Interview with Andy Bowyer, CEO of Kleos Space (ASX:KSS)
July 23, 2021
Kleos, Kleos Space, KSS, video
We spoke with Andy Bowyer, CEO of Kleos Space (ASX:KSS) and discussed the huge opportunity Kleos is currently enjoying in ‘Data as a Service’ and the fact that it is now considerably derisked after its first two satellite clusters successfully deployed in 2020 and 2021.
Full transcription below.
Stocks Down Under … Serious research for the serious investor!
Get Marc & Stuart’s Top Picks
Improve your investment skills with our Investor Webinars
Learn about ASX-listed stocks with our 4 editions per week across all sectors
Get access to everything with a 30-day FREE TRIAL.
No credit card required!
Stuart: Hello, and welcome to “Stocks Down Under.” My name is Stuart Robertson. I’m one of the founders of our great publication. It’s Thursday, the 22nd of July here in Sydney, but it’s only the 21st of July in Bethesda, Maryland, where I’m being joined by Dr. Andy Bowyer, who is the CEO of Kleos Space ASX:KSS. Andy, thanks for staying up so late.
Andy: It’s right. It’s only 6:30 in the afternoon, so we’re good. And it’s only mister, I’m not a doctor.
Stuart: Ah, okay. Mr. Bowyer. So, Andy, there’s a reason you live in Bethesda, Maryland, even though you’re an Englishman originally. You’ve created a very interesting technology company in the satellites and space industry. And obviously, a key market for what you do is the United States hence the move to Bethesda, which is just a sensor off the road from Washington DC.
Andy: Yeah, that’s right. We’re only just a few miles outside of DC, but it’s a great place to be. Really desire to position myself and the family here for a period of time to maximize the opportunity we’ve got here. We’ve got an incredible pool, even more than I probably expected actually. You know, you go into these things, believing in your company, and understanding there’s a marketplace there, but I’d underestimated actually the data accessibility and the data excitement that we were getting here. And so, you know, I need to be here present for meetings and it’s very, very difficult to travel in and outta the states. So certainly position myself here for a period of time to maximize the opportunity and take advantage of while the excitement’s there. Take advantage of that and see where we go
Stuart: Right. Now, Kleos Space has an interesting technology, and then backed by an interesting business model. What you can do is use, you detect radio frequency activity with your satellite, so if I could summarize what I think is plain English, with a couple of satellite clusters you’ve got up in space and then tell what’s happening down on the ground with some pretty sophisticated algorithms that can process that. Have I described it correctly or do I need to tweak that?
Andy: No, that’s not bad. You can do it next time. It’s all good. Yeah. So nutshell, we’re using satellites. They’re flying clusters of four. As you said, we’ve got two clusters in space amount. So the reason why we fly clusters of four satellites, we’re the only people in the world to do this, is that each of those satellites receives a radio transmission coming from the ground. When we downlink that information to the ground, we can then process all those four signals together. We look for unique artifacts within each one of those four, and then we locate that using algorithms called time difference of arrival. So it’s almost the same as how your GPS system works in your phone, but the opposite inverse, because we’re locating a transmitter rather than you locating yourself from different GPS positions.
So it works in a similar sort of way, but what it means with the four satellites, you get a good, accurate picture of radioactivity, and really all we’re talking about is radioactivity here. What the customer wants is they want to know where humans are, where that human activity is. And so, by us providing the location of radioactivity, that gives an insight to those customers to say, there’s communication activity, so therefore human activity in this place. And where that gets interesting is obviously if you weren’t expecting human activity to be there such as by your coastline, in remote areas of the desert, by your borders. So finding out those human activity where they shouldn’t be is really valuable to the customer base.
And then how we’re exploiting that each of our satellite clusters basically, you know, filling up a database. We have a database that’s expanding, and we sell access to that database buy a license through our customers. They pay different amounts of subscription levels depending on how they want to license and how much data they want to license, whether it’s a little area, whether it’s a big area like South Tennessee, and we give them, we sell it to them by a million square kilometers on an hourly basis. They access that database. That gives them access to today’s data, but also historical data. And then they use that data with other data sets to find out what’s going on. It’s called activity-based intelligence, and it’s a really fantastic growth area in the defense and security domains anywhere where you need to know where people are, where things are, where assets are, that’s where we fit into that market.
Stuart: And the important part is it’s not just governments that need to know where people and things are, it’s the private sector in a serious way. And that’s where you are seriously focused at the moment, right?
