cross point switch card that extends and expands payload capacity. Offering a diversity of products and services that includes our Constellation as a service offering along with our in house manufactured owned and operated Constellation spreads CapEx and research and development across multiple customers. We also have flexibility due to our baseline approach to vertical integration that facilitates the use of the Citus baseline bus design to customize mission solutions from LEO to Syslunar in a cost effective and timely manner. We anticipate continued growth in our pipeline and backlog with increased revenue recognition expected as our constellation expands.

Speaker 2

We've signed contracts for data and we expect additional data contracts over the life of the satellite. Our initial focus with LS1 was to fulfill primary mission objectives for customers, improve out our technology and business model followed by expansion of our data offerings. As we look at our financial results and projections, it's important to describe the diversity in our business model as it relates to types of contracts and margins and year over year comparisons. Our manufacturing and satellite contracts take varying forms, firm fixed price, high material and milestone or progress payments. This results in inconsistent or lumpy revenue recognition quarter over quarter.

Speaker 2

Our contracts are made up of a mix of material and labor expenses and those expenses can occur at different times over the life of a contract. Because of this, quarterly comparisons are not necessarily indicative of expected annual results. We look at our revenue projections and gross margins on a year over year basis and expect that 2024 will demonstrate the importance of annual vice quarterly comparisons. And now I'll hand the call over to Bill to discuss our financial highlights.

Speaker 1

Thank you, Carol. It's a pleasure to be here today to discuss our Q2 2024 financial results. As Carol mentioned, successfully launching LISI Sat into orbit was a major achievement for the company and a key milestone in our strategy to drive Sidus towards higher revenues and improved margins. As with any first time endeavor, we learned valuable lessons from the successful launch and deployment of our initial satellite. These insights have been applied to our current satellites in production, including LISI Sat-two, which is scheduled for launch later this year.

Speaker 1

We are eager to see the advancements and improvements once these satellites are in orbit. As technology continues to evolve rapidly, we are committed to enhancing our own capabilities to expand our customer base and optimize our data revenue streams as part of our growing business portfolio. In addition to technology, we have invested in the growth of our company through capital expenditures on satellites, research and development and the implementation of a robust ERP system. Now on to our Q2 2024 financial results. Total revenue for the 3 months ended June 30, 2024 was just under $1,000,000 a decrease of approximately $440,000 compared to total revenue for the 3 months ended June 30, 2023.

Speaker 1

This decrease was primarily driven by the timing of fixed price milestone contracts, fewer satellite related revenue payments in the first half of twenty twenty four and delayed timing of expected contract awards, including those tied to related party contracts. Cost of revenue increased 105% for the 3 months ended June 30, 2024 to approximately $1,800,000 as compared to $860,000 for the 3 months ended June 30, 2023. The increase was primarily driven by our mix of contracts with higher material expenses, vice labor, shifts in milestone payments for our higher margin satellite related businesses and higher depreciation costs associated with the monthly depreciation of our first satellite asset deployed March 2024. Depreciation will continue to impact cost of revenue until we can generate a higher volume of satellite and data related revenues, which have high margins to offset the related depreciation expense. Our gross profit for the quarter ended June 30, 2024 decreased approximately $1,350,000 resulting in a net loss of approximately $841,000 compared to a gross profit of approximately $508,000 for the 3 months ended June 30, 2023.

Speaker 1

Gross profit margin was negative 91% for the Q2 of 2024 as compared to a positive 37% for the Q2 of 2023. Again, this was driven by the timing of satellite related payments and fixed price milestone contracts in the first half of twenty twenty four and higher costs related to the depreciation of our first satellite asset. SG and A expenses for the Q1 June 30, 2024, totaled approximately $3,100,000 as compared to $3,600,000 for the same period last year. The $500,000 decrease was primarily due to a reduction in payroll and related expenses directly related to building our satellites, which were moved to fixed assets. D and O insurance expense and marketing and investor relation expenses also decreased.

Speaker 1

To provide investors with additional information in connection with our results as determined in accordance with GAAP, we also include in our 2023 Form 10 ks non GAAP measures to determine our adjusted EBITDA. We use adjusted EBITDA to evaluate our operating performance to make strategic decisions about the company's future correction. Adjusted EBITDA loss, a non GAAP measure for the 3 months ended June 30, 2024, totaled $3,200,000 as compared to an adjusted EBITDA loss of $2,800,000 for the same period last year. Total non GAAP adjustments for interest expense, depreciation and amortization, acquisition deal costs, severance costs, capital markets and advisory fees, equity based compensation and warrant costs are provided in the reconciliation table listed in our Q2 2024 earnings PR release earlier today. Net loss for the 3 months ended June 30, 2024 was $4,100,000 as compared to a net loss of $3,500,000 for the same period last year.

Speaker 1

Turning to the balance sheet. As of June 30, 2024, the company had cash of $1,400,000 as compared to $1,200,000 at December 31, 2023. As we continue to manage our cash flow conservatively, we will prioritize the strategic use of our cash resources to pay down debt and fund our upcoming satellite builds, which are crucial for driving revenue and overall growth and profitability. We will also continue to identify additional opportunities to reduce expenses and increase efficiencies within our business. With that, I'll hand the call back over to Carol.

Speaker 2

Thank you, Bill. With over 5 months of LIVUSAT operating in orbit, CytoSpace is entering an exciting phase of growth as we continue to execute our strategic priorities. Our 3 d printed AI enhanced LIVUSAT are central to our future high margin data as a service business model designed to integrate multiple technologies. These satellites enable simultaneous data collection that can support industries such as agriculture, maritime, oil and gas among others. We're committed to expanding further into these sectors to generate additional revenue, ultimately increasing value for our shareholders.

Speaker 2

Our next two satellites are in advanced stages of production and are scheduled for launch within the next 6 to 9 months. We are diligently executing our plan to build a unique multi mission constellation and the proactive steps we took early on such as securing a multi launch agreement with SpaceX and purchasing subsystems with long lead times are enabling us to deliver a steady cadence of launches to meet the customer demand that we promised. The success we've already achieved with our very first satellite has strengthened the confidence of our team, industry partners, current and potential customers and shareholders alike. I want to express my sincere gratitude to all our shareholders for your continued support of Sidus. Whether you've been with us from the beginning or have recently joined, you are an integral part of our journey as we create unprecedented access to space.

Speaker 2

I remain fully committed to restoring shareholder value and I'm optimistic about the higher revenue streams we anticipate from our satellite manufacturing and our Space Data as a Service constellation. Thank you to everyone for joining us today for CytoSpace's Q2 2024 earnings conference call. I will now ask the operator to close the line.

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