AAC Clyde Space AB (publ)

This morning AAC CloudSpace has published their report for the final quarter of 2024. And as they do, I now turn to CEO who will give us a short presentation of the quarter that has passed us and the company of course. And I'll return a bit later to ask some questions. Hello Gomez. Hello, good morning everyone. So as I said in my introduction here, you'll be giving us a short presentation and I will return in just a moment to ask a few questions.

I'd just like to take the opportunity to talk a little bit about our results for the year for 2024. We have presented our quarterly report for the last quarter of 2024. We have had the best year in our operation. We had the highest net sales at about 352 million, 353 million SEC. But also we did these, we achieved these with a large positive EBITDA of 46.7 million SEC. This just demonstrates that the strategy we have been following is actually delivering on the results. This was, as I said, the best result that we have had. It's a great baseline to work from, grow our business even further. And for those of you that are less familiar with AAC CloudSpace, we are a space company. But very much what we do is about delivering best results to improve life on Earth. So although we are operating in space, we build satellites, we build parts for satellites, and we deliver data from space, very much what we are doing is focused on improving life on Earth. So we deliver information and data for the agricultural sector, for the forestry sector, and also for the maritime sectors. But we are also delivering payloads, instruments that are used to improve our weather forecasts. And we do this through three different models. So in some cases we are delivering data and services directly to customers that just want that. They do not want to go on satellites. We also build satellites that we then deliver to customers that will use those satellites for their own purposes. And we also deliver components and products that other manufacturers use on their satellites. But the focus has been very much on all of these, is to deliver solutions, either data or satellites that actually improve what we are doing here on the ground on Earth. And we have seen a huge demand for that kind of services over the last few years, for that kind of information. As we see the world around us is changing, and people need more data, they need more information, and that's what we are benefiting from. So we are building on that to actually grow and expand our business. And as I said, we have the best year this year. We grew our sales. We are moving towards being a fully profitable company. And for the third year in a row, we have positive operational cash flow. And we are very focused in terms of our -to-day operations on improving these numbers. We believe that in a sustainable business, we need to be profitable, we need to have positive cash flow, and those are targets that we have been following, that we have been targeting for the last few years, and 2025 and 2026 will be no different. So in a nutshell, this is the results. What I would like just to say is that we have a great quarter, a great year, and we are looking forward to expand our business substantially over the next

year, year and a half. Thank you very much, Luís. So I'll begin with the questions now and seeing how space sort of is the final frontier, of course, on by no means a rocket scientist, and sometimes space can literally be quite not down to earth, as we sort of say. If you could simplify sort of a usual customer case that you receive, how would you describe that?

Very simple. A good example is something that we are doing right now with Scottish Forestry, that is government organization that manages forests. One of the things we are doing is looking for areas of the forest that are stressed. We have seen, particularly with climate change, we are seeing an increased number of pests and diseases attacking trees, and currently it's quite difficult to actually do the assessment of where there are issues with our forests. Traditionally, that has been done using helicopters or planes, and that's quite an expensive way of doing that. But they came to us with the question, could you find a more cost-effective solution that is better for the environment? And so we said, yes, we can do that with satellites. What we will be starting to do, and we already started doing as a service, but we will do it with our own satellites next year, is to deliver them, take pictures with satellites, and then we can analyze them using an algorithm that we have developed. And that will tell us which areas, we'll plot on a map, which areas are actually under stress. And that allows people on the ground to go there and they confirm it, and then they can actually manage the problem. In many cases, unfortunately, it's to cut down the trees. But that avoids pests, disease, spread to other trees. So that's an example of things that we use.

Do customers ever sacrifice something for that cost-effectiveness, considering planes are a little bit closer to the area they're trying to sort of study, and satellites are a bit further away? Do you sacrifice any accuracy or tell us more?

In that specific case, not so much. As long as you can see a tree from space, you can actually do this. And so the technology has evolved into a place nowadays where we can do that quite easily. So customers will always want the best solution for them. And they will actually evaluate the solutions and they will make the decision, ultimately, if what we are offering to them actually gives them what they need. Of course, if it didn't, they would not go for that and they would pay a higher price. But in this case, if we offer them a solution that delivers what they need for a better price, they of course will go for that.

Let's talk a little bit about the overview of your current projects. I know many viewers are curious. Let's begin with the expansion project. Since its launch, it's had a few sort of delays. What is the current status of the expansion program and what sort of lessons have you learned along the way of the delays?

