Closing Bell - Manifest Space: Remapping the World with Satellogic CEO Emiliano Kargieman 7/6/23

Episode Date: July 6, 2023

Specializing in Earth-observation satellite, Satellogic possesses the world’s largest constellation of sub-meter resolution satellites. With roughly forty satellites in orbit, the company’s goal is eventually to remap the surface of the planet everyday and create a live catalog of data. Seeing use cases span across insurance, infrastructure, energy, agriculture & more, the company’s revenue has grown 42% since last year—but the company’s stock has plunged 80% since going public. Satellogic CEO Emiliano Kargieman joins Morgan to discuss the constellation, tech capabilities, and Satellogic’s business case.

A remap of the Earth every two weeks. That's essentially the current game plan for Satellogic, a company specializing in high-resolution Earth observation imagery. Satellogic now boasts the largest commercial constellation of submeter-resolution satellites in the world. But it has much farther to go, a goal of 200 in orbit. Our goal is to remap the entire surface of the planet every single day at sub-meter resolution.

So the idea is to build essentially a live catalog of everything happening on the planet so that any day you can wake up and you want to see what's going on somewhere and you can log in and go take a look at what happened yesterday. StataLogic went public via a SPAC in early 2022. The stock has plunged some 80% since then, with a market value now below $200 million. But revenue has grown, up 42% last year. For investors though, the key is cash.

Does the company have enough to build and deploy all of those satellites? On this episode, co-founder and CEO Emiliano Kargaman, who goes by EK for short, joins me to discuss the constellation, the tech capabilities, and Satellogic's business case. I'm Morgan Brennan, and this is Manifest Space. So we're a high-resolution imaging company. I started a company 13 years ago and what we set out to do was basically rebuild satellites for high resolution imaging in a way that would allow us to roll out a very large constellation. I started the company, you know, a high resolution

imaging satellite cost 300, 400 million dollars a piece and we needed, because of our business model, we wanted to put a few hundred of the satellites in orbit. So, you know, we couldn't do it at that price point. So we focused for a long period of time in bringing the cost down of building high-resolution imaging satellite to the point where we do it today at almost a thousandth of what the cost was back then. So for less than $500,000 in bill of materials, we can build and launch these satellites that are able to do very, very high resolution imagery. So that's what we set out to do. And we're continuing to grow. So continuing to build and launch more of these satellites to bring data to more and more customers.

And what is your endpoint in terms of number of satellites for this constellation? Is it 200? It's a little bit over 200. Our goal is to remap the entire surface of the planet every single day at sub-meter resolution. So the idea is to build essentially a live catalog of everything happening on the planet so that, you know, any day you can wake up and you want to see what's going on somewhere and you can, you know, log in and go take a look at what happened yesterday. And, and you know in these days with large language models and all that maybe you can ask a question of the earth you know how many trees have been cut yesterday in this part of the world where are the old time you know what's uh uh you know where

where how's the water situation in certain dam and you will get an answer that's that's the basic idea be able to query your real world or natural world the way we query a database, basically. So it's not just about collecting the data, but then it's about analyzing the data. And it sounds like maybe generative AI enters the mix here? Well, we might not do it ourselves.

The end goal is to be able to deliver this data to customers so that they can ask these kinds of questions. So yeah, 100%. Very cool. So I want to get into more on that and what those partnerships and delivering that data is going to look like. But first, just a little bit more on the Constellation itself. How long will it take to build it out to a little over 200? Well, today we have the capacity to build a little bit over 30 satellites per year in our pilot facility. We have been setting up a new facility that will give us the capacity to build around 100 satellites per year. So one that's fully functioning, it will take us a little bit less than two years to get 200 satellites in orbit. Today, we're really pacing this based on

customer traction. And that's basically the main constraint, right? But as we continue to increase customers for this constellation, we will continue to increase the size of the constellation. The good news is we don't need to get from where we are today. 200 satellites will give us a daily remap of the planet. But today, we can remap very large areas every month or every 20 days. And that's already a super good value proposition. And by the beginning of next year,

we will be remapping all of the Earth roughly every 15 days. There's a lot of applications for those kinds of remaps, for those kinds of frequencies of remaps. So we don't really need to get all the way to daily to validate this value proposition in the market. We're doing it right now with the data we already developed. So how does this compare to some of the other competitors

