Sidus Space Inc

NASDAQ:SIDU

Earnings Call Analysis

Sidus Advances with LizzieSat Launch Amid Financial Losses

Sidus marked a pivotal 2023 with the launch of LizzieSat from SpaceX's rideshare mission, heralding entry into a niche market of commercial satellite providers. Leveraging smart vertical integration, the company anticipates new technologies and markets, and has production underway for subsequent satellites. Satellites could generate theoretical annual revenues of $14 million each, promising a scalable Data-as-a-Service (DaaS) model, as Sidus seeks to rapidly develop a LizzieSat constellation. Yet, Sidus faced a revenue decrease to $6 million, down by $1.3 million from the previous year, due to the timing of contracts, while managing to increase the gross profit margin to 28%. Notably, the annual net loss widened to $14.3 million, and the adjusted EBITDA loss grew to $10.9 million. Still, a recent $15.2 million fundraising has strengthened the balance sheet, setting the stage for future expansions.

Shifting to High-Margin Data-as-a-Service

Sidus Space has successfully launched LizzieSat-1, marking a critical leap in their quest to establish continuous, profitable space Data-as-a-Service revenue streams. The launch signifies a pivotal shift towards promising higher revenues and margins. The company is banked on these LizzieSats, with two more awaiting launch within the year, to scale up data sales and propel cash flow. There exists a potential to accumulate $14 million in annual revenue per satellite, emphasizing the scalability of their business model.

Financial Performance: Mixed Outcomes

While Sidus experienced a revenue decrease of $1.3 million in 2023 compared to 2022, falling to approximately $6 million, they demonstrated an increase in gross profit by 14% to approximately $1.6 million, and an improved gross profit margin which leapt from 20% to 28%. Meanwhile, increased SG&A expenses culminating in $14.2 million due to various professional fees, along with an adjusted EBITDA loss growing slightly to $10.9 million, contributed to a net year-end loss of $14.3 million.

Liquidity and Future Financing

The company closed the year with $1.2 million in cash, less than the previous year's $2.3 million. However, a recent funding round injected $15.2 million into the firm, buttressing the balance sheet for planned expansion and operations into the future.

Anticipating Revenue Exploration

The anticipation of increased satellite data revenue in 2024 is cornerstone to Sidus's evolving revenue trend, alongside their existing manufacturing and payload income. The high-margin potential from payload and data sales is expected to make a significant positive impact on the company's overall financial health.

Strategic Expansion and Customer Outreach

Sidus Space is fortifying its commercial and governmental outreach. The successful launch of the 100-kilogram LizzieSat-1, their capacity for aggressive business development, and a presence in key industry events are at the core of their customer acquisition strategy. Moreover, a significant contract win with the National Geospatial-Intelligence Agency for R&D services underpins expectations for amplified activity and customer engagement in the years ahead.

Earnings Call Transcript 2023-Q4

[Operator]

Greetings, and welcome to the Sidus Space Fourth Quarter and Full Year 2023 Results Conference Call.

[Operator Instructions]

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Valter Pinto, Managing Director, KCSA. You may begin. Please proceed.

[Valter Pinto]

Good morning, everyone, and thank you for joining us for the Sidus Space Fourth Quarter and Full Year 2023 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 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, www.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 morning's call, please e-mail our team at [e-mail]. At this time, I'd like to turn the call over to Carol. Carol, please go ahead.

[Carol Craig, executive]

Thank you, Valter, and welcome, everyone. 2023 was a pivotal year for Sidus as we work toward the launch of LizzieSat. Earlier this month, we successfully deployed from the SpaceX Transporter-10 Rideshare Mission followed by successful establishment of communications and retrieval of health and status data. LizzieSat-1 is the first of several satellites planned for launch to low earth orbit. We are quickly building our multi-mission constellation of 3D printed AI-enhanced satellites with 2 more LizzieSats manifested for launch with SpaceX before the end of this year.

The steps we took to prepare since our IPO and through 2023 led us to the successful deployment of LizzieSat-1. The steps we took were both technical and organizational. We've built a foundation for the future that included investment in people, processes and technology. We focus on critical areas that contributed to the success of our initial launch and deployment and at the same time, to our strategic plan for the next several years.

This includes development of simulation, guidance and navigation and flight software and combined with our hardware innovations, establishes a new line of products with flight heritage and experience, integrating established design and processes related to environmental testing, redundancy of systems and agile development resulted in not only success right out of the gate, the first time, but also a rapid development capability that will allow us to grow and evolve as the space ecosystem grows and evolves.