As always, in space programs, there are many lessons that we learn. It's actually one of the exercises that we do at the end of each project so that we incorporate those into our future project. Expansion is now in its final phase. We have the four Earth observation satellites that we are building now that will close the project. The project evolved. The project run is generally seen as very successful. It took a bit longer. We had to address several challenges throughout the project. But the reality is we are now in the final phase of this project. We expect to close it by the end of next year. That will be with all the satellites in orbit and all the satellites operational. That ultimately has been a good project. It has allowed us to develop a whole new set of competencies that will allow us to actually improve what we offer to our customers. We have already been able to do that. We have six satellites that we offered as part of another project that benefited highly from the capabilities we developed on expansion. Now we have four satellites on manufacture for ourselves that are only possible because of the technology and the service capability we developed under that project.

Can you tell us more about the challenges that you faced and how they were addressed and ensuring long term that those challenges will be overcome much easier?

As always in space programs, we have some challenges on the technology side. There are some technologies that are not as mature as we expect when we actually start a project of that type. It takes a bit longer to mature. We have some challenges with suppliers. We have suppliers on a program of that type. Some of them are not delivering when they should, how they should. So that itself delays a program like that. It's run by the European Space Agency. So it has a few more requirements in terms of how we validate things, how we actually demonstrate that things work. All of that actually creates a few delays on the project. We have to do a bit more work. We have to demonstrate things a bit further. So ultimately, the lessons we take from that is in terms of our supply chain is how could we have done better, how could we have specified things better. But also in terms of the technology is how going forward on projects of this type, how do we actually have a better feel for the maturity of certain technologies, key technologies that will have to be developed. But this is actually something that happens many times in space programs. So it's not unusual to find these issues.

Could you elaborate a little bit on the expansion project and how it's linked to your own Earth observation constellation?

So as part of the expansion program, one of its objectives was defining new applications for the technology we were developing for the satellites that we were developing, particularly for the service delivery. How do you manage constellations? How do you operate them? And from that, we decided that a good application for that would be an Earth observation constellation. This is a set of satellites for, in this case, that will take pictures of the Earth for things like I mentioned before in terms of managing the forests, but also to help with agriculture and precision agriculture around the world. And through the technology that we developed on the expansion program, we were able to actually deliver, or we will be able to deliver, much better price per square kilometer. That's the metric you use when you are actually judging Earth observation missions, is how much it costs per image per square kilometer that you take. Because that is what then allows us to sell and that allows our users to understand how much their products will cost. And because of the expansion program and all the work that we have done on that, we were able to actually reduce the price of that metric. But the price per square kilometer is lower, but allows us to be more competitive and allows us to actually offer a better service for a lower price to our customers.

Expansion isn't the only ongoing project. We also have inflection as well, partly funded by UK Space. What is the current status of that project? How is it moving along?

So that program has just started. We have just been awarded it. It is a very exciting project. It will allow us to actually build a European-based and a UK-based maritime management system that will allow us to actually understand what's happening in the oceans around us and around the world. It's an extremely exciting project. It's a great opportunity for the company. We are working with many partners in the UK to actually bring this to reality. It's only possible because of the work that we have done on this new technology called VDES, VHF Data Exchange System, that is a maritime tracking and communication standard and technology. We have done that work in Sweden through the EMIR 1 satellite that we launched. We believe it's the first one to have ever demonstrated the work of VDES from space. And through this project, we will be able to actually build an integrated system of satellites that take pictures, some are partner satellites that will take pictures, others that will listen to emissions from ships. And using AI on the other end to actually fuse all that information using the VDES tracking and communication layer, fuse all that information to provide coast guards and navies and commercial operators with an image of what's happening on the ocean in real time. So you'll be able to know where ships are, you can communicate, you can interrogate them, you can receive real-time information from these vessels. And that is key not only knowing where everyone is, what people are doing, why they are doing it, but also as we move to concepts like e-navigation, electronic navigation, global ship navigation using satellite networks and digital networks to actually control what ships are doing at any time. All of that needs these infrastructure. Though we are extremely excited about this project. It's something that, as I say, is just starting. Our teams have worked on it for a while, of course. We had to show that this was a good investment for the UK government. And so our teams have been working on it for some time, but the real work starts now.

Though the project is in early stage, can you say something about what sort of role you expected to play in the future growth of AAC cloud space?

It's one of our key service, data and service deliveries. So we have elected to actually invest in Earth Observation, the constellation that I mentioned coming out of expansion, and in maritime domain, particularly around the VDS technology. So those two areas for data and services are where we see immediate growth. Those are the ones we are investing in. And we see them as key for future development of our data and services business.

I have a question from a viewer here in the chat regarding the inflection project. And it states as following, could you please elaborate on the latest inflection press release? Are the whole sum of 350 million crowns dedicated to AAC? Should the project continue and AAC is not exchanged as a supplier for the next phase?

So the question is that the total value of the program is around 350 million sec. And half of that is actually supported by the European Space Agency, from the UK Space Agency. So the UK Space Agency actually put the money to support us. That is distributed by us and our partners. We have partners on this project. We are the lead. So we are leading that program. And we are actually the key partner in terms of the architecture, of the design of this system. So we wouldn't expect that to change.

