Q3 2023 Sidus Space Inc Earnings Call

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Ladies and gentlemen, good morning, and welcome to the Cyberspace towards whatever 2023 earnings conference call.

At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded.

It just now my pleasure to introduce your host Valter Pinto managing director Casey S. A.

Please go ahead.

Good morning, everyone and thank you for joining us for they cited states third quarter 2023 earnings conference call joining us today from the company as Carol or Craig.

And Chief Executive Officer, and Teresa Burchfield, Chief Financial Officer.

During today's call we may make certain forward looking statements. These statements are based on current expectations and assumptions and as a result are subject to risks and uncertainties.

Many factors could cause actual results to differ materially from the forward looking statements made on this call. These.

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 experiences and exchange Commission each of which can be found on our website www dot excited state dot com.

Listeners are cautioned not to put any undue reliance on forward looking statements and the company specifically disclaims any obligation to update 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 of Leiden for this morning's call. Please email our team at site is at case yesterday Dot com at this time I would like to turn the call over to Carol Carol. Please go ahead.

Thank you Walter and welcome everyone I'm pleased to provide an update on side of today in a truly pivotal time for both our company and the industry.

We continue to execute our strategic plans as an innovator multifaceted space and data as a service company and we're laser focused on progressing towards the launch of live with that.

We expect the launch of movies that should be a significant catalyst for our business as we believe it will provide us with the opportunity to develop additional high margin revenue streams, driven by the sale of both data and payloads on this mission.

We expect to enhance the capabilities of these satellites to provide space infrastructure as well as critical data that will create a high margin rapidly scalable recurring revenue business model.

The company is continuously working to secure agreements that will provide us with a predictable business model.

Our goal is to secure additional high margin revenue generation opportunities through the revenue streams that we will develop even following our lives it that much.

As we move towards 2024, we are targeting three areas that we feel will positively impact the share price both in the short term and the long term.

First ensuring the success of not only the initial disease that launch, but subsequent satellites as well.

Securing agreements to sell the data that we plan to collect from this constellation as mentioned above we believe these agreements have significant revenue generating potential.

And third securing agreements to sell technology payload space on our upcoming Lizzie submissions and then working at the same time to convert those payload customers and data customers.

We recently completed initial environmental vibration testing ability sat satellite, which is one of the critical steps necessary to validate list that we've been concentrating on ensuring all necessary prelaunch requirements are met so that we will be well prepared for this transformative milestone.

We're also continuing to secure additional data customers, we believe that data as a service will provide some of the highest margins of our revenue streams, which also include technology hosting aboard our lives he sat and mission critical hardware manufacturing delivery.

Delivery of that data is expected to begin in 30 days after the deployment of live VSAT.

For our data as a service offering we're targeting gross margins of 75% to 80% similar to software as a service margins are mission critical hardware manufacturing, which we've been successfully operating for over 10 years target gross margins of approximately 25%.

During the third quarter, we took the significant step of acquiring the assets of extra space, a cutting edge, California based firm specializing in edge artificial intelligence software and hardware for space applications.

Actually provides the opportunity for us to enhance our presence in the Earth and space observation markets by providing actionable solutions for our customers' needs rather than just raw data.

The acquisition of extra space.

Really complementary to our existing business model and also in line with our existing strategy. The additional revenue generating opportunities that extra space. This technology presents our enhancement or prior offerings that will position us to compete in the current market, where AI led data driven services give us a significant competitive.

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And in addition to raw data by applying our onboard feather edge AI near real time actionable intelligence will be available to our customers. This combination of advanced data collection harvest from our adaptability that provides organizations with the heightened decision making capabilities and this leads to increased confidence presses.

Accelerated insights for those customers.

But it's almost this distinctive and unique data collection with adaptable analytics tailored to our customers' needs and then I'll also offers that subscription based access across multiple industries.

Few companies know how to process data and with the additional AI functionality tightest is able to provide not just data, but that critical information that provides answers to our customers. This offering can be a standalone service as well as part of our another service model.

Through these decisive steps to integrate AI or leveraging the potential of AI technologies within our own service offerings, which expand our services amplifies our market presence and then also our customer relationships.

