Q2 2023 Sidus Space Inc Earnings Call
Speaker 1: You
Greetings and welcome to the CIDUS-based 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.
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As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Walter Pinto, Managing Director, KCSA. Thank you, Mr. Pinto. Let me begin.
Good morning, everyone. Thank you for joining us today for the CITIS-based second quarter 2023 earnings conference call.
Joining us today from the company is Carol Craig, founder and CEO , and Theresa Birchfield, 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.
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 five times revenue return on the cost of the satellite within one 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.
Early in the quarter, we announced our plans to integrate Exospace's FeatherEdge AI data processing platform into Lizzysat. 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 Lizzysat One. We viewed the successful integration of Exospace's FeatherEdge platform into Lizzysat as an important milestone to our success. In our pursuit of business expansion and the creation of shareholder value, we are taking decisive steps to leverage the immense potential of AI technologies within our service offerings. Through AI integration, we are expanding and enriching our services and amplifying our market presence and customer relationships. The integration of Exospace's FeatherEdge AI into Lizzysat ushers in onboard Edge AI capabilities, encompassing real-time data processing, image analysis, anomaly detection, data compression, automated decision making, privacy, security, and customization. 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 LISI-SAT constellation empowers organizations with heightened decision-making acumen, bolstered confidence, precision, and accelerated insights. CITUS augments this distinctive data collection with adaptable analytics tailored to individual needs, offering subscription-based access across industries. The cumulative impact of CITUS-based LISI-SAT constellation into various industries holds the potential to help how organizations operate and make informed decisions. We plan to monetize the imagery and sense of data collected by our LISI-SATs both through existing end-user contracts and through agreements with announced partners such as Skywatch and others to sell on their storefronts. 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, experience 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. Over the last several months, our customers have grown along with our pipeline for each of our multiple revenue-generating capabilities. LISI-SAT's hyperspectral and multispectral imaging capability will provide potential data solutions for a variety of market verticals in the Earth's observational market that's expected to reach $25 billion by 2040. Key industries that will benefit and provide markets for this imaging include agriculture, skil Associates, lest
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 $3.1 billion in market size by 2031. In comparison, the next four largest market segments combined also represent $3.1 billion by the same time frame. Those include mapping infrastructure, natural resources, climate intelligence, and insurance and finance. 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 second quarter, we continued to establish relationships with key new and existing customers with several significant partnerships announced and contracts awarded, further validating Citus' 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 Man Vehicle, or SOS. Citus will be responsible for the fabrication of the umbilical quick disconnects on the universal stage adapter for the SOS.
Early in the quarter, we announced our initial collaboration with Lululex 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 GNC solutions to the U.S. market with two companies offering a robust GNC suite to support all lunar missions, which can be customized for the unique requirements of each mission. We also recently announced that Citus will host the Star Tracker, developed by Solar MIMS on its fourth planned LIZZY-SAT mission as part of our payload ride share program. Citus will provide payload space for Solar MIMS Star Tracker along with launch support, testing, and the ability to conduct experiments over the expected five-year timeline of the mission, with the goal of evaluating the Star Tracker's capabilities for the broader satellite sensor market. And Solar MIMS is another example of our on-orbit technology hosting revenue stream. In the quarter, we selected Atlas Space Operations to expand our ground station services. Adding Atlas ground stations to our existing global network allows Citus to deliver high-value, critical satellite data to our customers within minutes after collection. This increase in LIZZY-SAT constellation, high-quality rapid data transfer to customers solidifies Citus Space as a leader in space and defensive service solutions. And in May, we signed a service agreement with LeafSpace, 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. We also signed a memorandum of understanding with SkyServe, 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. Another highlight to mention is our mentor-protege relationship with L3Harris. In April , we announced that Citus was selected as a protege with L3Harris 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.
In 2008, 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 2008, 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. And an entrepreneur as well, he founded Curve Skies, 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-3 Registration Statement. After the one-year anniversary of our IPO, we became eligible to have a Form S-3 shelf registration statement on file. After consideration of the industry trends related to S-3 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. 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
defined period over period, primarily due to the timing of fixed price milestone contracts, our higher margin satellite revenue increased 126% year over year. As Carol mentioned, our gross profit was approximately $508,000, or 37%, where the quarter ended June 30, 2023, compared to approximately $347,000, or 19%, for the second quarter of 2022. An increase of 1,800 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. Quarter operating loss was $3.5 million.
compared to a loss of $2.4 million for the same period last year. Overall, operating expenses increased approximately $814,000 to $3.6 million for the three months ended June 30, 2023, as compared to $2.7 million for the three months ended June 30, 2022. The increase is attributed to an approximate $470,000 increase in our payroll expenses to $1.9 million from $1.4 million for the three months ended June 30, 2022, a result of the expansion of our staff to support the needs of the business. An approximate $251,000 increase in professional fees for the three 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 total revenue for the three months ended June 30, 2022,
Well, we're working diligently to introduce new high margin recurring revenue streams to our three core business lines. Those are manufacturing services, space infrastructure as a service, and space-based data and insights. The last two coincide with the proposed launch of our multiple LISI 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 with your top Gun something that will be stronger and more Marco. Thank you Alan. Thank you Dashie.
confidence-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. Jared? 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. The combination of advanced data collection and advanced processing will equip organizations with heightened decision-making acumen, bolstered confidence, precision, and accelerated insights.
the manufacturing of complex space-rated and ground support hardware, including assembly, integration, and testing. 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.