Moving on then to the other project, this EPS Sterna. And could you tell us a little bit about what's going on there currently as you've done with the other two projects?

Again, a very exciting project, extremely important for the world. This is a project that actually delivers advanced weather forecasting data. So this is something that allows us to predict weather much better. We have all seen in the last few years how we have had thick weather events, big storms that appear from nowhere, that have huge impacts on people's lives. And what EPS Sterna allows us to do is will allow us to have a much better prediction ability, a much better way of forecasting the weather, particularly those thick events that are affecting all of Europe and the rest of the world right now. So we worked through our company in Gothenburg, Omnisys, AAC Omnisys. We have worked, we designed the payloads, we designed the instrument that is used for this, called the microwave sounder. It's quite a sophisticated piece of equipment. We designed that. That was launched, the first satellite of that, the prototype called Arctic Weather Satellite was launched earlier. It is now operating and delivering data. And that is the precursor for the EPS Sterna constellation. And as we expect that to succeed, AWS to succeed, we expect to actually be the builders of the future constellation that UMATSAT and the European Space Agency are currently planning to put in orbit. But we will know more about that. We'll have the confirmation of that. We expect the middle of this year to actually have a constellation. But we are talking about a large constellation of satellites, 16 to 20 satellites, of which we will provide the payloads. And our team in Uppsala will also provide onboard computers and power systems. But it is a very important constellation not only for us, financially it is a large constellation. We have in the past mentioned that this would be around the 60 million euro mark. But also, this is a very important constellation for Europe and for the world. This is about better weather forecasting and weather prediction.

There's someone in the chat as well who has asked a question in regards to the EPS Sterna. It asks if we could get some more information in regards to the potential value of the project for you and your thoughts regarding when a potential order might arrive from the EUMATSAT decision in 2025.

So as I mentioned, in the past we gave planned or an expected value for the order, for the remaining order to be the order of 60 million euros. I must stress that this was a few years back. Things have changed. The constellation actually is more complex now. What will be, we will disclose it when we are closer to the time of an award of a contract. We would expect the timeline to be somewhere around the middle of this year. This is what EUMATSAT has expressed as their objective.

And let's say you have a full constellation then in place. What sort of impact would a full order have?

What impact would be on the company? On the company, yes. So it would be, particularly for our team in Gothenburg, it would be a major project. You were talking about a project that would dominate that part of the company for the next few years. And it's good. It will be a high revenue for a few years and also quite a good EBITDA. It will improve our EBITDA. So it would be a very important project for us.

Could you elaborate a little bit on your current pipeline? How many satellites do you have in place in orbit as of right now and how many do you own? Also, how many do you expect to launch in 2025?

In terms of the number of satellites that we have launched over the years, we are now well above 30 satellites. But currently that we own and that are the living revenue, we have eight satellites in orbit. Additionally to these ones, we've got four others that we're not working on some time ago. And we have another two that we launched. They're going through their commissioning. So they're already in orbit. They are getting ready to start delivering revenue. Of these that we own, the majority are dedicated to the maritime domain, but we do have three satellites for a company that we own, but we deliver all the data to a company in Canada called Wyvern. So these three satellites are delivering data right now. And the other one, that's imaging data. That's image for agriculture and forestry. And then in addition, as I say, the rest are for maritime domain. This year, in addition, we expect to launch later this year, the first one of our new Earth observation constellation. So we expect that launch to happen later this year. And that will be the additional satellite that will add to our constellation in 2025. We expect others to be added in 2026. In addition to these, our customers have several, so we are currently manufacturing several satellites for customers and they have their own launch manifests. So we expect to support several of our customer launches this year and in the beginning of 2026.

I wanted to talk a little bit more about the data in specifics because as you mentioned in the report, it has seen quite some growth lately. And I'm curious mostly to how you work with data currently with your clients. Is it a customer to customer sort of solution or is it a wholesale of a range of data sets?

We have three main ways of actually addressing the market. So we have what we call secured capacity that is effectively a customer comes to us and says, I want all the capacity from one, two, three satellites, whatever, for a period of time, usually several years. And that gives them one of the percent of the data, the access to that data. So we build, we put the satellites in orbit, we operate them and we effectively, the entire pipeline of that data goes into the customer. To that one customer, we do also have then two other models of operation, what's called subscription and pay as you go, effectively or pay per use. And those are models where customers come to us because of subscription, they subscribe to a certain amount of data for a period of time, usually on an annual basis. It's a model that we see is very popular for customers. It's very popular for us because it also means that we own usually the rights to that data. We have several customers for the same data. So it's quite a good model for us. And then we also have the pay as you pay per use. And those are usually customers that want to use our data for very short periods, or they want to use, for instance, the data we've got in archive. So we've got, in some cases, like on the maritime domain, we've got 10 years archive of data. Sometimes customers want to use that. But the model we see going forward is very much the subscription model. We have many customers interested in accessing data and subscribe to the data that they need for a period of time.