One advantage of our business model that I want to highlight our flexible agile service offering that allows us to control our production and our launch cadence and coordination with customer demand as customer requirements in the industry landscape changes, we're able to strategically evaluate bearing scenarios related to launches in orbit.

And focus on the most economical solutions that support our path to profitability.

And when combined with the inclusion of additional sensors and enhanced AI capabilities, we expect the new orbitz to add value as we get closer to initiating these launches in developing these new high margin business line and therefore, our agile model ensures we're lining up our launches with the most valuable demand and doing what's in the best interest of our company and <unk>.

Our holders.

We also continued to progress on accelerating our manufacturing plan developing mission critical hardware manufacturing to support multiple large organization.

During the third quarter, we continued to establish relationships with new and existing significant customers and we announced several contracts. We were awarded further validating the ability to deliver mission critical hardware to our key partners and vendors.

Earlier this month, we announced that we had signed an additional agreement to sell data that we expect to collect from Lizzie that we believe we will continue to expand these opportunities as our constellation grows well, we're often prohibited from releasing the details of our client agreements. We plan to continue to update our shareholders on our progress as we build these new revenue streams that will be.

Results from the launch of our lessees that constellation.

And then another complementary strategic move we recently signed a contract to provide services to a U S. One company in support of their commercial lunar program.

This new contract will provide another revenue generation opportunity for the company and while the lunar contract will not replace our lower Earth orbit strategy would you recognize the potential importance of lunar missions to build an infrastructure that enables human permanently on the moon and the transition to commercial operations past low earth orbit and onto more.

Destination.

In line with these key areas of our strategic focus we recently reorganized our leadership structure to ensure operational efficiency and resourcing in the right places in September we announced the appointment of Leonardo reroute to the position of chair of the board.

It was significant board experience will be invaluable in managing governance and other related matters and this will provide me with an increased ability to focus on the execution of our commercial development strategy to build value for our shareholders.

We also promoted Jared Nova to the role of Chief operating Officer Lindsay weight to lose he sat program manager and appointed Jessica Curry as our senior Vice President of supply chain and as we gear up for the launch of lazy fat in 'twenty 'twenty four and scale up production of our lives. He sat satellite these rules will be critical in ensuring our success.

Changes will not only allow for more streamlined and efficient management of technical and operational aspects with inside of space, but also ensure that we're right sized and efficiently resource to achieve our launch program.

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

Thanks, Carol it's a pleasure to be here today to discuss our third quarter 2023 financial results you can find more details on our results and our Q3 Form 10-Q filed with the SEC on Tuesday November 14 2023.

As we progressed towards that list that watch it we are focused on conserving capital to ensure that we have everything in place to execute upon our strategy.

So I Didnt achieved revenue of approximately 986000 for the quarter ended September 32023, compared to 1.32 million for the same period last year.

Revenue decline period over period, primarily due to timing of fixed price milestone contracts are higher margin satellite revenue continued to increase.

From a year to date perspective, it's important to note that for the nine months ended September 32023.

Satellite revenue has continued to increase and was up 135% versus the same period last year.

Our gross profit was approximately negative 96000 or negative 10% for the quarter ended September 32023.

Paired to approximately negative 86000 or negative 7% for the third quarter of 2022.

It's key to note that all gross profit was down 12% versus prior year. This was based on 25% lower rather and it reflects the positive gross profit impact as we continue to increase the percentage of our higher margin satellite related revenue.

As we've mentioned before our gross margin will be lumpy when looked at quarter to quarter. It smoothed out when looked at over time.

For the nine months ended September 32023.

Our gross margin as a percent of revenue was 28% versus 25% last year.

It was almost $68000 higher than $344000 less sales year over year.

Again, a reflection of increased percentage of our overall revenue coming from our higher margin satellite side of the business.

Third quarter operating loss was 3.87 million, which was comparable with the third quarter of last year.

Overall operating expenses decreased slightly to 11000 for the three months ended September 32023 versus prior year.

To provide investors with additional information in connection with our results as determined in accordance with GAAP.

We also included in our Q3 Form 10-Q, non-GAAP measure 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.

We define adjusted EBITDA and net income as determined by U S. GAAP adjusted for interest expense depreciation and amortization expense.

Acquisition deal cost.

Severance costs.