Andy: Yeah. We work in both sectors. So the government is obviously a big area for us, particularly in the defense and security, but we equally support the commercial areas, whether it’s insurance sectors, whether it’s businesses like oil and gas, or mining companies that are needing to know what’s going on around remote assets, whether there’s maybe a threat in different parts of the world, anywhere where there’s a security insight that’s required by those customers, we can provide into that. And what we do is by making our data accessible at an entry-level price, it opens up our marketplaces and our business is all about subscribers. We need to build that subscriber base up because we can sell the same data set infinitely. We can just keep selling and keep selling it. What we need to do is build up our subscribers, and then we build our subscription levels up within that subscriber base. So we’re taking really a SaaS business model and applying it to space data and that’s quite a kind of unique approach. And we’re taking all of those best in class SaaS models and best SaaS approaches to build our subscriber base up and increase their revenues per subscriber.
Stuart: First time I’ve ever heard the expression DaaS, data as a service, which is basically what your business model is.
Andy: Yeah. It is. Everything’s an aaS at the moment. That sounded terrible. But yeah, in our case, it is data, you know, the data as a service clearly. But to all intense purposes, it’s a SaaS business model, except they’re just accessing a database, not accessing a piece of software. So it’s exactly the same in terms, you know, we want to have the same metrics, average revenue per user, all those kind of things that, you know, that perhaps zero might have.
Stuart: Yeah. Now, what’s impressive to me is that your business has gone through a substantial de-risking in the last nine months. So your first satellite cluster went into space in November 2020. You’ve got your second one up earlier this month. 1st of July, I think you deployed the second one, and all going well, you’ll have number three up as a good Christmas present in December of this year.
Andy: Yeah, that’s right. So the first satellite cluster was called the Scouting Mission. The scouting satellites, the purpose of those was to get the whole system set up. So, you know, we had to…as you imagine, it’s quite complex. You know, it’s not just throwing satellites in space and, you know, it all just happens. We have to deal with the ground segment, we have to create mission operations, we have to be able to fly them, we have to deal with the databasing of the data coming down. And those scouting satellites, the purpose of those was to develop all of those systems in the real world, develop test data, to get that test data into customer’s hands, and develop our algorithms and all that kind of good stuff, and they’ve done a good job with that.
You know, we suffered with terrible delays with the launch. Those it took a long time to get them launched and it was very painful. And thankfully, we had some patient shareholders behind us but that took a very long time to get those first satellites launch. We got delayed, particularly with COVID, of course, there’s some challenges there, but got into space and they’re, you know, working through their program. The cluster satellites that launched a couple of weeks ago are really our first truly commercial satellites because they are leveraging everything that the scouting satellites did already, and so they can get online much quicker and also they’re much more capable satellites. You know, even our evolution from the first cluster to the second cluster, we’re twice as powerful, twice as capable, we can collect twice as much data, and we can, you know, we can deliver twice as much data down to the ground. They’re already fantastically more capable and that’s the evolution. They’re not all the same. We will be evolving those satellites as technology improves, as we improve, and we keep getting better for our customers and that’s our objective.
Stuart: Yeah. Now it’s interesting. I’ve brought along my copy of Ashlee Vance’s “Biography of Elon Musk” just to illustrate to the view is something that’s important. I think you shared with me that basically your launch costs for the…your expected launch costs for the third satellite will be about a third as much as the second. Did I hear you correctly?
Andy: Yeah. They’re about the third of the first cluster launch, yeah. So within the last few years that the pricing has come down significantly, particularly driven really by, you know, the work that Elon’s done at SpaceX and to make space more accessible to, you know, this rideshare concept of the launcher has main payload onboard that’s paying [inaudible 00:09:39.921] the cost of launch, and then all the extra space they’re selling to the smaller satellites like ourselves. It makes it much easier for us to get into space, much quicker, and importantly, reliably. You know, the launch that we’ve just had for this second cluster was on time, which was absolutely incredible. And from somebody who’s worked in the space industry for a very long time, that is unheard of.
You know, one of the missions we had that went to mercury a few years ago that I worked on was seven years delayed. And it was just, you know, so it’s frustrating and now it’s our business. These things are really important that they get launched on time. That for me is the most important thing. Getting things launched on time means I can get credibility with the customers. They’re gonna get data when we say we’re gonna get it, and we don’t have to keep them, you know, stringing them along and all that sort of stuff. So that it’s super important that we get launched on time, as well as obviously the price.