We've streamlined and matured our leadership team and our Board of Directors with a focus on the long-term outlook. This means bringing in leadership with the ability to connect, flex and grow as we look to capture more of both government and commercial markets benefiting from LEO, the Moon and Mars programs. 2023 also brought significant upgrades to our LizzieSat, including the addition of an artificial intelligence edge computing solution.

This was made possible through the acquisition of Exo-Space in the third quarter of 2023. This acquisition allowed us to add the FeatherEdge AI hardware and software solutions to our product line and also integrate AI into our satellites, giving us a significant edge when capturing data for sale to our customers. AI processing of data using what is called edge computing reduces the time between data collection and decision-making, which is critical to time-sensitive applications such as autonomous systems and even remote sensing applications, outfitting our satellite to function as an edge device with local compute, unlocked a host of operational benefits, including reduced transmission time, greater security and lower transmission costs.

Specifically, the 2 key areas that benefit from AI are on satellite data storage and transmission of data back to earth. Our FeatherEdge AI solves both of these potential issues. The proprietary FeatherEdge AI hardware enclosure allows us to continue to rapidly upgrade our memory and processors on future LizzieSats, allowing us to remain state-of-the-art as computer hardware continuously progresses. The FeatherEdge AI software is capable of being updated on orbit as well, which allows our customers to rapidly adapt to changing markets and mission requirements.

And additionally, this proprietary software solution uses onboard machine learning to parse out the data that's most valuable to our customers. This dramatically increases the quality of the data that we download to ground stations. So essentially, instead of incurring the delay and cost of moving large volumes of raw data back to earth, the processing can be moved into space, including to the point where actionable insight can be delivered directly to the end user without that raw data even touching earth.

While we're extremely proud of our recent successes, it's important not to forget that space is a very difficult environment. Space is hard and executing the right way takes time and experience. Our decade plus manufacturing space hardware is one of the reasons our first satellite is in the satellite catalog right now. It's important to note that this would not have been possible without the successful collaboration with other companies and government agencies during and after the launch.

After deploying from the Falcon 9 rocket, we work with other Transporter-10 riders to share location information and confirm the Orbit state of LizzieSat. We saw the space community come together to sort and correlate these tracks for our closely spaced group of vehicles, which is common for Rideshare deployments into low earth orbit. And we're truly grateful for this information sharing and the spirit of collaboration with our peers in the space industry.

Not only is design, build and test of the satellite very complex, but the follow-on stages, including launch and early orbit commissioning phase and mission preparation are all very complicated endeavors. After the successful launch and deployment of our first LizzieSat, we're excited to report that we have achieved the critical milestones related to understanding the health and status of our operational satellite.

Now that LizzieSat is in orbit, circling the earth approximately every 95 minutes and providing 2-way communication, we're looking forward to focusing on data collection, onboard processing and filtering, download of data and sales. We're currently in the commissioning stage, which includes sequential activation and checkout of the spacecraft subsystems, the calibration of payloads, sensors and control systems, which we think it will take between 60 to 90 days. Following this, we expect to have the first sensor data and images collected with revenue realized from LizzieSat in later months of this year.

Additionally, the heritage of building, launching and operating a commercial satellite of our size, greater than 100 kilogram, puts Sidus Space in a very small group of companies with the ability to pursue more advanced and long-term opportunities with both government and commercial entities. Even though we are successfully operating LizzieSat-1, the experience has resulted in both technical and cost efficiencies that will support our economies of scale and cost reductions in the next few years.

As we continue with production for our next few satellites, including the 2 manifested for the end of this year, we're able to integrate the improvements that we identified as a result of the success of our first LizzieSat. We've become an even more efficient operating unit going forward, and we anticipate expanding as an organization with new technologies and new markets. One of the reasons that we can so quickly adapt and integrate recognized solutions and lessons learned is because at Sidus, we practice smart vertical integration. We manufacture our own bus and we use selected space proven subcomponents, which allow us to select the best technology to suit the mission objectives.

LizzieSat-1 is a full production satellite, not just a proof-of-concept. This is all part of our plan to establish a steady production cadence of our satellites. While most other companies our size have had a gap between their first mission and subsequent missions, LS-2 and LS-3 are in full production and currently on schedule for their manifested launch in Q4 this year. LS-4 is manifested for Q1 2025 and LS-5 is in the design phase as we are determining technology payloads and enhancements.