in this marketplace, whether it's a planet or whether it's some of the work that Maxar is doing or some of the other space startups that are building out constellations around Earth imaging? Sure. And all those companies are doing an amazing job, right? And they have very nice assets in orbit. Every one of those companies is focusing on revisiting specific points. The problem today with Earth observation for high-resolution imagery

is that when you're pointing a satellite to a particular target, you know, you're making a decision about what customer you're going to serve, right? So every time, you know, you point your satellite to go take an image of, let's say, one farm or one building, you're making a decision not to take an image of something that's around you, right? And this creates an opportunity cost every time you make this decision. And this forces you to essentially decide which customers you want to serve right and this is one of the reasons why earth observation high resolution earth observation data has been limited up until now to applications in the defense and

intelligence market right and for governments or places where customers are willing to pay basically the most for the data um all of the companies you mentioned are focused in this models of operation right where they point their satellites to specific targets. And we obviously can do that. We're doing that today. But as we grow our constellation, we will go to a point where we are remapping the Earth. And once we are remapping the Earth every week, eventually every day, you don't have to make this decision anymore about which customer you're going to serve. You suddenly are in a position where you can serve every customer in the world. It doesn't matter if it's a small farmer in India or if it's

a very large government that is interesting to know what happens in the borders. You can serve them all, basically are very close to zero marginal cost. That opens up and will open up a significantly larger market for Earth observation than the market that exists today. How big do you think it'll be? Well, we have measured this with initial set of applications in insurance, commodity trading, infrastructure monitoring for energy, agriculture, forestry, to an initial set of applications when we get to weekly remaps that's going to be in the order of $40 billion market.

But this market grows to over $140 billion once you start getting to the point where you're doing daily remaps and creating this daily catalog that people can consume from at zero marginal cost. In the meantime, and you just mentioned it, with the satellites that you do have on orbit, you do already have customers.

Looks like a number of them are actually countries. I guess, walk me through some examples of the type of business you're doing right now currently. Yeah, 100%. So today we are, most of our customers are governments. Most of the applications today are still in the defense and intelligence side, although we do have local governments and we do have obviously civilian applications for the technology. A couple of examples that we publicized, for example, is the Republic of Albania became one of our earlier customers for a Constellation as a Service product, where they use two satellites on top of their territory to monitor for illegal building construction, to monitor for illegal crops, to be able to monitor the situation in their ports and natural resources. We signed similar agreements with a letter of intent with Mexico, for example, for a similar project.

One of the things that is happening is because of our unit economics, because of our focus on delivering very low cost and high quality data and high quality in space assets, one of the things that is happening is we're allowing countries that weren't traditionally in a position to operate or own their own space capabilities, we're starting to allow them to do that, right, exactly that. So Albania, Mexico are good examples. But we recently launched a new business line, where we are allowing now some of

our customers to acquire satellites from us, the same satellites that we built for our own installation. And suddenly this creates the possibility for small countries to be able to afford something that up until now was only available for very, very large countries or countries with very large defense budgets. So this is opening up also a new market for this kind of technology. Are you already fielding orders for some of those satellite systems, that hardware? Yeah, 100%.

We're currently working with a number of customers, and we build a very nice pipeline of opportunities that we're going through. We expect this year to close a few of those opportunities for the first time. Yeah. So how does that speak to you? Because you've got the growth and asset monitoring. You've got this constellation as a service business. And then you've got spaces systems. So I guess just walk me through those different buckets and what you expect in terms of demand and growth for each one.

Yeah. So asset monitoring is us delivering data to customers, right? Customers telling us we want a picture of this particular port for example you know two times per day right this is this is what asset monitoring means is a typically consumed and subscription basis uh through an api you know through a web front end and the customers just put their orders and they get the data and they use the data they analyze the data and they get it you know into their um regular workbooks right this is our asset monitoring business we expect this business to continue to grow this year this was most of our business last year or a hundred percent of our business last year this will continue to grow this year you know and and then we added up these two new revenue lines

constellation as a service is the example I gave you the Republic of Albania it's basically kind of a cloud version of a satellite operation. So instead of having to own your own satellite or to buy data, what you do is you operate a number of our satellites on top of your territory as if they're your own, right? So you get the sovereignty benefits if you want,