Stuart: Now, what’s instructive to me is that a lot of these space companies now are trading at very high valuations. So I think in a recent presentation, you talked about how SpaceX notionally has a value north of $70 billion based on about I’m guessing annual revenue of $2 billion a year is what I read recently. So we’re talking…
Andy: I mean, SpaceX’s interesting, but what I’m interested in is our direct comparables. You know, we’ve got a number of direct comparables that are going through sparks at the moment.
So, you know, whether you look at the buyer spark that’s in the U.S. Planet very, very recently. So Planet are taking images, Spire collecting maritime messages, BlackSky are taking images as well. All of these three companies have got tremendous valuations. And these are guys that we’re, you know, we are working with around that community and sure, they’re ahead of us. You know, they’ve launched more satellites and they’ve got a, you know, more established businesses, but have certainly the fantastic valuations and that’s really good for our sector because it shows the momentum that’s behind it, and it shows that people know that the growth phase is now coming.
You know, I think our industry’s been called new space for a long time, and that’s really to differentiate it from old space, which was kind of NASA and ISRO and things like that. But new space really just meant new money coming into space to facilitate new business models. But I think new space is now really starting to mature into middle-aged space. I’m not sure how you would put it, but, you know, it’s now, I should have thought about that for I start speaking about it, but the point being is that it’s not a high-risk space anymore. The business models have been de-risked, you know, even ours, which is early stage, we’ve got data down, we’ve got data going to customers, we’ve got more satellite launching. We’ve got, you know, an increasing valuation which is fantastic, but we’re getting into a maturation phase in this industry. You know, the technology’s reliable, launch is reliable, there’s money around to support it, and that’s a fantastic place to be in this business, having worked here, you know, worked in the industry for a long time.
Stuart: Certainly. Now you’ve had a great run on ASX. You’ve rerated about six times since your IPO in 2018. But, you know, judging on what you said before, there’s probably more of that where that came from. Let me wrap it up by asking you this, I’ve brought along my copy of “Homer’s Odyssey” here. Kleos is obviously a Greek name, and you can see the word a few times in this book, why’d you call the company Kleos?
Andy: It means a couple of different things. So it’s renown or glory is a definition of it. So that’s got a, you know, that’s got a nice ring to it, sure, but it also has a meaning, which is to hear and to listen and to listen to what’s going on around you, and that is clearly what we’re doing now. We’re flying ears in space, listening, recording, and then geolocating radio transmission. And there was a nice link there, but as with naming of all companies, you know, there’s you do it very quickly when, you know, the business is nothing more than a piece of paper and then, you know, spend the rest of your life sort of reconsidering it. I mean, one of the things I really don’t like about the name is that I called it Kleos Space because we’re not really a space company, but that was a habit because I was working in the space industry. So it was, you know, we should have been Kleos intelligence or something like that.
Stuart: Kleos data is a service, but that’s a bit of a mouthful.
Andy: Yeah, yeah, exactly. Yeah. But it was, you know, I spent my whole life saying we’re not a space company, we’re a defense company, or a data company, or a solution company. We’re an activity company. We’re not a space company plus the fact I’ve called the company Kleos Space and that was, you know, you live and learn.
Stuart: Yeah. It’s fair to say business growing fairly briskly, right? You’re busy all day long talking to clients both domestically in the United States and around the world about new opportunities to take advantage of your data as a service, right?
Andy: Yeah, I am, but actually, we’ve got a fantastic team behind us now. You know, I took a decision a few months ago to bring in a chief revenue officer, which is, you know, was quite an interesting move for me because it has taught me a lot about monetizing datasets. So Eric came in, he was president of a company called Varicom, which was a data company. It got bought out by Maxar name is an executive within Maxar, which is a big imagery company, one of the biggest in the world. And he came with a whole lot of experiences in his CV to that is all about how you create pricing strategies, how you create go-to-market strategies, how you get more data and into customer’s hands and deliver that, and I’ve learned a fantastic amount through that process. And I think that puts us in a good place where our pricing and strategy before, which is something, you know, I developed, was probably a little bit simple. And he was very polite about it, but he’s changed it considerably and made it much more sophisticated and something that actually will help us grow and develop as a business. And I think bringing in like Eric is CRO and alongside other skill sets in their c-suite, we’ve got a fantastic team. So it’s by all means, not all done by myself in any way, shape, or form. We’ve got a great team behind us that is delivering, you know, the growth for the company.
Stuart: Andy Bowyer, well done and what you’ve achieved with Kleos, and we’re looking forward to heck of a lot more good things where that came from. So keep up the good work.
Andy: Thanks, Stuart. Good to speak to you.