Sidus Space, Inc. (NASDAQ:SIDU) Q3 2024 Earnings Call Transcript

Sidus Space, Inc. (NASDAQ:SIDU) Q3 2024 Earnings Call Transcript November 14, 2024

Operator: Ladies and gentlemen, greetings and welcome to the Sidus Space Third Quarter 2024 Results and Business Update Call. At this time, all participants are in a listen-only mode. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Bill White, CFO of Sidus Space. Thank you. Please go ahead.

Bill White: Good evening, everyone, and thank you for joining us for Sidus Space’s third quarter 2024 earnings conference call. Joining us today from the company is our Founder, Chairman, and CEO, Carol Craig, 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. 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 Security 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 this time, I’d like to turn the call over to our Chairman, CEO, Carol Craig. Carol, please.

Carol Craig: Thank you, Bill, and welcome, everyone. For those of you who may be new to our company, Sidus Space is a space mission enabler, providing solutions that include custom satellite design, technology integration, mission management, space manufacturing, and AI-enhanced space-based sensor data as a service. Our mission is space access reimagined, and we’re committed to rapid innovation, adaptable and cost-effective solutions, and the optimization of space systems and sensor data collection. We’ve demonstrated space heritage, including the manufacture and operation of our own satellite and sensor system, LizzieSat, and we serve government, defense, intelligence, and commercial entities around the globe. We are strategically headquartered on Florida’s Space Coast, where we operate a 35,000-square-foot manufacturing, assembly, integration, and testing facility 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, which is driving a growing demand for diverse, cutting-edge, space-derived data and solutions. Through our LizzieSat platform, we offer customers a variety of mission options, whether customizing a satellite, hosting a payload, or delivering data as a service. We developed the LizzieSat platform, which achieved first launch success in March of 2024, as a cost-effective infrastructure platform specifically designed to provide technical flexibility. Our business model is somewhat unique in our industry. While others may have begun with a single technology and built constellations around that technology, we built a platform around technological advancement to support the growing global space economy.

Q&A Session

While we serve as a space mission enabler in multiple ways, we see a growing need for more diverse space-based Earth observation data and insights to allow organizations to make better decisions with higher confidence and with increased accuracy and speed. Through LizzieSat, we can host multiple centers on the same satellite to simultaneously collect varying data types with the same collection geometry and also serve multiple markets and customers on a single satellite. This helps mitigate risks associated with external factors like macroeconomic shifts or technological disruptions, and it allows us to adapt swiftly to market changes. Another differentiator is our FeatherEdge AI system, which we use to analyze the data on orbit. Our product allows us to quickly integrate cutting-edge, commercial, off-the-shelf processors like NVIDIA and Google into our satellites to keep pace with increasing computing power.

And because our FeatherEdge AI algorithms can be updated post-launch, we can expand the types of missions we serve from our existing on-orbit assets. We expect to enrich our onboard process data with customizable analytics that users control for their own use cases and, in turn, provide data as a subscription across multiple industries so organizations can improve decision-making and mitigate risk. Moving now to our recent accomplishments, we achieved a 90% year-over-year revenue increase during the third quarter, and we had notable achievements across all our lines of business. We successfully completed the primary objectives of the Autonomous Satellite Technology for Resilient Application, or ASTRA, in-space payload mission with NASA’s Stennis Space Center and received a follow-on contract for additional ASTRA support.

We secured a contract with Xiomas Technologies to supply our FeatherEdge computing system for fire detection via high-altitude infrared imaging, and we were awarded a $2 million contract supporting the U.S. Navy Propulsion Program. In addition, we successfully completed the critical design review for LizzieSat-NL, a laser communications satellite contracted by the Netherlands organization, which triggered a milestone going through that multi-million-dollar satellite agreement. After the quarter closed, we announced that we were exclusively selected by Lonestar Data Holdings to design and build their first generation of data storage satellites and support their resiliency as a service business. Under the agreement, Sidus will serve as Lonestar’s exclusive satellite manufacturing partner for six data storage satellites that will orbit the moon, offering advanced data storage and disaster recovery capabilities for mission-critical information.

This demonstrates Sidus’ ability to scale our LizzieSat platform to meet the constellation manufacturing and operational needs of diverse customers and missions, including lunar missions. In October, we secured FCC satellite approval for LizzieSat-2-5 as part of a micro-constellation in low-Earth orbit. This key regulatory milestone marks a significant step in our on-orbit expansion plan and alliance with our long-term strategy to position ourselves to deliver a diverse and unique set of data for situational awareness for government, defense, intelligence, and commercial sectors worldwide. It is also a key milestone in helping us achieve higher revenues and improve margins. We continue to make strong progress on expanding our on-orbit footprint.

LizzieSat-2 has successfully completed testing and is ready for launch, which is slated for no earlier than December this year. LizzieSat-3 is scheduled to launch shortly afterward in Q1 of 2025. Of course, launch schedules are subject to many factors, including several that are outside of our control. And we continue to demonstrate our commitment to delivering innovative, flexible, and cost-effective solutions. We recently announced our planned upgrade to our LizzieSat communication system to integrate Iridium-enabled technology into future satellites. This upgrade will enable us to provide near real-time direct-to-satellite phone messaging for a range of time-sensitive applications and will position Sidus as the leading provider of small-form rapid data transmission services in the commercial space market.

