SATL - Satellogic: Satellites In Orbit And Revenues Are Far Below Expectations

2023-07-04 00:08:40 ET

Summary

• Back in 2021, the company expected to have 111 satellites in orbit by 2023 and book revenues of $132 million for the year.
• Today, Satellogic has 38 satellites in orbit with 10 more expected to be launched and revenues for the year are forecast to be $30-$50 million.
• In my view, the company could run out of cash in the coming months, which is likely to lead to significant stock dilution.
• Yet, short-selling seems dangerous as the short borrow fee rate is over 80% and the stock has a history of significant share price volatility.
• In my view, risk-averse investors avoid this stock.

Introduction

Almost two years ago I wrote an article on SA about satellite imagery provider Satellogic ( SATL ) in which I said that I liked the technology but that I was concerned about the financials as well as operational risks.

Well, Satellogic currently has just 38 satellites in orbit and plans to launch another 10 by the end of 2023. Back in 2021, the company was expecting to have a total of 111 satellites by the end of this year. In addition, it seems that demand is nowhere near Satellogic's expectations as 2022 revenues came in at only $6.01 million. In my view, the company could run out of cash in the coming months which is likely to lead to significant stock dilution and my rating on the stock is a strong sell. Let’s review.

Overview of the business and financials

In case you're not familiar with Satellogic or my earlier coverage, here's a short description of the business. The company was established in 2010 with the idea of taking over the satellite imagery sector by using small satellites costing less than $1 million each and a patented camera design to capture around 10 times more data than any other small Earth Observation satellite. Its goal is to build the first scalable, fully automated Earth Observation platform in the world and remap the entire surface of the planet on a daily basis in sub-meter resolution. In order to achieve this, the company would need a full constellation of about 200 satellites. According to Satellogic, the total addressable market ((TAM)) is worth over $140 billion.

According to the company’s latest corporate presentation , its acquisition cost per square kilometer is just $0.46, which is far below its competitors. In addition, the resolution of its images looks superior compared to many of its peers.

That being said, I’m concerned that the acquisition cost per square kilometer in the corporate presentation is completely the same as two years ago. Not just for Satellogic, but for its competitors as well. In addition, while the company currently has the largest commercial fleet of sub-meter resolution satellites in the world, progress on launches has been slow and the Satellogic is nowhere near reaching 200 satellites in orbit. It finished 2022 with just 26 , with plans to launch another 22 in 2023. According to the latest corporate presentation, the company has a total of 38 satellites in orbit.

Back in 2021 when Satellogic was getting listed on NASDAQ through a SPAC named CF Acquisition Corp, the forecasts were for 37 satellites in orbit by 2022 and 111 by 2023. Another concerning piece of information here is that Satellogic’s satellites have a design life of 3-4 years and a total of 13 of them were expected to be decommissioned in 2023 alone. In view of this, the number of satellites in orbit could drop to just 35 by the end of the year (if 10 satellites are launched and 13 are decommissioned). Looking at the financial forecasts for the business, Satellogic was expecting to grow rapidly back in 2021, with revenues of $787 million and EBITDA of $473 million by 2025.

Well, it seems that demand for Satellogic’s services is significantly lower than anticipated as revenues came in at just $4.25 million in 2022 and $6.01 million in 2023. In addition, a total of $3.4 million of the 2022 revenue came from a single customer (see page 48 here ). The company currently gets its revenues primarily from selling imagery through its asset monitoring and constellation-as-a-service ((CaaS)) lines of business.

While revenues for 2023 are expected to come in at between $30 million and $50 million, this is still far below the forecasts from two years ago and EBITDA breakeven is forecast for 2024. Considering that research and development, and general and administrative expenses alone were above $50 million in 2022, I expect Satellogic to be deep in the red this year.

Turning our attention to the balance sheet, I’m concerned that the company could run out of cash soon, which could lead to significant stock dilution. You see, cash and cash equivalents stood at $76.5 million as of December 2022, decreasing by about $47.5 million in the second part of the year alone. The net cash flows used in operating activities in 2022 stood at $68.5 million and I expect them to increase significantly in 2023 due to the launch of over 20 satellites as well as the decommissioning of several more.

So, how do you play this? Well, I think that the best course of action could be to avoid this stock as short-selling seems dangerous. According to data from Fintel , the short borrow fee rate stands at 83.9% as of the time of writing. In addition, it takes over 2.5 days to cover and the lowest available strike price available for call options is $2.50.

Looking at the risks for the bear case, I think that the major one is that the share prices of microcaps can soar without any news or catalysts, which can lead to significant losses for short sellers. Satellogic itself is a good example of this, as its share price increased significantly during February-April 2022, July-August 2022, and December-January 2023. This is a relatively thinly traded stock, with a daily trading volume rarely exceeding 30,000 shares.

Investor takeaway

Satellogic is among the leading providers of high-resolution satellite imagery solutions in the world today, but its satellite launches have been slow which limits the capabilities of its network and revenues are far below expectations. With several of the company’s satellites nearing the end of their design life, I’m concerned that the number of satellites in orbit could decrease by the end of 2023. In addition, Satellogic would be deep in the red even if revenues for the year reached $50 million and I expect cash to run out in the coming months. That being said, short-selling seems dangerous as the short borrow fee rate is over 80% and the stock has a history of significant share price volatility. In my view, it could be best for risk-averse investors to avoid this stock.

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