Once full production cadence is achieved, the expected time to manufacture satellite is 45 days, including printing and assembly. As we look toward the future, we continue to collaborate with our industry partners to ensure the path forward to launch and subsequent revenue is smooth and uninhibited. As small satellite launch options increased with the entrance of dedicated small satellite launches, we continue to augment our existing Rideshare agreement by expanding our options for low-cost rides to space to accommodate an accelerated launch cadence.

All of our products and services that we offer through our 4 business units are critical to our future growth and strategy. These capabilities Space and Defense Hardware Manufacturing, Satellite Manufacturing and Payload Integration, Space-Based Data Solutions and AI Products and Services allow us to support multiple industries and markets from concept to Low Earth Orbit, the moon, Mars and beyond.

And as the government increasingly seeks to leverage small satellites or include them in architecture planning to augment as needed, we're focused on building a stable business model with complementary dual use to support both government and commercial needs. The ability of our LizzieSat Space platform with a purpose to flexibly and rapidly integrate and launch technologies to deliver actionable geospatial data or other sensor solutions is key to creating a catalyst to help accelerate the space ecosystem and the benefits space can provide to all industries and consumers.

And I now will hand the call over to Bill to discuss how our recent successes impact our business strategy and to discuss our financial highlights.

[Billy White, executive]

Thanks, Carol, and a good day to our shareholders, guests and listeners. It's a pleasure to be here today to discuss our fourth quarter and full year 2023 financial results and also provide an update on our business strategy. Launching LizzieSat-1 is a major step in executing our strategy of building high-margin, recurring space Data-as-a-Service revenue streams from our satellite data. As Carol highlighted by putting LizzieSat-1 into orbit, we have achieved the most difficult part of our long-term strategy to shift the company towards greater revenues and higher margins.

With LS-2 and LS-3 in production and manifested for launch this year, we are well on our way to establishing a multi-satellite constellation to capture and sell satellite Data-as-a-Service to our customers.

To put it in perspective, each of our satellites are capable of downloading a minimum of 100,000 megabytes of data back to earth each day. This translates in our ability to theoretically generate $14 million in revenue per year per satellite, assuming we sell 100% of this data a single time. Interestingly, we may be able to sell this data multiple times. As you can imagine, this business model has the capacity to scale rapidly and generate meaningful cash flow as we develop a steady cadence of LizzieSats going into orbit.

While we do have current data contracts in place, now that LS-1 is in orbit and fully operational, we are increasing our pipeline of new potential customers for our Space Data-as-a-Service. We recently hired a Vice President of Business Development to drive the sales process.

Now for our 2023 financial results. Total revenue for the 12 months ended December 31, 2023, totaled approximately $6 million, a decrease of $1.3 million compared to total revenue for the 12 months ended December 31, 2022. This decrease was primarily driven by the timing of fixed-price milestone contracts, offset by satellite payload revenue.

Cost of revenue decreased 26% for the 12 months ended December 31, 2023, to approximately $4.3 million as compared to approximately $5.9 million for the 12 months ended December 31, 2022. This decrease was primarily driven by a mix of contracts and milestone billings, which helped offset continued increased supply chain cost in the manufacturing side of our business.

Gross profit increased 14% for the 12 months ended December 31, 2023, to approximately $1.6 million as compared to approximately $1.4 million for the 12 months ended December 31, 2022. Our gross profit margin increased to 28% for the full year 2023 as compared to 20% for the full year 2022.

SG&A expenses for the 12 months ended December 31, 2023, totaled $14.2 million as compared to $13.5 million for the same period the prior year. This increase was primarily due to an increase in professional fees, including legal costs associated with the acquisition of Exo-Space, as well as increase in employee expenses. This was offset by a decrease in insurance rates, license fees and IR/PR expenses.

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-K non-GAAP measures to determine our adjusted EBITDA. We use adjusted EBITDA in order to evaluate our operating performance and make strategic decisions regarding the future direction of the company.

Adjusted EBITDA loss, a non-GAAP measure for the 12 months ended December 31, 2023, totaled $10.9 million as compared to an adjusted EBITDA loss of $9.7 million for the same period in the prior 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 fourth quarter and full year 2023 earnings press release released earlier this morning.

Net loss for the 12 months ended December 31, 2023, was $14.3 million as compared to a net loss of $12.8 million for the same period last year.

Turning to the balance sheet. As of December 31, 2023, the company had cash of $1.2 million as compared to $2.3 million at December 31, 2022. Subsequent to December 31, 2023, the company bolstered our balance sheet by raising gross proceeds of $15.2 million, putting us in a stronger financial position as we continue to expand our constellation later this year and into the future.

With that, I'll hand it back to our CEO, Carol.