I understand that you, when we talked about inflection, that you did mention AI and data being so important in training AI models and also, of course, machine learning. I'm curious if you could elaborate a little bit on the sort of role that you see AI play in space now that we see more private interests moving beyond our horizons, so to speak.

A lot of what we have done in this industry, particularly data, and that we have in this company already is underpinned by some form of machine learning or AI. So, for instance, on the maritime domain, we've got tools. We developed a tool some time ago that allows you to just by looking at which ship is going from one point to another, we can actually guess with a high degree of confidence what they are carrying. We don't need to actually know what their manifest is. We can actually guess what it is just by looking at what they are doing. So that's an example of things that we have already developed in our algorithms based on machine learning and AI for using the data that we are bringing from space. And that relies, of course, in learning from those data sets already. So it works both ways. We are building large data sets of data, pretty unique in some cases, and so we can train models on those data and then from that training we can actually use those models in the future to deliver better service to our customers on the new data that we get. And in parallel to these, we are also working with one customer, for instance, that uses one of our satellites for their AI in space. So they've got their own AI payload running or their own artificial intelligence algorithms running on their spacecraft. And we are also part of a program at the European level to develop on-board artificial intelligence algorithms and computers that will actually do a lot of the analysis of the data in space. Rather than bringing the data down to earth, you can have satellites doing that analysis themselves. They just provide you the information. And that becomes quite key when you generate very large amounts of data. You are generating gigabytes, terabytes of data every day. And when you do that, actually, it makes more sense to process the data in space rather than to bring it down to earth. And then you just downlink the result. That's a much smaller amount of data to send down.

Let's talk about a little bit of financials, incomes and profitability, of course. Looking at your current order backlog, it has floated around 650 million SEC during the year after having increased significantly during the end of 2023. But now in this quarter, Q4, you managed to decrease it quite a bit after having focused on delivery in particular. Could you tell us more about what you see moving forward for the order backlog? Will you continue delivering the space?

I think our ideal order backlog in general, we like to keep it between 400 and 500 million SEC. It went up last year, like you noted. Very much that came to one or two large programs. And that will happen again. The space business is quite lumpy. You get very large programs, large projects. Just mentioned EPS Sterner, for instance, that will be a very large project that will multiply a lot our order backlog. And then we have to deliver it. And then if you have some challenges throughout the year, like we did with delivery, that order backlog might stay a bit higher. But we are in a comfortable, our current number, a little bit above the 500 is a comfortable number where we want to be. And it is the order backlog that we deliver the business and our budget for 2025.

Should, say, order intake decrease or slow down? Would that level ensure that you're profitable long term enough to attract new orders?

Yes, profitability versus our backlog is very dependent on the mix that we have on that order backlog. Data and services usually have a much higher profitability, for instance, than selling missions or products. So very much the profitability of the business depends on the mix that we've got on the order backlog rather than on the absolute value. Of course, if we see that there is a reduction in profitability, and our objective is always to sell more, but is to do it in a profitable way. So we target very much. And what we have done over the last few years is target very much projects that actually have a level of profit that actually allows us to meet our targets of being a profitable company.

And speaking of which, we just got a viewer question in the chat who first of all want to congratulate you on the full year report, but then goes on to ask if you could elaborate a bit on the return of investments in your ongoing projects such as inflection, expansion, and of course, AOS VEDAS.

I would not at this stage. We do have some numbers that we usually don't comment in public, but also it is a bit early, particularly on things like expansion or inflection. It's a bit difficult to actually at this stage to have a realistic view of these. We do have some numbers that we are modeling, but those are not things that we usually are disclosing at this stage.

And as you close the book on 2024 looking forward to 2025, what are some key points and milestones that you look forward to the most and what should investors keep their eyes on?

So we have a busy year ahead of us. We have many deliveries from contracts that we are already running. I look forward very much to the launch of our first Earth Observation satellite later this year. I also look forward to the start of operation of Sedna 1 and Sedna 2. Those are the two satellites that we built for our own constellation that are now in orbit. But also look forward to a strong integration between the companies. At the end of last year, we acquired Space Metric, a company that will help us develop a bunch of new products or a group of new products for the Earth Observation market. I look forward to see that company that is much more integrated with what we are doing in other companies of the group. But ultimately what I look forward to this year is to keep improving our efficiency, improving our profitability throughout the year and deliver a stronger company at the end of this year.

CEO Luis Gomez of AAC Client Space, thank you very much for being here presenting the results and answering our questions.

Thank you very much.