Capital market and advisory fee.

Equity based compensation and warrant cost.

These non-GAAP measures may be different from non-GAAP measures made by other companies that's not all companies will use the same measures there.

Therefore, he's not against measures should not be considered in isolation or as a substitute for GAAP.

Relevant U S GAAP measures and should be read in conjunction with the information presented on a U S GAAP basis.

Looking now to our capital structure.

We ended the quarter on October 11, 2023, the company executed a registered direct offering in which the company sold an aggregate of 3000 shares.

Series, a convertible preferred stock as.

As well as a concurrent private placement of warrants to purchase up to approximately $19 7 million shares of class a common stock.

The preferred shares are convertible into approximately 19 7 million shares of our class a common stock.

Gross proceeds from the offering were approximately 2 million.

Please reference our September 32023, 10-Q for additional details.

We are using the proceeds to continue to execute our strategic plan.

<unk> continued satellite development at an accelerated pace.

And to fulfill a stagnant launch cadence.

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

Thank you Teresa.

Before we move on to the Q&A portion of the call I'll address the topic of our stocks performance. We recently received a delisting notice from NASDAQ since our class a common stock was trading under 10 stands for 10 consecutive trading days.

NASDAQ provides a hearing process and we've requested a hearing which will stay any delisting action by Nasdaq.

In order to comply with NASDAQ continuing listing rules, we secured board and shareholder approval for a reverse stock split of our outstanding common stock, which we expect to occur in December.

We have filed an information statement with the SEC, which details.

Six of the proposed reverse split.

I want to thank our shareholders for your continued support of scientists I wholeheartedly share your frustration with regards to the performance of our stock I want to assure you that everyone. At cider is laser focused on preparing for the upcoming lose he sat launches and we are working diligently to build new revenue streams, which we believe will read.

And renewing shareholder value.

I believe that we are approaching a transformative event for our company with our first movies that launch and with it we will begin to benefit from our hard work well.

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

And so the first question is how is the extra space acquisition that you announced in August.

The site is AI team, which is comprised of former extra space employees is integrating seamlessly with our overall organization. They're currently focused on providing input for mission operations customer on boarding and then also developing new sales leads and these efforts will ensure that the AI data services brought over from the former Exxon space team.

It will generate revenue as soon as Lizzy stats on orbit and operational and then in parallel to the AI technology integration. The team has continued to execute on the commercial and government contracts that were part of that asset purchase consideration. In these contracts include some contract from NASA for rapid fire detection solutions and subcontract from the deferred.

Innovation unit per payload hosting and then also the primary contracts with private organizations for computing hardware and on orbit data services.

Next question is will you be able to use extra spaces edge AI and other applications.

And so yeah, the underlying featheredge technology can be implemented practically anywhere and it's particularly useful in communications scarce or denied locations and there was a specific focus on unmanned craft, which can be operated in aerial ground or maritime environment. In addition to space and there's there's great value to be added by that Featheredge system anywhere.

Data is generated for these ultra low latency insight.

Next question is also related to AI well the team that you're acquiring it required to be able to do other AI project beyond the edge AI.

And so our AI team's focus is primarily on the underlying technology that enables the implementation of intelligent data analytics applications at the edge and that being said, though there are numerous ways in which this technology can be implemented that ranges from situational awareness to predictive maintenance and then these use cases will continue to expand.

The commercial space industry develops.

Yeah.

Next question is how are you using three D printing.

Do you expect to see metal three D printing, becoming part of the offerings in the future.

Three D printing is currently being used to support development of our primary structure of the lives. He sat satellite bus and it's comprised of a mixture of onyx and carbon fiber to provide that necessary structural integrity required to withstand it.

Launch vehicle launch loads, while still providing a lightweight option comparable to metal and at present, though metal three D. Printing has not been used in the current bus configuration, but you know it can be incorporated into future design based on customer payloads and other sub system changes that might necessitate it.

And that's all the questions that we have so I want to say, thank you very much to everyone who submitted questions and thank you to everyone for joining us today for a sinus basis third quarter 2023 earnings conference call.

Yeah.

Thank you.

Ladies and gentlemen, the conference sell side of the space has now concluded. Thank you for your participation you may now disconnect your lines.

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