[Carol Craig, executive]

Thank you, Bill. The launch of LS-1 marks the beginning of a new era for Sidus. 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 collection to support agriculture, maritime, oil and gas and other industries. And we intend to expand into these industries to generate additional revenue for our shareholders.

We have big plans for 2024 as we are quickly building our constellation satellites with 2 more LizzieSats manifested for launch with SpaceX on their bandwagon mission before the end of the year. With LS-1 in orbit and LS-2 and LS-3 in production, we're focusing on attracting new data customers to expand our Data-as-a-Service business.

Additionally, we're looking at expanding our other lines of business as we focus on more than just Low Earth Orbit. We expect the next 24 months to demonstrate our focus on remaining lean as we grow revenue and capabilities with a plan for rapid response development of Space Solutions for all areas of the space ecosystem.

Successfully designing, building, launching and deploying an operational 100-kilogram 3D-printed satellite is not an easy feat, and there are very few companies who get to this level. I could not be more proud of our team and all we have accomplished. We have methodically executed on our strategy of building a leading space and Space Data-as-a-Service company with an experienced team, innovative and advanced technologies, a vertically integrated manufacturing facility and a robust spacecraft supply chain.

It's exciting to show proof of this capability for both our customers and our shareholders. We have much to do, and we're looking forward to the future as we continue to execute on our vision and bring value to our shareholders, our customers and the world.

I want to thank all of our shareholders for your continued support of Sidus.

And we will now move to the Q&A portion of the call. We've received some submitted questions from investors that we'd like to address.

[Carol Craig, executive]

Bill, I'll let you start.

[Billy White, executive]

Thank you, Carol. The first question was with respect to revenue and growth.

What were the key drivers behind the revenue decline this year?

The primary drivers was the function of our milestone contract billings and the timing of those billings for manufacturing and satellite revenue.

Second question, how do you anticipate revenue trends evolving in the next quarter or fiscal year?

While revenue will evolve as we continue to have more satellites in orbit. We've talked about our 3 revenue streams: manufacturing, payload and data. While we've had manufacturing and payload revenue in 2022 and 2023, we anticipate to start seeing some satellite data revenue in 2024 as we continue our planned launch cadence. Payload and data are higher margin and are expected to favorably impact our overall results.

[Carol Craig, executive]

Thanks, Bill.

So the next question is, what strategies are you employing to acquire and retain customers in an increasingly competitive market?

So our #1 strategy was demonstrating that we could successfully launch, deploy and operate a 100-kilogram commercial satellite. The significance being the complexity of satellite because of the size and the fact of its commercial endeavor, and therefore, we control the revenue generation in addition to all the operations of the upcoming constellation. Also, as Bill mentioned, we hired a VP of Business Development with an increased focus on government opportunities now that we've flown.

We expect more government opportunities over the next year due to the timing of existing contracting vehicles that are out there and also because of the successful execution of our satellite manufacturing and operating capability. And this also means an increased pipeline for data as well as the manufacturing with an additional focus on engineering services. And of course, we're attending the industry events, Satellite 2024 was attended in March and an upcoming is a Space Symposium in April. And all of these combined are helping us to increase our pipeline and work towards acquiring more and retaining those customers.

Next question is, are there any notable customer wins or expansions during the reporting period?

So we did announce that we are one of the teams that were selected by the National Geospatial-Intelligence Agency, NGA, for research and development services to their research and development directorate. And the NGA's primary mission is collecting, analyzing and distributing geospatial intelligence in support of national security. And that contract is expected to start to gain some momentum and we will be bidding on task orders as a part of that team upcoming in 2024.

We also signed a commercial IDIQ contract for lunar support, and we'll be pursuing government contract or task orders on that contract as well. And that shows our commitment to not only LEO, but the Moon and Mars and beyond. And we're also booking customers for subsequent launches up to 2 years out from now. So a lot of times, the customers don't announce their public announcements, and that doesn't mean that we aren't doing something. So we are looking at our cadence and ensuring that we are booking those customers for those subsequent satellites.

Next question is, how has operational efficiency improved or impacted during the quarter?

So we now completed design, development, testing and the successful flight of our LizzieSat-1 satellite, we passed all the SpaceX and the regulatory requirements. LS-2 and LS-3 are really build to print from that LS-1 design. So the -- what they call the nonrecurring engineering costs for NRE are reduced as compared to LS-1. So we will see efficiencies there, including cost reduction.

We have our Sidus Mission Control Center now up fully operational, which has worked flawlessly since we launched on March 4. And this is the same mission control center that's going to be utilized for LS-2 and LS-3 and beyond all the other missions. So again, that NRE, that nonrecurring engineering and those costs are not repeated. So it's near 0 since we use the same mission control center for all those missions.