We also developed an advanced high-speed switch card that can be offered as a standalone product to support the small satellite supply chain. The new hybrid 3D-printed switch card extends the capabilities of the payload processor, enabling communication with multiple optical sensors through high-speed, low-voltage differential signaling data connections. Our recent achievements and results reflect Sidus’ strong momentum as we focus on our strategic priorities of growing our customer base across multiple business areas while delivering performance excellence, advancing progress on our LizzieSat constellation, and driving innovation. Moving forward, we’re seeing increased interest in our satellite manufacturing, data offerings, and long-term partnerships, especially following our successful launch, and our sales pipeline supports a strong growth outlook.

Our proven ability to design, build, launch, and operate a 120-kilogram satellite is the obvious catalyst to the growth of our pipeline. We continue to submit a range of proposals and responses to solicitations to government and commercial customers. These proposals are under evaluation, and we expect to receive the results of contract decisions in the coming weeks and months. We anticipate continued growth in our pipeline and backlog, with increased revenue recognition expected as our constellation expands. We have signed contracts for subscription-based data-as-a-service for upcoming satellites, and we expect additional data contracts over the life of the satellite. As we look ahead, our on-orbit expansion and LizzieSat strategic upgrades position Sidus to expand our capabilities and drive continued growth.

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, from fixed price, time material, and milestone or progress payments. This results in inconsistent or lumpy revenue recognition quarter-over-quarter. 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. And now I’ll hand the call over to Bill to discuss our financial highlights.

Bill White: Thank you, Carol. It’s a pleasure to be here today to discuss our third quarter 2024 financial results. At Sidus, we continue to focus on growing revenue and delivering operational excellence, while also working to manage our operational expenses. We’re committed to rapid innovation, adaptable, and cost-effective solutions. We have invested in the growth of our company through capital expenditures on our satellites, research and development, and the implementation of a robust ERP system. Now on to our 2024 third quarter financial results. Total revenue for the three months ended September 30, 2024 was approximately $1.9 million, an increase of approximately 900,000 or 90% compared to a total revenue for the three months ended September 30, 2023.

This increase was primarily driven by satellite-related revenue and the timing of fixed price milestone contracts as compared to the prior year. Cost of revenue increased 69% for the three months ended September 30, 2024 to approximately $1.8 million as compared to $1.1 million for the three months ended September 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 business, 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 high volume of satellite and data-related revenues which have higher margins to offset related depreciation expenses.

Our gross profit for the quarter ended September 30, 2024 increased 140% to approximately $38,000 compared to a loss of approximately $96,000 for the three months ended September 2023. Gross profit margin was 2% for the third quarter of 2024 as compared to a negative 10% for the third quarter 2023. Again, this was mainly due to favorable mix of contract types and increased sales in our higher margin satellite-related business. Selling, general and administrative expenses for the first quarter ended September 30, 2024 totaled approximately $3.2 million as compared to $3.8 million for the same period last year. The approximately $600,000 decrease was primarily due to a reduction in legal fees from our 2023 business acquisition combined with an increased usage of internal resources, a reduction in payroll and related expenses directly related to the building of our satellites which was moved to fixed assets, and a reduction in D&O insurance expense and marketing and investor-related expenses.

To provide investors with additional information in conjunction with our results as determined in accordance with GAAP, we also included in our 2023 Form 10-K/A non-GAAP measures to determine our adjusted EBITDA. We use adjusted EBITDA to evaluate our operating performance and make strategic decisions about the company’s future direction. Adjusted EBITDA loss, a non-GAAP measure for the three months ended September 30, 2024 totaled negative $2.5 million as compared to an adjusted EBITDA loss of negative $3.6 million for the same period last year. This represents a 33% improvement in our EBITDA. Total non-GAAP adjustments for the interest expense, depreciation and amortization, acquisition deal costs, severance costs, capital markets and advisory fees, equity compensation expense, warranty costs and other costs are provided in the reconciliation table listed in our third quarter 2024 earnings press release released earlier today.

Net loss for the three months ended September 30, 2024 was $3.9 million compared to a net loss of $4.1 million for the same period last year. Turning to the balance sheet as of September 30, 2024 the company had $1.2 million of cash as compared to $1.2 million last year. As we continue to manage our cash flows 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 the 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 turn it back over to Carol.

Carol Craig: Thank you, Bill. With over eight months of LizzieSat operating in orbit, Sidus Space is entering an exciting phase of growth as we continue to execute our strategic priorities. Our 3D printed AI enhanced LizzieSat are central to our future high margin data as a service business model which focuses on the integration of multiple sensors and technologies in a single satellite. These satellites also enable simultaneous data collection that can support industries such as agriculture, maritime, oil and gas among others. We are committed to expanding further into these sectors to generate additional revenue ultimately increasing the value for our shareholders. Our next two satellites are in advanced stages of production and are scheduled for launch within the next four to six 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. The confidence from that first launch success and our ability to scale our unique LizzieSat platform to provide cost-effective solutions for others was demonstrated by the Lonestar Constellation Award and we look forward to beginning the design and build of the sixth lunar Lizzie Satellites for their moon mission.

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. I remain fully committed to restoring shareholder value and am optimistic about the higher revenue streams we anticipate from our satellite manufacturing and space data as a service constellation. Thank you to all for joining us today for Sidus Space’s third quarter 2024 earnings conference call. I’ll now ask the operator to close the lines.

Operator: Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.