you get the ownership of the data the satellite generate, but you don't have to make the investment upfront, right? And, but you don't have to make the investment up front, right? In infrastructure, you don't have to make the CapEx investment up front. So this is a really good solution, you know, to kick off an Earth observation program on a, you know, year by year basis. And then satellite systems or space systems and satellite sales is basically the newest business line where in some select cases we will sell our customers a satellite that they can own and operate uh the way they want you know and these satellites are you know at a very very good price point they're starting at less than 10 million dollars a piece so for less than 10 million dollars a country can now buy and operate that sub meter

resolution 70 centimeter resolution satellite which is a first. I want to go back to the constellation as a service concept. How new or how different is that versus what we've seen from other satellite operators do when they contract with countries in the past? Because when I hear you, it sounds like you're potentially doing this on an annual basis. If if you part ways with a customer, a government, you know, a country or government customer, can you repurpose those satellites for someone else? Totally. That's that's the beauty of it. Right. Like if you think about the example of Albania. Right. Albania is the total territory is around 26,000 square kilometers. So sorry about the kilometers, but it's easier for me to think that way. But it's, you know, it's less than 0.2% of the surface of the earth, right?

And what happens is we give the government of Albania control of the satellites where they're on top of their territory, which represents 0.2% of the surface of the earth. When the satellites are not on top of the territory, we can use those satellites for something else. And the same way, if for some reason the following year we don't renew this contract, we can continue to use those satellites for other things. So in a way, this is kind of a shared infrastructure.

When you use Amazon's AWS cloud infrastructure, Google's cloud infrastructure, right? Like when you use, you know, Amazon's AWS cloud infrastructure or Google's cloud infrastructure, right? You're using a server that's there, right? And in the end, the server is there and you're using actual physical infrastructure, but you're interacting with this in a virtual way, right? And you're, you know, and once you stop using that, somebody else can use it. It's a very, very similar concept, but applied to earth observation satellites. And now you have a, it looks like you have agreements with SpaceX for launch capacity of up to 68 satellites. How are you thinking about those future satellites and the launch market and what that cost is going to look like over the coming years? Yeah, so we have seen, obviously SpaceX is a super good partner to us.

We signed this initial multiple launch agreement with them that gives us enough capacity to reach our weekly remaps of the Earth, right, to launch the next 60-something satellites. After that, we expect to continue to launch with them, really. I think we think they're a spectacular partner to us. They have a really good, you know, offer in terms of getting our satellites to orbit. Obviously, signing a multiple launch agreement allows us to fix, you know, price per kilogram. It allows us to fix the number of satellites that we're going to launch and get access to, you know, guaranteed access to capacity. We do expect, you know, because of competition on the on the launch market and the new players coming in, we do expect actually launch costs to continue to go down.

Even considering SpaceX's own Starship coming online in the next few years, we do expect the price per kilogram to continue to go down in the future. Even though it might look like in the short term there is some availability issues with launch capacity, we're in a good position because for a multiple launch contract, we're in a good position and we have the capacity that we need for the foreseeable future but after that we expect you know we will be renewing these contracts and we expect launch bus to continue to go down. The hardware itself, how quickly can you make it? And I guess you talked about the fact that those costs have come down

as well exponentially. I guess just walk me through that in a little more detail. Yeah, I think what's really particular about us, what really differentiates us from the rest of the companies in our industry is we are the only high-resolution imaging company that builds everything that goes into our satellites, right? We're completely vertically integrated. A little bit like what SpaceX did with rockets, right? Where they build everything that goes into a rocket.

We do the same thing for Earth observation satellites. So we build our own onboard computers. We build our own telescopes, our own cameras. We build our propulsion systems, our power subsystems. We build everything that really makes our satellite. This allows us, you know, a lot of CapEx efficiency. So our CapEx cost is already a tenth of any of our peers in the small satellite world building high-resolution imaging satellites, right? But on top of that, we have a very unique

technology, a patented optical camera that allows us to collect 10 times more data than any other small satellite can. So in a small aperture, we can collect data continuously. So this allows our satellites today are collecting over 300,000 square kilometers of data every single day versus some of our peers in the small satellite work collecting in the order of 30,000 square kilometers of data. So really 10 times more capacity at 10 times lower CapEx cost. When you put these two things together,

this is what gives us around 100 times better unit economics on a per square kilometer basis that we collect. And this is what allows us alone to be in a position to execute on our business model of going and remapping the Earth every single day. What we can do with around 200 satellites and for a CapEx investment that is relatively low, it will take significantly larger number of satellites for years. And, you know, with CapEx investment, that will be orders of magnitude higher. Which of course brings us back to the delivery of that data, or maybe I should say the access to that data. So how are you thinking about that over the longer term in this push to democratize access to it? Yeah, I think there's two parts of that. The first part is bringing the data down.