Next question is, are there any significant operational challenges or successes that influence financial results?

So -- of course, getting the first LS approved for flight by SpaceX and the regulatory bodies is always the hardest and most costly. So now that we've successfully launched, deployed, currently operating LS-1 satellite, that NRE again, associated with getting approval is significantly reduced for the subsequent missions.

On the manufacturing front, we continue to manage through supply chain challenges and higher prices. Through a mix of contracts and increased satellite-related revenue, we were able to more than offset the supply chain challenges and achieving 28% overall gross margin versus 2022, which was 20%.

[Billy White, executive]

The next question has to do with the financial health and capital allocations.

The question is, can you discuss the company's liquidity position and any measures taken to manage cash flow effectively?

The company's going concern was removed from our 10-K indicating that we have sufficient liquidity to operate for at least the next 12 months.

The next question is, what is the capital -- what is the company's approach to managing debt and leverage in the current market environment?

The company has historically operated on a very tight budget and has raised a fraction of the capital to some of our competitors, we will continue to operate efficiently and effectively.

How do you plan to deploy capital in the coming quarters? Any update on investment plans or acquisitions?

We have no immediate M&A plans that are always looking for accretive strategic investments.

[Carol Craig, executive]

So next question is related to competitive landscape, which is always one of my favorite.

How do you view the competitive landscape in the satellite services industry? And how is the company positioned relative to competitors?

So last year, 2,860 satellites were launched. 79% of those were communication-related and only 13% are remote sensing like ours. And out of those, 2,116 were for SpaceX and OneWeb related to comms. In the remote sensing and earth observation market, most of the companies seem to be focused on one type of sensor or industry. And we built LizzieSat to be a flexible and dynamic platform to allow for multiple technologies and rapid integration of new and emerging technologies. This allows us to pivot when needed to address emerging industry or customer needs more rapidly.

Also, most if not all of our competitors in the public market went public via SPAC and have some significant overhead. As we launch more satellites, we will see our losses reduce because of the invested NRE that I mentioned previously and the lean operating structure that we've created.

Additionally, governments are moving more towards commercial models and looking to industry to build and operate their own satellites and provide data as opposed to paying contractors to build a government-owned satellite. This means that there's more opportunity for companies like ours who are building satellites that are larger than the typical CubeSat and doing at a lower cost than many of our competitors.

So how do we define a successful mission?

Each mission has different objectives. But for LS-I, we were initially looking at 3 May, and those were the successful launch, successful separation and deployment and then establishing 2-way communications so we can monitor health and status a satellite, and we achieve those. And the fourth is collecting data. And that's where we're moving into right now, and we're focused on the successful collection of data and therefore, the revenue generation that comes out of LS-I.

Next question is what recent technological advancements or innovations have contributed to the company's competitive advantage?

I mentioned this before. One of them is the acquisition of Exo-Space, the AI company. Integrating onboard software and hardware AI solutions is critical to maximizing revenue generation.

Another question is, how do you plan to leverage emerging technologies, for example, small satellites or advanced analytics to drive future growth?

One thing we're focused on is increasing our onboard computing speed using VPX technology, also leveraging software-defined radios and modularizing the control and data handling subsystems to reduce complexity and mass while improving our computing speed. And what this does is it reduces the total time required from receipt of that critical data onboard LizzieSat to the time that it's downlinked and transferred to customers, which means more revenue generation.

And I'll pass it back to Bill for our last question.

[Billy White, executive]

Okay. And last question is, can you provide any visibility into future revenues and earnings growth expectations?

We're an emerging growth company, and we currently don't provide guidance. But with LizzieSat-1 now in orbit, our sales team is aggressively pursuing additional data contracts. We have a plan for a steady cadence. Most of the companies of our size have had a gap between their first mission and subsequent missions. LizzieSat-2 and LizzieSat-3 are in production and currently on schedule for manifested launch in Q4 of this year. LizzieSat-4 is manifested for Q1 of 2025 and LizzieSats-5 and 6 are in the design phase currently. This means continued revenue growth from satellite operations and as mentioned, with less nonrecurring engineering and other costs that was incurred over the last 2 years as we built our first and deployed our first LizzieSat-1.

[Carol Craig, executive]

Thank you, Bill, and thank you to everyone who submitted questions. Lastly, thank you to all of you for joining us today for Sidus Space's Fourth Quarter and Full Year 2023 Earnings Conference Call.

[Operator]

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.