And we do that through a network of ground stations around the world. We both operate ourselves and through partners, you know, that allow us to bring this data down to the ground and putting in a cloud environment where we can run processes on top of it. But the other piece of it is how you make sense of this data, right?

Because we are going to be remapping the entire Earth every single day, you know, 150 million square kilometers of data and a sub-meter resolution every single day. It's just a lot of pixels for anybody to go and be able to look at, right? So we do need to work on the analytics that are required to be able to look at all the data and figure out where we need to be focusing, right? For that, we're both working ourselves and some tools that we give to our customers,

but also we are really leveraging a large network of value-added partners, of value-added service companies that take our data, transform it, analyze it, and derive insights that then can be used by end customers in a wide variety of different industries you know ranging from insurance agriculture forestry cartography and so on right and that part is super interesting you can't really expect people to be able to look at all these pixels right so you need computers to do that luckily for us you know this explosion in ai and machine learning technologies that is happening right now is helping us make sense of all the data. And that's super useful. And so you're seeing that take place already in real time, that making sense of the data

with AI capabilities. Correct. And today, even today, we have the capacity to instance machine learning and AI algorithms directly in orbit. We basically do computing at the edge in the satellites. And that's already excellent to give us the ability to generate real-time alerts to be able to look at an image directly in the satellite and figure out okay is there you know we're taking an image of the ocean we can figure out is there ship there should we download this right should we wait longer to download it because it doesn't seem to be anything there that's useful right we can start making

those decisions directly in orbit this is going to be part of the way we're seem to be anything there that's useful, right? We can start making those decisions directly in orbit. This is going to be part of the way we're going to be consuming this data by processing directly on the edge. So my next question is, all of this is very fascinating and it sounds very transformative over the coming years. Do you have enough cash to execute on this vision? And I know you just put out earnings and full year results recently, a couple of weeks ago,

I think with $76.5 million cash on hand. Is that enough? Well, we have enough cash for next year of operations. You know, we have enough cash to honor plans, to put the company EBITDA positive next year, right? And we have the number of levers

that we can pull. Like the reality is uh capex investment and growth for capital investment to grow our constellation is an easy lever for us to pull so we can regulate how fast we build this constellation based on customer traction right to really allow us in this particular market environment you know to conserve cash and to continue to execute our plan. Okay. So in terms of your forecasts and your prospects for growth, I mean, I know 42% increase in revenue last year, but also coming off of a very low base.

So how quickly, I guess, how exponentially do you expect to grow over these coming years as a company? So we're, you know, we're still early on as a company. And as you say, you know, we grew 42% this last year, but, you know, coming off from a low base. We, our expectation as we move through 2023 is, you know, we're seeing increasing momentum

in terms of both revenue backlog and our pipeline. We expect this year to be considerably stronger than last year, particularly the second half of the year as our pipeline starts to convert into revenues, both on the space systems, constellation as a survey, and also on the asset monitoring side. We previously guided in our communication in April that we're targeting revenues for this year to be in the range of between 30 and 50 million. And that's going to be considerable growth based on our 2022 numbers. Great. Is there anything else that you want to note or that you think we should be paying attention to with Satellogic as this vision unfolds?

Well, look, we are excited about the future. We're excited about this new business line, particularly space systems. You know, I would keep our eyes, you know, eyes peeled looking at the deals that we'll announce this year in terms of first satellite sales, our space systems deal deals in the, you know, and the continuing growth of Reconciliation as a service. Right. We're heads down, focused on growing the business and we expect to be able to show that with results. That does it for this episode of Manifest Space. Make sure you never miss a launch

by following us wherever you get your podcasts and by watching our coverage on Closing Bell Overtime. I'm Morgan Brennan.